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
	Pandora Ltd	Sebastian Ltd	Dr	Cr	Group
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
	Pandora Ltd	Sebastian Ltd	Dr	Cr	Group
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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