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Exercise 1 - Student

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9 views8 pages

Exercise 1 - Student

Uploaded by

cannnnn135
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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At DOA 1 January 2011,

•P Ltd acquired all the issued share capital of S Ltd, giving in exchange 100,000 shares in P, these having a fair value of $5 per share.
•S has an unrecorded patent (unrecorded because it is self-developed) with a fair value of $20,000 and an unrecorded guarantee
liability (unrecorded because it is a contingent liability) with a FV of $15,000.
•Tax rate is 30%
At DOA, 1 January, 2011:
P S

Carrying Amount Carrying Amount S’s FV


Equity & Liability
Share Capital 550,000 300,000
RE 350,000 140,000
Provisions 30,000 60,000 60,000
Payables 27,000 34,000 34,000
Tax Liabilities 10,000 6,000 6,000
Total E & L 967,000 540,000

Assets
Land 120,000 150,000 170,000
Equipments 620,000 480,000 330,000
Acc Dep. (380,000) (170,000)
Shares in S 500,000
Inventory 92,000 75,000 80,000
Cash 15,000 5,000 5,000
Total A 967,000 540,000
Assume in the years subsequent to DOA (1 Jan 2011) for the DOA revalued items
•Y1 (year end: 31 Dec, 2011)
•Y2 (year end: 31 Dec, 2012)
•Y3 (year end: 31 Dec, 2013)
•S’s DOA-revalued land is sold in Y3 for $200,000, with cost $1,000.
•S’s DOA-revalued equipment is depreciated on a straight-line basis over a 5-year period (i.e., fully depreciated in Y5)
•S’s DOA-revalued inventory is all sold in Y1
•S’s DOA-revalued patent has an indefinite life, and is tested for impairment annually, with an impairment loss of $5,000 recognized
in Y2
•S’s DOA-revalued guarantee liability results in a payment of $10,000 in Y1, with no further liability existing
Goodwill is written down by $5000 in Y2 as a result of an impairment test.
To summarize
•Y1: inventory sold, guarantee liability settled, equipment depreciation
•Y2: patent impairment, goodwill impairment, equipment depreciation
•Y3: land sold, equipment depreciation
•Y4: equipment depreciation
•Y5: equipment fully depreciated

Requirement:
•Please prepare consolidation worksheet entries for the preparation of consolidated financial statements at DOA, Y1, Y2, Y3
•Please prepare consolidation worksheet for Y3.

Analysis:
Net FV of A&L = Equity (BV) +/- FV adjustments (Land, equipment, inventory, patent, contingent liability)
=

Consideration =
Goodwill =
At DOA: 1 Jan 2011

BCVR entries: Pre-acquisition entry:


At YE1: 31 Dec. 2011

BCVR entries: Pre-acquisition entry:


At YE2: 31 Dec. 2012

BCVR entries: Pre-acquisition entry:


At YE3: 31 Dec. 2013

BCVR entries: Pre-acquisition entry:


Consolidation worksheet at 31 Dec. 2013
Financial Statements P S Dr Cr Consolidation
Revenue 120000 95000
Expenses 85000 72000
35000 23000
Gain on sale of non-current
assets 15000 31000 1 20000
Profit before tax 50000 54000
Income tax expense 15000 21000 6000 1

Profit for the period 35000 33000


22000
Retained earnings(1/1/13) 420000 0

25300
Retained earnings (31/12/13) 455000 0
30000
Share Capital 550000 0
BCVR 14000 1

55300
1005000 0
Provision 40000 40000
Payables 32000 24000
DTL 12000 16000

84000 80000
63300
Total equity and liability 1089000 0

Cash 65000 95000


Land 170000 50000
68300
Equipment 750000 0
-
27000
Accumulated depreciation -448000 0
Shares in Sub Ltd 500000 -
Inventory 52000 75000
Patent - -
Accumulated impairment
losses - -
Goodwill - -
Accumulated impairment - -
losses
63300
Total assets 1089000 0

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