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37 views2 pages

Tutorial_ChC_ExC.7_solution

acct

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ACCT4104_Advanance financial accounting

Solution to tutorial question: Ex C.7

Exercise C.7
ZARA LTD – EVA LTD

30%
Zara Ltd Eva Ltd

At 1 July 2014:
Net fair value of identifiable assets
and liabilities of Eva Ltd = $20 000 + $10 000 (equity)
+ $10 500 (assets)
= $40 500
Net fair value acquired = 30% x $40 500
= $12 150
Cost of investment = $13 650
Goodwill = $1 500

Depreciation:
Non-current assets: 20% x $10 500 = $2 100

Zara Ltd prepares consolidated financial statements


Change in retained earnings balance 2014–2015
($50 000 - $10 000) $40 000
Pre-acquisition adjustments:
Depreciation (2 100)

37 900
Adjustments:
General reserve transfers 5 000
Unrealised profit in inventory at 30/6/15 (10 000)
$32 900
Investor’s share – 30% $9 870
Profit for 2015–2016 period $180 000
Pre-acquisition adjustments:
Depreciation (2 100)

177 900

Adjustments:
Unrealised profit in ending inventory (30 000)
Realised profit on opening inventory 10 000
$157 900
Investor’s share – 30% $47 370

Increase in asset revaluation surplus (net of tax) $30 000

Investor’s share – 30% $9 000

The consolidation worksheet entries at 30/6/16 are:


Investment in Eva Ltd Dr 9 870
Retained earnings (1/7/15) Cr 9 870

Investment in Eva Ltd Dr 47 370


Share of profits or losses of associates Cr 47 370

Investment in Eva Ltd Dr 9 000


Asset revaluation surplus Cr 9 000

Dividend revenue Dr 15 000


Investment in Eva Ltd Cr 15 000
(30% x $50 000 – dividend paid)

Dividend revenue Dr 15 000


Investment in Eva Ltd Cr 15 000
(30% x $50 000 – dividend declared)

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