Acc706 accounting

ACC706 ACCOUNTING THEORY
Question 3 (30 Marks)
On 1 July 2013, Samwell Ltd acquired 100% of the share capital of Gilly Ltd (cum div) for
$810,000. Gilly Ltd’s balance sheet on acquisition date included:
Dividend payable $10,000
Retained earnings 200,000
Share capital 500,000
General reserve 50,000
At acquisition date, all of Gilly Ltd’s net assets were recorded at fair value except for:
Carrying amount Fair v
Inventory $34,000 $40,
Land 67,000 75,0
Contingent liability – 10,0
Buildings (Cost $96,000) 67,200 78,0
Additional Information:
2013. a) The dividend payable at acquisition date was subsequently paid in August 2013.
2014. b) The revalued inventory was sold during the year ended 30 June 2014.c) The contingent liability
identified on the acquisition of Gilly Ltd still existed at 30 June 2017.d) The revalued land was sold
during the year ended 30 June 2017 for $42,000.
2015. e) The revalued buildings were still held at 30 June 2017 being depreciated on the straight line basis at
10% p.a.
2016. f) Since acquisition, goodwill has been impaired by $4,000. $1,500 of this impairment occurred during
the year ended 30 June 2017.
2017. g) Of the management fee revenues earned by Samwell Ltd during the year ended 30 June 2017,
$12,000 was collected from Gilly Ltd.
2018. h) Gilly Ltd’s inventory balance at 1 July 2016 included an item previously purchased from Samwell
Ltd. This inventory had been sold by Samwell Ltd to Gilly Ltd at a profit of $4,000.
2019. i) During the year ended 30 June 2017, Gilly Ltd sold a quantity of inventory to Samwell Ltd for
$18,000. This inventory had originally cost Gilly Ltd $12,000 with 25% of this inventory still being held
by Samwell Ltd at 30 June 2017.
2020. j) All dividends paid/declared by Samwell Ltd during the year ended 30 June 2017 was from post-
acquisition profits.
1. k) Financial statements for the year ended 30 June 2017 are reproduced below:
Samwell Ltd Gill
Sales $5,220,000 $2,6
Cost of goods sold (4,070,000) (2,21

Gross profit 1,150,000 460
Dividend revenue 92,000
Interest revenue – 20
Management fees revenue 25,000
Other income 30,000
Depreciation expense (180,000) (86
Finance costs (91,000) (35
Other expenses (284,000) (33
Profit before income tax 742,000 326
Income tax expense (202,000) (88
Profit after tax 540,000 238
Retained earnings at (01/07/16) 695,000 322
Interim dividend paid (70,000) (32
Final dividend declared (140,000) (60
Retained earnings at (30/06/17) 1,025,000 468
Share capital 800,000 500
General reserve 210,000 50
Total equity 2,035,000 1,01
Trade and other payables 413,000 137
Dividend payable 140,000 60
Loan from Gilly Ltd
(8% per year, interest payable 31 December)
250,000

Mortgage loan 1,453,000 401
Deferred tax liabilities 90,000
Total liabilities 2,346,000 598
Total liabilities and equity 4,381,000 1,61
Cash 194,000 115
Trade and other receivables 72,000 35
Dividends receivable 60,000
Inventory 750,000 440
Land 770,000 250
Buildings 1,500,000 780
Accumulated depreciation buildings (320,000) (494
Plant and equipment 790,000 450
Accumulated depreciation plant and equipment (235,000) (210
Investment in Gilly Ltd 800,000
Loan to Samwell Ltd
(8% per year, interest payable 31 December)
– 250
Total Assets 4,381,000 1,61
Required:
1. Determine the gain on bargain purchase or goodwill as at acquisition date. (2 marks)
2. Prepare the consolidation journal entries for Samwell Ltd immediately after acquisition on 1 July
2013. (6 marks)
3. Prepare the consolidation journal entries for Samwell Ltd as at 30 June 2017. (14 marks)
4.Prepare the consolidation worksheet for the preparation of the consolidated financial statements by
Samwell Ltd as at 30 June 2017. (8 marks)
(Source: adapted from Arthur, N., Luff, L., Keet, P. Accounting for corporate combinations and
associations (7e), Pearson Education, Australia.)
Question 4 (40 marks)
Part A (30 marks)
On 1 January 2013, Petyr Ltd acquired 80% of the share capital of Sansa Ltd for
$4,400,000. At acquisition date, Sansa Ltd’s balance sheet included:

