Prepare an acquisition analysis

Assignment Help Financial Accounting

Reference no: EM131487

On 1 July 2006 ABC Ltd acquired 75% of the share capital in XYZ Ltd for $240,000 cash. In addition to the cost of the shares ABC Ltd paid valuation fees associated with the acquisition of $20,000. At acquisition date the equity of XYZ Ltd consisted of:

Share capital	$150,000
General reserve	8,000
Retained earnings	20,000

All the assets and liabilities of XYZ Ltd at the date of acquisition were recorded at fair value other than the following:

	Carrying amount	Fair value
Plant (Cost $120,000)	$45,000	100,000
Land	55,000	65,000
Contingent liability	0	20,000

All fair value adjustments are recorded on consolidation. The plant has a remaining useful life of 10 years. The revalued land was sold outside the group on 1 July 2007 for $75,000. The contingent liability was settled for $20,000 on 1 December 2006. The tax rate is 30%.

ABC Ltd uses the full goodwill method. The value of the non-controlling interest has been estimated at $73,000.

Other information:

a) The inventory of XYZ Ltd on 1 July 2009 included inventory purchased from ABC Ltd for $10,000. The original cost of the inventory was $13,000. The inventory was not considered impaired at the time of the sale by ABC Ltd. The inventory was sold outside the group in September 2009.

b) The inventory of ABC Ltd on 1 July 2009 included inventory purchased from XYZ Ltd for $6,000 above cost. The inventory was sold outside the group in December 2009.

c) ABC Ltd sold inventory to XYZ Ltd on 1 February 2010 for $6,000. The original cost of the inventory was $2,500. The inventory had been entirely sold outside the group by 30 June 2010.

d) XYZ Ltd sold inventory to ABC Ltd for $16,000 on 1 June 2010. The sale price represented a mark-up of 40% on cost. By 30 June 2010 ABC Ltd had sold 90% of this inventory outside the group.

e) On 30 September 2008 XYZ Ltd sold an item of plant to ABC Ltd for $12,000. The carrying amount at the time of sale was $9,000 (cost was $12,000). At the time of the sale the asset had a remaining useful life of 10 years.

f) ABC Ltd charged XYZ Ltd a management fee of $5,000 for the current financial year.

g) On 30 June 2010 XYZ Ltd owes ABC Ltd $12,000. XYZ Ltd paid $600 to ABC Ltd in interest on 30 June 2010.

h) Goodwill on acquisition is not considered impaired.

Required

1) Show an acquisition analysis.

2) Give all required consolidation adjustment entries needed to prepare the consolidated financial statements as at 30 June 2010. The balance sheets and income statement of ABC Ltd and XYZ Ltd can be found on the worksheet below.

3) Using the adjustments you prepared in 2) complete the worksheet as at 30 June 2010.

4) Give the disclosures of the NCI in profit and equity for the year ended 30 June 2010.

	ABC Ltd	XYZ Ltd	Adjustments		Group Data
	ABC Ltd	XYZ Ltd	Debit	Credit	Group Data
Sales revenue	$230,000	$118,000
Cost of goods sold	140,000	56,000
Gross profit	$90,000	$62,000
Add dividend revenue	7,500	0
Add interest revenue	600	0
Add management fee	5,000	0
Add: Gain on sale of plant	0	1,000
Less depreciation expense	15,000	9,000
Less interest expense	11,000	1,000
Less other expenses	50,000	13,000
Profit before tax	27,100	40,000
Less income tax expense	12,500	11,700
Profit for the year	14,600	28,300
Add retained earnings July 1 2009	50,000	28,000
Less dividends paid	7,500	5,000
Less dividends declared	10,000	5,000
Retained earnings June 30 2010	47,100	46,300
General reserve	50,000	8,000
Share capital	180,000	150,000
NCI equity (goodwill)	0	0
Fair value adjustment	0	0
Shareholders' equity	277,100	204,300
	====	====
Assets
Cash	12,000	88,000
Accounts receivable	57,000	43,000
Inventory	48,900	43,000
Dividend receivable	7,500	0
Investment in XYZ	240,000	0
Land	120,000	57,000
Plant	176,000	147,000
Accumulated depreciation	-105,000	-80,000
Goodwill
Loan receivable	100,000	0
Deferred tax asset	28,000	30,000
Total assets	684,400	328,000
Less liabilities
Accounts payable	115,000	6,700
Dividend payable	15,000	5,000
Tax payable	25,000	7,000
Loans payable	200,000	100,000
Deferred tax liabilities	52300	5,000
Net assets	277,100	204,300

Reference no: EM131487

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