Prepare the BCVR and pre-acquisition journal entries

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Reference no: EM132671564

Problem - On 1 July 2013 Tony Ltd acquired all of the share capital (cum div) of Claire Limited for a consideration of $600,000 cash and a brand with a fair value of $50,000. At the date of acquisition Claire's accounts showed a dividend payable of $8,000.

At acquisition date all the identifiable assets and liabilities were recorded at fair value with the exception of:

ASSET

Book Value

Market Value

Inventory

10,000

14,000

Land

80,000

85,000

Plant

16,000

 

(less depn)

(2000) 14,000

19,000

Accounts Receivable

20,000

18,000

The inventory was all sold by 30/6/14. The remaining useful life of the plant is 5 years. The accounts receivable were collected by 30/6/ 14 for $18,000.

The land was sold on 30/12/16 for $90000. The plant was on hand still at 30/6/17. At the date of acquisition the equity of Claire Ltd consisted of:

Share Capital 420,000

General Reserve 90,000

Retained Earnings 70,000

Information from the trial balances of Claire Ltd and Tony Ltd at 30 June 2017 is presented overleaf.

Additional Information -

1. On 1 Jan 2017 Tony Ltd sold inventory to Claire Ltd costing $60,000 for $75,000. Half of this inventory was sold to outside parties by 30/6/17.

2. On 1 Jan 2016 Tony Ltd sold inventory costing $9000 to Claire Ltd for $16,000. Claire Ltd treats the item as equipment and depreciates it at 10% per annum.

3. On 1 July 2016 Tony sold plant to Claire for $21,000. The plant had cost Tony $24,000 on 1 July 2014 and it was being depreciated at 10% per annum. Claire regards the plant as inventory. The inventory was all sold by 30th July 2016.

4. At 1 July 2016 Tony Ltd held inventory that it had purchased from Claire Ltd on 1 June 2016 at a profit of $9000. All inventory was sold by 30 June 2017.

5. Claire Ltd accrues dividends from Tony Ltd once they are declared.

6. Claire Ltd has earned $1200 in interest revenue in the 2017 financial year from Tony Ltd.

7. Claire Ltd has earned $3800 in service revenue in the 2017 financial year from Tony Ltd.

8. Assume a tax rate of 30%.

Required -

A. Prepare the acquisition analysis at 1 July 2013.

B. Prepare the BCVR and pre-acquisition journal entries at 1 July 2013.

C. Prepare the BCVR and pre-acquisition journal entries at 30 June 2017.

D. Prepare the consolidation worksheet journal entries to eliminate the effects of inter-entity transactions as at 30 June 2017.

Reference no: EM132671564

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