On 1 July 2015, Black Ltd acquired 70% of the shares of White Ltd for $526,000 on a cum div. basis. Black Ltd had acquired 30% of the shares of White Ltd two years earlier for $180,000. This investment, classified as an available-for-sale investment, was recorded at a fair value on 1 July 2015 of $226,000. At 1 July 2015, the equity and liability sections of White Ltd‘s statement of financial position showed the following balances:

 

Share Capital$400,000

Share Options60,000

General Reserve50,000

Retained Earnings100,000

Other Liabilities82,000

Dividend Payable30,000

 

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

Carrying Fair

Amount Value

Land$75,000$80,000

Truck (cost $30,000)25,00029,000

Equipment (cost $420,000)294,000309,000

Goodwill48,00072,000

Inventory88,00091,000

 

The truck, which was estimated to have a further four year life at acquisition date, was sold on 1 January 2018. The equipment had a further five year life at acquisition date and was expected to be used evenly over that time. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation.

 

White Ltd had not recorded an internally developed trademark. Black Ltd valued this at $90,000 and was assumed to have a ten year life. It also had a contingent liability of $19,000 that Black Ltd considered to have a fair value of $15,000. This liability was settled in July 2017.

 

The dividend liability was paid on 1 September 2015. All inventories on hand at acquisition date were sold by June 2016. The land was sold on 1 June 2018 to Peters Ltd. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed.

 

On 30 June 2017, White Ltd transferred $8,000 from the general reserve (pre-acquisition) to retained earnings. A bonus dividend of $10,000 was paid in December 2017 out of pre-acquisition profits.

 

Goodwill was tested annually for impairment. For the year ended 30 June 2017, an impairment loss on goodwill of $4,000 was recorded.

 

 

 

 

Additional information:

 

(i)White Ltd sold a warehouse with a carrying amount of $82,000 to Black Ltd for $100,000. The transaction took place on 1 January 2017. Black Ltd charges depreciation at 5% p.a. on a straight-line basis.

 

(ii)On 31 March 2017, Black Ltd sold some land to White Ltd. The land had originally cost Black Ltd $64,000, but was sold to White Ltd for $73,000. To help White Ltd pay for the land, Black Ltd gave White Ltd an interest-free loan of $29,000. White Ltd has as yet made no repayments on the loan.

 

(iii)In April 2017, Black Ltd sold inventory to White Ltd for $12,000, at a mark-up of 20% on cost. One quarter of this inventory was unsold by White Ltd at 30 June 2017. The remaining inventory was sold in the following three months.

 

(iv)On 1 October 2017, Black Ltd issued 1,000 15% debentures of $100 at nominal value. White Ltd acquired 400 of these. Interest is payable half-yearly on 31 March and 30 September. Accruals have been recognised in the legal entities’ accounts.

 

(v)On 18 February 2018, interim dividend was paid by White Ltd from profits before acquisition date. The final dividend was from current year profits. Shareholder approval is not required in relation to dividends.

 

(vi)On 1 April 2018, White Ltd transferred an item of plant with a carrying amount of $32,000 to Black Ltd for $41,000. Black Ltd treated this item as inventory. The item was still on hand at the end of the year. White Ltd applied a 20% depreciation rate to this plant.

 

(vii)During the year ending 30 June 2018, White Ltd sold inventory to Black Ltd for $50,000, recording a before-tax profit of $16,000. One quarter of this inventory was unsold by Black Ltd at 30 June 2018.

 

(viii)The tax rate is 30%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On 30 June 2018 the trial balances of Black Ltd and White Ltd were as follows:

 

Black LtdWhite Ltd

 

Cost of sales $338,000$307,000

Other expenses80,00072,000

Income tax expense41,00040,000

Interim dividend paid21,00011,000

Final dividend declared22,00015,000

Cash181,00090,000

Dividend receivable15,000-

Other receivables206,000227,000

Inventory244,000132,000

Deferred tax assets35,000-

Trucks82,00072,000

Plant & equipment648,000380,000

Land130,000123,000

Warehouses180,000 90,000

Debentures in Black Ltd-40,000

Shares in White Ltd722,000-

Goodwill74,00048,000

Loan to White Ltd29,000-

3,048,0001,647,000

 

Sales480,000437,000

Other revenue & income74,00056,000

Share capital874,000410,000

Share options80,00060,000

General reserve84,00072,000

Retained earnings (1/7/2017)490,000228,000

Final dividend payable22,00015,000

Current tax liabilities8,0007,000

Other liabilities96,00065,000

Debentures400,000-

Loan from Black Ltd- 29,000

Accumulated depreciation – P & E 388,000228,000

Accumulated depreciation – Trucks25,00022,000

Accumulated depreciation – Warehouses27,00018,000

3,048,0001,647,000

 

 

Required

 

a)Prepare the acquisition analysis at 1 July 2015.

