Reference no: EM132373451
Assignment Question
Part B - Business combinations and Consolidation: wholly owned entities
'X' Ltd acquired all the issued shares (ex dividend) of 'Y' Ltd on 1 July 2017 for $24,600. At this date the equity of 'Y' Ltd consisted of the following.
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Share Capital
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$13,000
|
|
General Reserve
|
5,000
|
|
Retained Earnings
|
4,050
|
At the acquisition date all the identifiable assets and liabilities of 'Y' Ltd were recorded at amounts equal to the fair value except for the following.
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Carrying amount
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Fair value
|
|
Plant (cost $23,000
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$20,000
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$21,000
|
|
Land
|
10,000
|
12,000
|
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Inventories
|
3,000
|
3,800
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The plant was considered to have a further 5-year life. The plant was sold for $15,500 on 1 January 2019. The land was sold on 1 February 2018 for $15,000. The inventories were all sold by 30 June 2018. Also, at acquisition date 'Y' Ltd had recorded a dividend payable of $700 and goodwill (net of accumulated impairment losses of $1,300) of $500. 'Y' Ltd had not recorded some internally generated brands that 'X' Ltd considered to have a fair value of $1,200.
The brand was considered to have an indefinite life. Also not recorded by 'Y' Ltd was a contingent liability relating to a current court case in which 'Y' Ltd was involved and a supplier was seeking compensation. 'X' Ltd placed a fair value of $1,500 on this liability. This court case was settled in May 2019 at which time 'Y' Ltd was required to pay damages of $1,600.
In February 2018, 'Y' Ltd transferred $2,000 from the general reserve on hand at 1 July 2017 to retained earnings. A further $1,500 was transferred in February 2019.
Both companies have an equity account entitled 'Other components of equity' that recognise certain gains and losses from financial assets. At 1 July 2018, the balances of these accounts were $3,000 for 'X' Ltd and $1,500 for 'Y' Ltd.
The financial statements of the two companies at 30 June 2019 contained the following information.
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'X' Limited
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'Y' limited
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Revenues
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13,000
|
6,400
|
|
Expenses
|
(7,000)
|
(4,200)
|
|
Trading profit
|
6,000
|
2,200
|
|
Gains (losses) on sale of non-current assets
|
3,000
|
800
|
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Profit before tax
|
9,000
|
3,000
|
|
Income tax expense
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(2,000)
|
(500)
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Profit for the period
|
7,000
|
2,500
|
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Retained Earnings (1/7/18)
|
33,300
|
5,500
|
|
Transfer from General reserve
|
3,000
|
1,500
|
|
|
43,300
|
9,500
|
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Dividend paid
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(2,000)
|
0
|
|
|
|
|
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Retained earnings (30/6/19)
|
41,300
|
9,500
|
|
Share capital
|
15,000
|
13,000
|
|
General reserve
|
1,000
|
2,000
|
|
Other component of Equity
|
2,500
|
1,800
|
|
Total Equity
|
59,800
|
26,300
|
|
|
|
|
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Accounts payable
|
4,000
|
1,000
|
|
Deferred tax liability
|
1,800
|
1,000
|
|
Other non-current liabilities
|
24,800
|
23,000
|
|
Total liabilities
|
30,600
|
25,000
|
|
|
|
|
|
Total Equity and liabilities
|
90,400
|
51,300
|
|
|
|
|
|
Plant
|
43,000
|
38,800
|
|
Accumulated Depreciation- Plant
|
(18,200)
|
(22,000)
|
|
Land
|
15,000
|
20,000
|
|
Brands
|
8,000
|
0
|
|
Shares in 'Y' limited
|
24,600
|
0
|
|
Financial Assets
|
11,000
|
10,500
|
|
Cash
|
1,000
|
500
|
|
Inventories
|
4,000
|
3,000
|
|
Goodwill
|
2,000
|
1,800
|
|
Accumulated Impairment Losses
|
0
|
(1,300)
|
|
Total Assets
|
90,400
|
51,300
|
Required
1. Prepare the acquisition analysis at 1 July 2017.
2. Prepare the consolidation worksheet entries for 'X' Ltd's group at 30 June 2019.
3. Prepare the consolidated worksheet for 'X' Ltd's group at 30 June 2019.