Practice Question 1

On 1 July 2017, Nathan Ltd acquired 75% of the issued shares of Jones Ltd at a cost of $55,200 At this
date, the equity of Jones Ltd consisted of Share capital of $60,000 and Retained earnings of $12,000

At 1 July 2017, Jones Ltd had not recorded any goodwill, and all the identifiable assets and liabilities
of Jones Ltd were recorded at fair value. Nathan Ltd uses the full goodwill method. The fair value of
the non-controlling interest in Jones Ltd at 1 July 2017 was $18,000

The trial balances of the two companies as at 30 June 2022 are as follows.
Trial balances
as at 30 June 2022

Nathan Ltd Jones Ltd

Dr Cr Dr Cr

Share capital $ 80,000 $ 60,000

Retained earnings (1/7/21) 38,000 29,000

Other components of equity — 10,000

Current tax liability 17,000 5,800

Plant $ 60,000 $ 120,000

Accumulated depreciation — plant 34,000 61,000

Shares in Jones Ltd 55,200 —

10% debentures in Jones Ltd 5,000 —

Inventories 24,000 31,000

Cash 28,100 1,000

Financial assets — 22,000

Deferred tax asset 4,000 10,000

Sales revenue 100,000 160,000

Cost of sales 68,000 117,000

Selling expenses 8,000 12,000

Other expenses 3,000 3,000

Financial expenses 3,000 4,000

Income tax expense 10,000 11,000

Interest received from debentures 500 —

Dividend revenue 3,600 —

Dividend paid — 4,800

10% debentures 4,800 10,000

$ 273,100 $ 273,100 $ 335,800 $ 335,800

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Additional information
(a) Intragroup sales of inventories for the year ended 30 June 2022 from Jones Ltd to Nathan Ltd:
$38,000
(b) Unrealised profits on inventories held at 1 July 2021: inventories held by Nathan Ltd purchased
from Jones Ltd at a profit before tax of $1,600
(c) Unrealised profits on inventories held at 30 June 2022: inventories held by Nathan Ltd purchased
from Jones Ltd at a profit before tax of $2,400
(d) The Other Components of Equity account relates to financial assets held by Jones Ltd. The balance
of this account at 1 July 2021 was $8,000
(e) The tax rate is 30%.

Required
Prepare the following for Nathan Ltd the year ended 30 June 2022
1. Acquisition analysis
2. Pre-acquisition Journals
3. Consolidation Journals

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Practice Question 2

Bradley Ltd purchased 75% of the issued shares of Cooper Ltd for $500 000 on 1 July 2016 when the
equity of Cooper Ltd was as follows.

Share capital $200 000

General reserve 120 000
Retained earnings 80 000

At this date, Cooper Ltd had not recorded any goodwill, and all identifiable assets and liabilities were
recorded at fair value except for the following assets.
Carrying amount Fair value

Inventories $ 140 000 $ 200 000

Equipment (cost $340 000) 300 000 380 000

Land 100 000 200 000

• All the inventories on hand at 1 July 2016 were sold by 30 June 2017.
• The equipment has a remaining useful life of 10 years, with benefits to be received evenly over
this period. Differences between carrying amounts and fair values are recognised in the
consolidation worksheet.
• The NCI at acquisition date is measured based on the proportionate share of the identifiable
assets and liabilities in Cooper Ltd.
• The tax rate is 30%.

At 30 June 2022, the trial balances of Bradley Ltd and Cooper Ltd are as follows.

Bradley Ltd Cooper Ltd

Current assets $ 324 000 $ 168 000

Shares in Cooper Ltd 500 000 —

Equipment 851 000 380 000

Land 220 000 100 000

Cost of sales 450 000 70 000

Other expenses 130 000 14 000

Income tax expense 100 000 10 000

$ 2 575 000 $ 742 000

Share capital $ 800 000 $ 200 000

General reserve 120 000 160 000

Retained earnings (1/7/21) 240 000 150 000

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 Bradley Ltd Cooper Ltd

Sales revenue 1 021 200 160 000

Payables 145 800 24 000

Accumulated depreciation — equipment 248 000 48 000

$ 2 575 000 $ 742 000

Required
1. Prepare the acquisition analysis at acquisition date.
2. Prepare the business combination valuation entries and the pre-acquisition entry at
acquisition date.
3. Prepare the journal entry to recognise NCI at acquisition date.