Prepare the acquisition analysis at 1 July 2017

On 1 July 2017, AAA Ltd acquired all of the shares of BBB Ltd, on a cum-div. basis, for

$2,700,000. At this date, the equity and liability sections of BBB Ltd’s statement of financial position showed the following balances:

 

Share capital – 400 000 shares $  1,200,000
General reserve 350,000
Retained earnings 960,000
Revaluation surplus 60,000
Dividend payable 25,000

 

At 1 July 2017, BBB Ltd’s assets included $46,000 of recorded goodwill. The dividend payable at acquisition date was subsequently paid in August 2017.

 

At acquisition date, all the identifiable assets and liabilities of BBB Ltd were recorded at amounts equal to fair value except for the following:

 

  Carrying amount Fair value
Land $500 000 $550 000
Inventory 45 000 55 000
Plant (cost $300 000) 240 000 280 000

 

The inventory on hand in BBB Ltd at 1 July 2017 was sold in November 2017. The plant was estimated to have a further 5-year life with zero residual value. The land on hand at acquisition date was sold in March 2019. On 1 January 2019, the plant was sold to Autumn leaves Ltd for $230,000.

On 30 June 2018, goodwill was impaired by $8 500. The company applies the partial goodwill method. Tax rate is 30%.

 

During the period 1 July 2017 to 30 June 2019, the following intragroup transactions have occurred between AAA Ltd and Beyer Ltd:

  1. At 30 June 2019, AAA Ltd approved and declared a final dividend of $12,000, and BBB Ltd approved and declared a final dividend of $18,000.

2 On 1 January 2018, AAA Ltd provided a $500,000 loan to Beyer Ltd. The interest rate on this loan is 10% p.a,, and interest is paid each year on 30 June. At 30 June 2019, no principal repayments have been made on the loan.

 

3 In April 2018, AAA Ltd sold inventory to Beyer Ltd for $24,000. The inventory had previously cost AAA Ltd $18,000. By 30 June 2018, three-quarters of this inventory had been sold to SSS Ltd for $22,000. The remainder of the inventory was sold to FFJ Ltd in August 2018 for $7,500.

4 On 3 June 2019, BBB Ltd sold inventory to AAA Ltd for $42,000. The transfer price included a mark-up of 20% on cost. At 30 June 2019, one-half of this inventory was still on hand.

5 In November 2017, BBB Ltd sold inventory to AAA Ltd at a transfer price of

$45,000. The inventory had previously cost BBB Ltd $31,000. All of this inventory was subsequently sold to Boots Ltd in June 2019 for $52,500.

6 On 1 January 2018, AAA Ltd sold machinery to Beyer Ltd for $120,000. The machinery had a written down value at the time of sale of $90,000. For this type of machinery, both entities charge depreciation at a rate of 20% p.a. straight-line.

7 On 1 March 2019, BBB Ltd sold equipment to AAA Ltd for $55 000, this asset having a carrying amount at the time of sale of $46,000. BBB Ltd had treated the asset as a depreciable non-current asset, being depreciated at 15% on cost, whereas AAA Ltd records the equipment as inventory. AAA Ltd sold this asset to Beanie Ltd on 15 June 2019 for $61,500.

 

REQUIRED:

A).Prepare the acquisition analysis at 1 July 2017.

 

B). Prepare the consolidation worksheet entries at 30 June 2019. Your answer should include:

  1. BCVR entries,
  2. Pre-acquisition entries, and
  3. Intragroup transaction adjustment entries.