Share capital $5,000,000
Retained profits 350,000
At acquisition date, all of Sansa Ltd’s net assets were recorded at fair value except for:
Carrying Amount Fair V
Equipment (cost $67,000) $50,000 $58,
Additional information:
1. a) Petyr Ltd adopts the
partial goodwill method.
2. b) The revalued equipment
was still held at 30 June 2017, being
depreciated on the straight-line
basis over 5 years.
3. c) On 1 January 2016,
Sansa Ltd sold an item of equipment
to Petyr Ltd, recognising a gain of
$22,000 on the sale. This equipment
was still held at 30 June 2017 and at
the time of the sale it was estimated
that it would have a further useful
life of 10 years.
4. d) During the year ended 30
June 2017, Sansa Ltd sold a quantity
of inventory to Petyr Ltd for
$28,000. Sansa Ltd received a gain
of $8,500 on the sale and Petyr Ltd
still held 25% of this inventory at 30
June 2017.
5. e) During the year ended 30
June 2017, Petyr Ltd sold an item of
plant to Sansa Ltd at a gain of $80,000. This machinery was held as inventory in the books of Sansa Ltd
at 30 June 2017.
6. f) Financial statements for the year ended 30 June 2017 are reproduced below:
Petyr Ltd Sansa
Sales $3,283,750 $1,800
Cost of goods sold (1,490,000) (1,460,
Gross profit 1,793,750 340,0
Gain on sale of plant 80,000 –

Other income 16,250 –
Depreciation expense (320,000) (240,0
Other expenses (180,000) (130,0
Profit (loss) before income tax 1,390,000 (30,00
Income tax expense/income (440,000) 10,00
Profit (loss) after tax 950,000 (20,00
Retained earnings at 01/07/16 1,100,000 600,0
Dividends paid (500,000) –
Dividend declared – (25,00
Trans. from general reserve – 15,00
Retained earnings at 30/06/17 1,550,000 570,0
Share capital 7,000,000 5,000,
General reserve – 35,00
Total Equity 8,550,000 5,605,
Current tax liability 480,000 –
Other liabilities 960,000 855,0
Borrowings – 1,500,
Deferred tax liability – –
Total Liabilities 1,440,000 2,355,
Total liabilities and equity 9,990,000 7,960,
Inventory 420,000 543,7
Other current assets 930,000 2,180,

Property, plant and equipment 4,210,000 1,992,
Accumulated depreciation (1,050,000) (800,0
Investments 5,400,000 3,583,
Deferred tax asset 80,000 460,0
Total assets 9,990,000 7,960,
Required:
1. Determine the gain on bargain purchase or goodwill as at acquisition date. (2 marks)
2. Prepare the consolidation journal entries for Petyr Ltd at 1 January 2013, immediately after
acquisition. (4 marks)
3. Prepare the consolidation journal entries for Petyr Ltd as at 30 June 2017. (16 marks)
4.Prepare the consolidation worksheet for the preparation of the consolidated financial statements by
Petyr Ltd as at 30 June 2017. (8 marks)(Source: adapted from Arthur, N., Luff, L., Keet, P. Accounting
for corporate combinations and associations (7e), Pearson Education, Australia.)
Part B (10 marks)
On 1 July 2017, Tywin Ltd acquired 75% of the shares (cum div.) of Shae Ltd for
$120,500. At this date the equity of Shae Ltd consisted of:
Share capital $ 40,000
Retained earnings 25,000
At the date of the business combination, all the identifiable assets and liabilities of Shae Ltd
had carrying amounts equal to their fair values except for:
Carrying amount Fair
Plant (cost $60,000) $40,000 $55
Inventory 25,000 31,
Receivables 33,000 30,
Additional information:
1. a) One of the liabilities of Shae Ltd at 1 July 2017 was a dividend payable of $5,000.
2. b) The tax rate is 30%
Required:
1. Prepare the acquisition analysis as at acquisition date using the partial goodwill method. Show all
workings. (2 marks)
2. Prepare the acquisition analysis as at acquisition date using the full goodwill method and the fair value of
the non-controlling interest at the date of acquisition is $20,000.
Show all workings. (3 marks)

Acc706 accounting

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Acc706 accounting

Similar to Acc706 accounting (20)

More from Pradeep Kumar

More from Pradeep Kumar (7)

Recently uploaded

Recently uploaded (20)

Acc706 accounting