Reference no: EM132676240

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 depreciation) (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:

Problem A. Prepare the acquisition analysis at 1 July 2013.

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

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

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