ACC567 – Financial Accounting
| Silence Ltd Balance sheet | Book Value | Fair value |
| Assets | ||
| Share capital | $ 6,50,000 | $ 6,50,000 |
| General reserve | $ 20,000 | $ 20,000 |
| Retained earnings | $ 2,50,000 | $ 2,50,000 |
| Equipment | $ 50,000 | $ 80,000 |
| Total Assets | $ 9,70,000 | $ 10,00,000 |
| Liabilities | ||
| Sued by a former supplier | $ 40,000 | $ 40,000 |
| Total Liabilities | $ 40,000 | $ 40,000 |
| Net value | $ 9,30,000 | $ 9,60,000 |
| Patience Ltd Acquisition analysis | |||
| Difference | |||
| Fair value of consideration (what company paid up) | $ 10,00,000 | ||
| Fair value of net assets | $ 9,60,000 | ||
| $ 40,000 | Goodwill | ||
| Book value of net assets | $ 9,30,000 | ||
| $ 30,000 | |||
Consolidation worksheet entries (Part 2)
| Consolidation worksheet of Patience Ltd | 2017 |
| Assets | |
| Share capital | $ 6,50,000 |
| General reserve | $ 20,000 |
| Retained earnings | $ 2,50,000 |
| Equipment | $ 80,000 |
| Total Assets | $ 10,00,000 |
| Liabilities | |
| Sued by a former supplier | $ 40,000 |
| Total liabilities | $ 40,000 |
| Net Assets | $ 9,60,000 |
Net fair value of identifiable assets and liabilities of Sebastian Ltd can be calculated as below:
| 1 July 2016 | Calculation | Amount |
| Equity | $66 000 + $6 000 | $ 72,000.00 |
| Inventory | $4 500 (1 – 30%) | $ 3,150.00 |
| Patents | $15 000 (1 – 30%) | $ 10,500.00 |
| Plant | $3 000 (1 – 30%) | $ 2,100.00 |
| Sum | $ 87,750 |
Consideration transferred = $90 000
Goodwill = $2250
| Date | Particular | Dr | Cr |
| 01-Jul-16 | Business combination valuation entries | ||
| Accumulated depreciation | 30000 | ||
| Plant | 27000 | ||
| Deferred tax liability | 900 | ||
| Business combination valuation reserve | 2100 | ||
| 01-07-2017 | Depreciation expense | 600 | |
| Retained earnings | 600 | ||
| Accumulated depreciation | 1200 | ||
| (1/5 x $3000 p.a. for 2 years) | |||
| 01-07-2017 | Deferred tax liability | 360 | |
| Income tax expense | 180 | ||
| Retained earnings | 180 | ||
| Goodwill | 2250 | ||
| Business combination valuation reserve | 2250 | ||
| 01-07-2016 | Pre-acquisition entries | ||
| 01-07-2016 | Retained earnings | 6000 | |
| Share capital | 66000 | ||
| Business combination valuation reserve | 18000 | ||
| Shares in Sebastian Ltd | 90000 | ||
| 30-06-2018 | Retained earnings | 19650 | |
| Share capital | 66000 | ||
| Business combination valuation reserve | 4350 | ||
| Shares in Sebastian Ltd | 90000 | ||
| Sales and profit in closing inventory | |||
| Sales revenue | 21000 | ||
| Cost of sales | 21000 | ||
| Sales revenue | 4 500 | ||
| Cost of sales | 4200 | ||
| Inventory | 300 | ||
| Deferred tax asset | 90 | ||
| Income tax expense | 90 | ||
| 01-07-2017 | Profit in opening inventory of Glider Ltd | ||
| Retained earnings | 420 | ||
| Income tax expense | 180 | ||
| Cost of sales | 600 | ||
| 01-07-2017 | Sale of Plant – current period | ||
| Proceeds on sale of plant | 15000 | ||
| Carrying amount of plant sold | 14000 | ||
| Plant | 1000 | ||
| Deferred tax asset | 300 | ||
| Income tax expense | 300 | ||
| Accumulated depreciation – plant | 100 | ||
