Financial Accounting

ACC567 – Financial Accounting  

Question 1

Acquisition analysis (Part 1)

Silence Ltd Balance sheet Book Value Fair value
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
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
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
Share capital $       6,50,000
General reserve $          20,000
Retained earnings $       2,50,000
Equipment $          80,000
Total Assets  $   10,00,000
Sued by a former supplier $          40,000
Total liabilities  $        40,000
Net Assets  $     9,60,000


Question 2

Net fair value of identifiable assets and liabilities of Sebastian Ltd can be calculated as below:

1 July 2016CalculationAmount
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

Consolidation entries:

Date ParticularDrCr
01-Jul-16Business combination valuation entries
Accumulated depreciation30000
Deferred tax liability900
Business combination valuation reserve2100
01-07-2017Depreciation expense600
Retained earnings600
Accumulated depreciation1200
(1/5 x $3000 p.a. for 2 years)
01-07-2017Deferred tax liability360
Income tax expense180
Retained earnings180
Business combination valuation reserve2250
01-07-2016Pre-acquisition entries
01-07-2016Retained earnings6000
Share capital66000
Business combination valuation reserve18000
Shares in Sebastian Ltd90000
30-06-2018Retained earnings19650
Share capital66000
Business combination valuation reserve4350
Shares in Sebastian Ltd90000
Sales and profit in closing inventory
Sales revenue21000
Cost of sales21000
Sales revenue4 500
Cost of sales4200
Deferred tax asset90
Income tax expense90
01-07-2017Profit in opening inventory of Glider Ltd
Retained earnings420
Income tax expense180
Cost of sales600
01-07-2017Sale of Plant – current period
Proceeds on sale of plant15000
Carrying amount of plant sold14000
Deferred tax asset300
Income tax expense300
Accumulated depreciation – plant100
Depreciation expense100
Income tax expense30
Deferred tax asset30
01-07-2017Sale of Inventory classified as Plant : prior period
Retained earnings1400
Deferred tax asset600
Accumulated depreciation1000
Depreciation expense400
(20% x $2000 per annum for 1.5 years)600
01-07-2017Income tax expense120
Retained earnings180
Deferred tax asset300
Sale of Plant classified as Inventory: current period
Proceeds on sale of plant9000
Carrying amount of plant sold7500
Cost of sales1500


Acquisition analysis:

 Pandora Ltd Sebastian LtdAdjustmentsGroup
Sales revenue645007800021400117000
Cost of sales30900463502100049950
Gross profit336003165067050
Trading expenses48009000  13800
Office expenses 79504050  12000
Profit from trading190501470035450
Proceeds from sale of plant90001500015000
Carrying amount of plant sold75001400014000
Gain/loss on sale of machinery15001000
Profit before tax205501570035450
Tax expense11100730018018018160
Retained earnings480003150060018057750
Retained earnings (30/6/18)574503990075040
Share capital96000660006600096000
Total equity 153450105900171040
Current liabilities211001050031600
Deferred tax liability110001500036090026540
Total liabilities321002550058140
Total equity and liabilities185550131400  229180


 Pandora Ltd Sebastian LtdAdjustmentsGroup
Accumulated depreciation-18300-3345030000-22250
Shares in Glider Ltd90000900000
Deferred tax asset810009450903018330
Total assets185550131400177210177210229180


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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