Financial Accounting

ACC567 – Financial Accounting  

Question 1

Acquisition analysis (Part 1)

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

 

Question 2

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

Consolidation entries:

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

 

Acquisition analysis:

  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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