Reference no: EM132654615
Question - Conduct an Acquisition Analysis
Financial information at 30 June 2020 of Great Ltd and its subsidiary company, Wall Ltd, is shown below.
At 1 July 2017, the date Great Ltd acquired its 80% shareholding in Wall Ltd, all the identifiable assets and liabilities of Wall Ltd were at fair value except for the following assets:
Carrying amount Fair value
Plant (cost $75,000) $49,000 $55,000
Land 29,000 37,000
The plant has an expected life of 10 years, with benefits being received evenly over that period. Differences between carrying amounts and fair values are adjusted on consolidation. The land on hand at 1 July 2017 was sold on 1 February 2018 for $40,000. Any valuation reserve in relation to the land is transferred on consolidation to retained earnings.
Great Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2017 was $31,500.
Great Ltd Wall Ltd
Sales revenue $316,000 $220,000
Other revenue:
Debenture interest 5,000 -
Management and consulting fees 5,000 -
Dividend from Wall Ltd 12,000 -
Total revenues 338,000 220,000
Cost of sales 130,000 85,000
Manufacturing expenses 90,000 60,000
Depreciation on plant 15,000 15,000
Administrative 15,000 8,000
Financial 11,000 5,000
Other expenses 14,000 12,000
Total expenses 275,000 185,000
Profit before tax 63,000 35,000
Income tax expense (25,000) (17,000)
Profit 38,000 18,000
Retained earnings (1/7/19) 50,000 45,000
88,000 63,000
Transfer to general reserve 3,000 -
Interim dividend paid 10,000 10,000
Final dividend declared 10,000 5,000
23,000 15,000
Retained earnings (30/6/20) 65,000 48,000
General reserve 50,000 10,000
Other components of equity 13,000 10,000
Share capital 300,000 100,000
Debentures 200,000 100,000
Current tax liability 25,000 17,000
Dividend payable 10,000 5,000
Deferred tax liability - 7,000
Other liabilities 90,000 12,000
$753,000 $309,000
Financial assets $50,000 $60,000
Debentures in Wall Ltd 100,000 -
Shares in Wall Ltd 131,600 -
Plant (cost) 120,000 102,000
Accumulated depreciation - plant (65,000) (55,000)
Other depreciable assets 76,000 55,000
Accumulated depreciation (40,000) (25,000)
Inventory 90,000 85,000
Deferred tax asset 85,400 30,000
Land 201,000 57,000
Dividend receivable 4,000 -
753,000 $309,000
Additional information
1. At the acquisition date of 80% of its issued shares by Great Ltd, the equity of Wall Ltd was:
Share capital (100,000 shares) $100,000
General reserve 3,000
Retained earnings 37,000
1. Inventory on hand of Wall Ltd at 1 July 2019 included a quantity priced at $10,000 that had been sold to Wall Ltd by its parent. This inventory had cost Great Ltd $7,500. It was all sold by Wall Ltd during the year.
2. In Great Ltd's inventory at 30 June 2020 were various items sold to it by Wall Ltd at $5,000 above cost.
3. During the year, intragroup sales by Wall Ltd to Great Ltd were $60,000. It was also learned that Wall Ltd had sold to Great Ltd an item from its inventory for $20,000 on 1 January 2019. Great Ltd had treated this item as an addition to its plant and machinery. The item was put into service as soon as received by Great Ltd and depreciation charged at 20% p.a. The item had been fully imported by Wall Ltd at a landed cost of $15,000.
4. Management and consulting fees derived by Great Ltd were all from Wall Ltd and represented charges made for administration $2,200 and technical services $2,800. The latter were charged by Wall Ltd to manufacturing expenses.
5. All debentures issued by Wall Ltd are held by Great Ltd.
6. Other components of equity relate to movements in the fair values of the financial assets. The balance of this account at 1 July 2019 was $10,000 (Great Ltd) and $8,000 (Wall Ltd).
7. The tax rate is 30%.