 

b)Prepare the BVCR and pre-acquisition worksheet entries ONLY at 30 June 2016.

 

c)Prepare the consolidation worksheet entries (Inc. BCVR, pre-acquisition entries and inter-group transactions) at 30 June 2018.

 

d)Complete the worksheet below.

 

 

Financial Statements	Black Ltd	White Ltd	Adjustments				Group
			Â	Dr	Cr	Â	Â
Sales revenue	480,000	437,000	Â	Â	Â	Â	Â
Other revenue & income	74,000	56,000	Â	Â	Â	Â	Â
Â	554,000	493,000	Â	Â	Â	Â	Â
Cost of sales	338,000	307,000	Â	Â	Â	Â	Â
Other expenses	80,000	72,000	Â	Â	Â	Â	Â
Â	418,000	379,000	Â	Â	Â	Â	Â
Profit before tax	136,000	114,000	Â	Â	Â	Â	Â
Tax expense	41,000	40,000	Â	Â	Â	Â	Â
Profit	95,000	74,000	Â	Â	Â	Â	Â
Retained earnings (1/7/2017)	490,000	228,000	Â	Â	Â	Â	Â
Transfer from BCV reserve	--	--	Â	Â	Â	Â	Â
Â	585,000	302,000	Â	Â	Â	Â	Â
Dividend paid	21,000	11,000	Â	Â	Â	Â	Â
Dividend declared	22,000	15,000	Â	Â	Â	Â	Â
Â	43,000	26,000	Â	Â	Â	Â	Â
Retained earnings (30/6/2018)	542,000	276,000	Â	Â	Â	Â	Â
Share capital	874,000	410,000	Â	Â	Â	Â	Â
Share options	80,000	60,000	Â	Â	Â	Â	Â
General Reserve	84,000	72,000	Â	Â	Â	Â	Â
BCVR	-	-	Â	Â	Â	Â	Â
Total Equity	1,580,000	818,000	Â	Â	Â	Â	Â
DTL	-	-	Â	Â	Â	Â	Â
Dividend Payable	22,000	15,000	Â	Â	Â	Â	Â
Current Tax Liabilities	8,000	7,000	Â	Â	Â	Â	Â
Other liabilities	96,000	65,000	Â	Â	Â	Â	Â
Debentures	400,000	-	Â	Â	Â	Â	Â
Loan from Black Ltd	-	29,000	Â	Â	Â	Â	Â
Total Liabilities	526,000	116,000	Â	Â	Â	Â	Â
Total Liabilities + Equity	2,106,000	934,000	Â	Â	Â	Â	Â

 

 

 

 

 

 

 

 

 

 

 

 

Â	Black Ltd	White Ltd	Â	Adjustments		Â	Group
				Dr	Cr	Â
Cash	181,000	90,000	Â	Â	Â	Â	Â
Dividend receivable	15,000	-	Â	Â	Â	Â	Â
Other receivables	206,000	227,000	Â	Â	Â	Â	Â
Inventory	244,000	132,000	Â	Â	Â	Â	Â
Deferred tax assets	35,000	-	Â	Â	Â	Â	Â
Land	130,000	123,000	Â	Â	Â	Â	Â
Trucks	82,000	72,000	Â	Â	Â	Â	Â
Accumulated depreciation – Trucks	(25,000)	(22,000)	Â	Â	Â	Â	Â
Plant & equipment	648,000	380,000	Â	Â	Â	Â	Â
Accumulated depreciation – Plant & Equipt.	(388,000)	(228,000)	Â	Â	Â	Â	Â
Warehouses	180,000	90,000	Â	Â	Â	Â	Â
Accumulated depreciation – Warehouses	(27,000)	(18,000)	Â	Â	Â	Â	Â
Trademark	Â	Â	Â	Â	Â	Â	Â
Accumulated amortisation - Trademark	Â	Â	Â	Â	Â	Â	Â
Debentures in Black Ltd	-	40,000	Â	Â	Â	Â	Â
Shares in White Ltd	722,000	-	Â	Â	Â	Â	Â
Goodwill	74,000	48,000	Â	Â	Â	Â	Â
Accumulated impairment losses	  -	  -	Â	Â	Â	Â	Â
Loan to White Ltd	29,000	-	Â	Â	Â	Â	Â
Â	Â	Â	Â	Â	Â	Â	Â
Total assets	2,106,000	934,000	Â	Â