On 1 July 2012, Wilson Ltd acquired all of the share capital of Marcus Ltd on a cum. div basis
for $405,000. At that date, the relevant balances in the records of Marcus Ltd were:
Share capital
Asset revaluation surplus
Retained earnings
Dividend payable $
250,000
40,000
75,000
10,000 At the date of acquisition all assets and liabilities of Marcus Ltd were carried in their
accounting records at fair values with the exception of the following assets: Land
Equipment Carrying amount
$
180,000
51,000 Fair value
$
195,000
60,000 The original cost of the equipment was $70,000 and it had a further six (6) year useful life as
at the date of acquisition. Marcus Ltd accounts for land under the revaluation model in its
books. The land has been adjusted in the books of Marcus Ltd immediately after acquisition.
Marcus Ltd was involved in a court case that could potentially result in the company paying
damages to a client. Marcus Ltd classified this as a contingent liability and Wilson Ltd
estimated the fair value of this liability to be $20,000. Marcus Ltd settled the court case in
January 2016 and the company was required to pay $25,000 to the client.
Additional information:
a) During the year ending 30 June 2015, Marcus Ltd sold inventory to Wilson Ltd for
$22,000 at a mark-up of 25% on cost. None of this inventory was sold by Wilson Ltd by
30 June
2015. Wilson Ltd sold this entire inventory to external parties during March 2016 for
$28,000.
b) On 1 June 2016, Wilson Ltd sold inventory to Marcus Ltd for $32,000. This inventory had
originally cost Wilson Ltd $25,000. Marcus Ltd sold $19,200 of this inventory to external
parties for $20,000 on 20 June 2016.
c) On 1 January 2015, Marcus Ltd sold an item of inventory to Wilson Ltd for $50,000. The
inventory had cost Marcus Ltd $40,000. Wilson Ltd intends to use it as a non-current
asset and has assessed the useful life to be four (4) years.
d) The recoverable amount of the goodwill at 30 June 2016 was assessed to be $20,000.
There have been no impairment write-downs of goodwill since acquisition date.
e) The transfer to general reserve in the current year was out of retained earnings that
existed at acquisition date.
f) Marcus Ltd revalued the land to $205,000 on 1 June 2015.
g) On realisation of the business combination valuation reserve, a transfer is made to
retained earnings on consolidation.
h) The tax rate is 30%. The financial statements of the two companies at 30 June 2016 are as follows: Wilson Marcus $ $ Revenues 540 000 400 000 Expenses (220 000) (290 000) Net profit before tax 320 000 110 000 Income tax expense (145 000) (30 000) 175 000 80 000 85 000 130 000 260 000 210 000 Dividend paid (40 000) (12 000) Dividend declared (25 000) (10 000) Transfer to general reserve (20 000) (15 000) Retained earnings 30 June 2016 175 000 173 000 Share capital 280 000 250 000 80 000 15 000 Asset revaluation surplus 100 000 57 500 Advance from Wilson Ltd - 20 000 25 000 10 000 Other liabilities 125 000 33 500 TOTAL EQUITY AND LIABILITIES 785 000 559 000 Cash 95 000 110 000 Other receivables 88 000 165 000 Dividend receivable 10 000 - Inventory 50 000 170 000 Advance to Marcus Ltd 20 000 - Investment in Marcus Ltd 395 000 - Non-current assets 127 000 114 000 TOTAL ASSETS 785 000 559 000 Net profit after tax
Retained earnings 1 July 2015 General reserve Dividend payable Required:
Prepare the consolidation journal entries for the Wilson Ltd group for the year ended 30 June
2016. You must show all workings. (25 marks) Acquisition Analysis Business Combination Valuation entries:
Account DR CR Intra-group transactions:
Account DR CR Intra-group transactions:
Account DR CR Intra-group transactions:

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