2103AFE Company Accounting Course Question # 00118089 Posted By: neil2103 Updated on: 10/15/2015 12:39 PM Due on: 10/27/2015 Subject Finance Topic Finance Tutorials: 1 See full Answer Question 2103AFE Company AccountingLink Ltd acquired 80% of the shares of Connect Ltd on 1 July 2012 for $115 000. At this date the equity of Connect Ltd consisted of:Share capital (100 000 shares)General reserveRetained earnings$ 800002 40029 600All the identifiable assets and liabilities of Connect Ltd were recorded at amounts equal to their fair values except for:Carrying amountFair valuePlant (cost $65 000)$52 000$56 000Land40 00045 000Inventory25 00028 000The 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 informationConnect 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 LtdConnect LtdSales revenue$252 800$176 000Debenture interest4 000—Management and consultation fees4 000—Dividends9 600—Total revenue270 400176 000Cost 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 expenses230 000153 000Profit from trading40 40023 000Gains on sale of non-current assets10 0005 000Profit before income tax50 40028 000Income tax expense(20 000)(13 600)Profit for the year30 40014 400Retained earnings at 1 July 201440 00036 00070 40050 400Dividend paid(8 000)(8 000)Dividend declared(8 000)(4 000)(16 000)(12 000)Retained earnings at 30 June 201554 40038 400Share capital240 00080 000General reserve37 6008 000Other components of equity10 4008 000Debentures160 00080 000Current tax liability20 00013 600Dividend payable8 0004 000Deferred tax liabilities12 0005 600Other current liabilities60 0009 600Total equity and liabilities$602 400$247 200Shares in Connect Ltd$115 000—Debentures in Connect Ltd80 000—Plant96 000$81 600Less: Accumulated depreciation(52 000)(44 000)Intangibles60 80044 000Less: Accumulated amortisation(32 000)(20 000)Deferred tax assets58 60024 000Financial assets40 00048 000Land120 00045 600Inventory72 00044 000Receivables44 00024 000Total assets$602 400$247 200Required1. Prepare:(i) The acquisition analysis; and(ii) The business combination valuation reserve and pre-acquisition entries for the year ended 30 June 20152. Explain how the calculations used in 1 (i) and 1 (ii) above meet the requirements of AASB 3Business Combinations3. Calculate NCI share of equity at:(i) 1 July 2012;(ii) 1 July 2012 – 30 June 2014; and(iii) 1 July 2014 – 30 July 20154. For the year ended 30 June 2015, prepare:(i) The consolidation journal entries for intra-group transactions(ii) The consolidation worksheet given all consolidation journal entries as required by 1-4(iii) Consolidated statement of profit and loss and other comprehensive income(iv) Consolidated statement of changes in equity; and(v) Consolidated statement of financial position Rating: 4.9/5
Solution: 2103AFE Company Accounting Course