On 1 July 2016, Sierra Ltd acquired 80% of the share capital of Sahara Ltd for

$264 800. On that date, the statement of financial position of Sahara Ltd consisted of:

 

     Share capital

$250 000

     General reserve

10 000

Asset revaluation surplus

15 000

Retained earnings

10 000

Liabilities

180 000

 

$465 000

Cash

$ 35 000

Inventories

70 000

Land

65 000

Plant and equipment

300 000

Accumulated depreciation – plant and equipment

(130 000)

Trademark

100 000

Goodwill

  25 000

 

$ 465 000

 

  

At 1 July 2016, all identifiable assets and liabilities of Sahara Ltd were recorded at fair value except for:

 

 

Carrying amount

Fair value

Inventories

$ 70 000

$ 80 000

Land

65 000

85 000

Plant and equipment (cost $200 000)

70 000

90 000

Trademark

100 000

110 000

 

During the year ended 30 June 2017, all inventories on hand at the beginning of the year were sold, and the land was sold on 28 February 2017 to Oasis Ltd for $80 000. The plant and equipment had a further 5-year life beyond 1 July 2016 and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. Any adjustments for differences at acquisition date between carrying amounts and fair values are made in the consolidation worksheet.

 

Sierra Ltd uses the partial goodwill method. The tax rate is assumed to be 30%.

Financial information for Sierra Ltd and Sahara Ltd for the year ended 30 June 2017 is shown below.

 

 

Sierra Ltd

Sahara Ltd

     Sales revenue

$200 000

$172 000

Other income

 75 000

 30 000

 

 

275 000

202 000

 

Cost of sales

162 000

128 000

 

Other expenses

 53 000

 31 000

 

 

215 000

159 000

 

Profit from trading

60 000

43 000

 

Gains/(losses) on sale of non-current assets

 10 000

   5 000

 

Profit before tax

70 000

48 000

 

Income tax expense

 20 000

 18 000

 

Profit for the period

50 000

30 000

 

Retained earnings (1/7/16)

30 000

10 000

 

Transfer from general reserve

       —

  8 000

 

 

80 000

48 000

 

Interim dividend paid

12 000

10 000

 

Final dividend declared

   6 000

   4 000

 

 

 18 000

 14 000

 

Retained earnings (30/6/17)

$ 62 000

$ 34 000

 

Asset revaluation surplus (1/7/16)

 

$ 15 000

 

Gain on revaluation of specialised plant

 

  5 000

 

Asset revaluation surplus (30/6/17)

 

$ 20 000

 

 

During the year ended 30 June 2017, Sahara Ltd sold inventories to Sierra Ltd for $8000. The original cost of these items to Sahara Ltd was $5000. One-third of these inventories were still on hand at the end of the year.

 

On 31 March 2017, Sahara Ltd transferred an item of plant with a carrying amount of

$10 000 to Sierra Ltd for $15 000. The item was still on hand at the end of the year. Sahara Ltd applied a 20% depreciation rate to this type of plant.

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Status NEW Posted 26 May 2017 02:05 AM My Price 20.00

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