2103AFE Company Accounting Assignment 2015
2103AFE Company Accounting
Link Ltd acquired 80% of the shares of Connect Ltd on 1 July 2012 for $115 000. At this date the equity of Connect Ltd consisted of:
|
Share capital (100 000 shares) General reserve Retained earnings |
$ 80000 2 400 29 600 |
All the identifiable assets and liabilities of Connect Ltd were recorded at amounts equal to their fair values except for:
|
Carrying amount |
Fair value | |
|
Plant (cost $65 000) |
$52 000 |
$56 000 |
|
Land |
40 000 |
45 000 |
|
Inventory |
25 000 |
28 000 |
The plant was expected to have a further useful life of 10 years. The land was sold on 1 January 2015. The inventory was all sold by 30 June 2013. Link Ltd uses the full goodwill method. The fair value of the non-controlling interest (NCI) at 1 July 2012 was $28 000. At 1 July 2012, Connect Ltd had unrecorded brands that had a fair value of $18 000. These had an indefinite life.
Additional information
Connect Ltd had inventory on hand at 30 June 2014 that included inventory at cost of $8000 that had been sold to it by Link Ltd. This inventory had cost Link Ltd $6000. It was all sold by Connect Ltd by 30 June 2015.
During the 2014-15 year, Connect Ltd sold inventory to Link Ltd for $48 000. At 30 June 2015, Link Ltd still had some of this inventory on hand. This inventory had been sold to it by Connect Ltd at a profit of $4000.
On 1 January 2014, Connect Ltd sold plant to Link Ltd for $16 000. This had a carrying amount in Connect Ltd at time of sale of $12 000. Plant of this class is depreciated at 20% per annum.
Management and consultation fees derived by Link Ltd are all from Connect Ltd and represent charges for administration $1760 and technical services for the manufacturing section $2240.
All debentures issued by Connect Ltd are held by Link Ltd.
Other components of equity relate to movements in the fair values of financial assets held by the entities. Gains and losses on these financial assets are recognised in other comprehensive income. The balance of the other components of equity account at 1 July 2014 was $8000 (Link Ltd) and $6400 (Connect Ltd).
The tax rate is 30%
Financial information at 30 June 2015 of Link Ltd and its subsidiary company, Connect Ltd, is shown below.
|
Link Ltd |
Connect Ltd | |||
|
Sales revenue |
$252 800 |
$176 000 | ||
|
Debenture interest |
4 000 |
— | ||
|
Management and consultation fees |
4 000 |
— | ||
|
Dividends |
9 600 |
— | ||
|
Total revenue |
270 400 |
176 000 | ||
|
Cost of sales |
(104 000) |
(68 000) | ||
|
Manufacturing expenses |
(82 000) |
(53 000) | ||
|
Depreciation on plant |
(12 000) |
(12 000) | ||
|
Administrative expenses |
(12 000) |
(6 400) | ||
|
Financial expenses |
(8 800) |
(4 000) | ||
|
Other expenses |
(11 200) |
(9 600) | ||
|
Total expenses |
230 000 |
153 000 | ||
|
Profit from trading |
40 400 |
23 000 | ||
|
Gains on sale of non-current assets |
10 000 |
5 000 | ||
|
Profit before income tax |
50 400 |
28 000 | ||
|
Income tax expense |
(20 000) |
(13 600) | ||
|
Profit for the year |
30 400 |
14 400 | ||
|
Retained earnings at 1 July 2014 |
40 000 |
36 000 | ||
|
70 400 |
50 400 | |||
|
Dividend paid |
(8 000) |
(8 000) | ||
|
Dividend declared |
(8 000) |
(4 000) | ||
|
(16 000) |
(12 000) | |||
|
Retained earnings at 30 June 2015 |
54 400 |
38 400 | ||
|
Share capital |
240 000 |
80 000 | ||
|
General reserve |
37 600 |
8 000 | ||
|
Other components of equity |
10 400 |
8 000 | ||
|
Debentures |
160 000 |
80 000 | ||
|
Current tax liability |
20 000 |
13 600 | ||
|
Dividend payable |
8 000 |
4 000 | ||
|
Deferred tax liabilities |
12 000 |
5 600 | ||
|
Other current liabilities |
60 000 |
9 600 | ||
|
Total equity and liabilities |
$602 400 |
$247 200 | ||
|
Shares in Connect Ltd |
$115 000 |
— | ||
|
Debentures in Connect Ltd |
80 000 |
— | ||
|
Plant |
96 000 |
$81 600 | ||
|
Less: Accumulated depreciation |
(52 000) |
(44 000) | ||
|
Intangibles |
60 800 |
44 000 | ||
|
Less: Accumulated amortisation |
(32 000) |
(20 000) | ||
|
Deferred tax assets |
58 600 |
24 000 | ||
|
Financial assets |
40 000 |
48 000 | ||
|
Land |
120 000 |
45 600 | ||
|
Inventory |
72 000 |
44 000 | ||
|
Receivables |
44 000 |
24 000 | ||
|
Total assets |
$602 400 |
$247 200 | ||
Required
1. Prepare:
(i) The acquisition analysis; and
(ii) The business combination valuation reserve and pre-acquisition entries for the year ended 30 June 2015
2. Explain how the calculations used in 1 (i) and 1 (ii) above meet the requirements of AASB 3 Business Combinations
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Rating:
/5
Solution: 2103AFE Company Accounting Assignment 2015 Solution