| Depreciation expense | 100 | ||
| Income tax expense | 30 | ||
| Deferred tax asset | 30 | ||
| 01-07-2017 | Sale of Inventory classified as Plant : prior period | ||
| Retained earnings | 1400 | ||
| Deferred tax asset | 600 | ||
| Plant | 2000 | ||
| Accumulated depreciation | 1000 | ||
| Depreciation expense | 400 | ||
| (20% x $2000 per annum for 1.5 years) | 600 | ||
| 01-07-2017 | Income tax expense | 120 | |
| Retained earnings | 180 | ||
| Deferred tax asset | 300 | ||
| Sale of Plant classified as Inventory: current period | |||
| Proceeds on sale of plant | 9000 | ||
| Carrying amount of plant sold | 7500 | ||
| Cost of sales | 1500 |
| Pandora Ltd | Sebastian Ltd | Adjustments | Group | ||
| Dr | Cr | ||||
| Sales revenue | 64500 | 78000 | 21400 | 117000 | |
| 4500 | |||||
| Cost of sales | 30900 | 46350 | 21000 | 49950 | |
| 4200 | |||||
| 600 | |||||
| 1500 | |||||
| Gross profit | 33600 | 31650 | 67050 | ||
| Trading expenses | 4800 | 9000 | 13800 | ||
| Office expenses | 7950 | 4050 | 12000 | ||
| Depreciation | 1800 | 3900 | 600 | 100 | 5800 |
| 400 | |||||
| 14550 | 16950 | 31600 | |||
| Profit from trading | 19050 | 14700 | 35450 | ||
| Proceeds from sale of plant | 9000 | 15000 | 15000 | ||
| 9000 | |||||
| Carrying amount of plant sold | 7500 | 14000 | 14000 | ||
| 7500 | |||||
| Gain/loss on sale of machinery | 1500 | 1000 | |||
| Profit before tax | 20550 | 15700 | 35450 | ||
| Tax expense | 11100 | 7300 | 180 | 180 | 18160 |
| 30 | 90 | ||||
| 120 | 300 | ||||
| Profit | 9450 | 8400 | 17290 | ||
| Retained earnings | 48000 | 31500 | 600 | 180 | 57750 |
| 19650 | 200 | ||||
| 420 | |||||
| 1400 | |||||
| 60 | |||||
| Retained earnings (30/6/18) | 57450 | 39900 | 75040 | ||
| Share capital | 96000 | 66000 | 66000 | 96000 | |
| BCVR | 4350 | 2100 | |||
| 2250 | |||||
| Total equity | 153450 | 105900 | 171040 | ||
| Current liabilities | 21100 | 10500 | 31600 | ||
| Deferred tax liability | 11000 | 15000 | 360 | 900 | 26540 |
| Total liabilities | 32100 | 25500 | 58140 | ||
| Total equity and liabilities | 185550 | 131400 | 229180 | ||
| Pandora Ltd | Sebastian Ltd | Adjustments | Group | ||
| Dr | Cr | ||||
| Plant | 57000 | 107250 | 27000 | 134250 | |
| 1000 | |||||
| 2000 | |||||
| Accumulated depreciation | -18300 | -33450 | 30000 | -22250 | |
| 100 | |||||
| 600 | |||||
| Intangibles | 12000 | 11000 | |||
| Shares in Glider Ltd | 90000 | 90000 | 0 | ||
| Deferred tax asset | 81000 | 9450 | 90 | 30 | 18330 |
| 300 | 180 | ||||
| 600 | |||||
| Inventory | 28500 | 24600 | 300 | 52800 | |
| Receivables | 8250 | 12450 | 20700 | ||
| Goodwill | 0 | 0 | 2250 | ||
| Total assets | 185550 | 131400 | 177210 | 177210 | 229180 |
References
Beams, F.A., Brozovsky, J.A. and Shoulders, C.D., 2017. Advanced accounting. UK: Pearson.
Dagwell, R., Wines, G. and Lambert, C., 2015. Corporate accounting in Australia. Australia: Pearson Higher Education AU.
Fischer, P.M., Taylor, W.J. and Cheng, R.H., 2002. Advanced accounting. UK: South-Western/Thomson Learning.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
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