ASSIGNMENT
On 1 July 2011, Pearl Ltd acquired all the shares of Beryl Ltd. On this date, the equity of Beryl Ltd consisted of:
Share Capital $200 000
General Reserve 35 000
Retained Earnings 45 000
At acquisition date, all the identifiable assets and liabilities of Beryl Ltd were recorded at amounts equal to fair value except for:
Carrying Fair
Amount Value
Equipment (cost $61 000) $35 000 $38 000
Inventory $41 000 $45 000
Land 70 000 75 000
Trademark 115 000 135 000
Machinery (cost $18 000) 15 000 16 000
At acquisition date the equipment had a further expected useful life of four (4) years. The trademark was considered to have an indefinite life. However, an impairment test conducted in June 2014 resulted in the trademark being impaired, on consolidation, by $15 000. The machinery, which was estimated to have a further four (4) year life at acquisition date, was sold on 1 January 2014. During the year ended 30 June 2012 all inventory on hand at acquisition date was sold. The land was sold in February 2015.
At 1 July 2011, Beryl Ltd had not recorded a liability relating to a guarantee that was considered to have a fair value of $15 000. After default by the borrower in June 2015, Beryl Ltd paid $8 000 in part payment of the liability with the balance payable by 30 September 2015.
Beryl Ltd registered a patent on 28 June 2011 but had not recognized it as an asset. Pearl Ltd believed the fair value of the patent was $17 000. The patent is legally enforceable for a period of ten years. On 1 January 2015, Beryl Ltd sold the patent for $14 000.
In June 2012, the directors of Beryl Ltd transferred $15 000 from retained earnings as at 1 July 2011 to the General Reserve. On 27 June 2015, Beryl Ltd declared a bonus share issue of $30 000 funded from the general reserve balance on hand at I July 2011. All other transfers to the General Reserve were from post-acquisition profits.
Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold, fully consumed or completely impaired.
Additional information:
(a) On 1 July 2014, Beryl Ltd has on hand inventory worth $24 000, being transferred from Pearl Ltd in May 2014. The inventory had previously cost Pearl Ltd $18 000. This entire inventory was sold to external parties in the year ending 30 June 2015.
(b) On 31 March 2015, Beryl Ltd transferred an item of plant with a carrying amount of $17 000 to Pearl Ltd for $25 000. Pearl Ltd treated this item as inventory. The item was still on hand at the end of the year. Beryl Ltd applied a 20% depreciation rate to this plant.
(c) During the 2015 year, Pearl Ltd sold inventory to Beryl Ltd for $18 000, this being at cost plus 20% mark-up. Of this inventory, $3 600 remained on hand at 30 June 2015.
(d) On 1 April 2014, Pearl Ltd sold furniture to Beryl Ltd for $8 000. This had originally cost Pearl Ltd $12 000 and had a carrying amount at the time of sale of $6 000. Both entities charge depreciation at a rate of 20% p.a.
(e) Pearl Ltd purchased a block of land for $36 000 in August 2013. This block of land was sold to Beryl Ltd in December 2013 for $46 000. To help Beryl Ltd pay for the land, Pearl Ltd granted Beryl Ltd an interest-free loan of $26,000. In December 2014, Beryl Ltd repaid $12 200 of the loan.
(f) On 1 January 2015, Beryl Ltd sold an item of inventory to Pearl Ltd who regarded the item as plant. The inventory cost Beryl Ltd $9 000 to manufacture and was sold for $12 000. Pearl Ltd assesses the equipment's useful life to be five years.
(g) The tax rate is 30%.
(h) In April 2015, both companied adopted the fair value model of accounting for land. The balances of the asset revaluation reserve at 30 June 2015 were $34,200 (Pearl Ltd) and $1 800 (Beryl Ltd).
On 30 June 2015 the trial balances of Pearl Ltd and Beryl Ltd were as follows:
Pearl Ltd Beryl Ltd
$ $
Shares in Beryl Ltd 300 000 0
Cash 3 220 46 000
Receivables 6 900 5 750
Inventory 23 000 57 500
Deferred tax assets 11 730 0
Motor Vehicle 11 500 23 000
Fittings - 17 250
Machinery 86 750 17 250
Plant 151 450 245 000
Equipment 60 950 42 950 Land (at fair value) 128 750 157 500
Furniture 8 050 9 200
Trademark - 115 000
Goodwill 5 000 0
Cost of sales 290 030 175 950
Depreciation and Amortisation 51 200 29 600
Other expenses 9 750 24 050
Income tax expense 23 000 20 700
Dividend paid 13 800 5 750
Dividend declared 6 900 4 600
Loan to Beryl Ltd 13 800 0
1 205 780 997 050
Share capital 358 800 230 000
General Reserve 23 000 28 750
Asset Revaluation Reserve 38 000 2 100
Retained Earnings (1/7/14) 34 500 51 750
Dividend Payable 6 900 4 600
Current Tax Liabilities 9 200 2 875
Deferred Tax Liability 20 000 13 575
Mortgage Loan (Due 30/9/19) 80 000 100 000 Loan from Pearl Ltd 0 13 800
Sales Revenue 461 730 329 300
Gain on sale of NCA 26 000 36 150
Other income 70 600 20 150
Accumulated depreciation - Plant 39 100 131 100
Accumulated depreciation - Machinery 1 150 3 450
Accumulated depreciation - Furniture 1 150 2 300
Accumulated depreciation - Fittings 0 5 750
Accumulated depreciation - Equipment 34 500 14 500
Accumulated depreciation - MV 1 150 6 900
$1 205 780 $997 050
Required
Prepare the following:
- Acquisition analysis at 1 July 2011.
- The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June 2014.
- The BCVR, pre-acquisition and intra-group transaction worksheet journal entries at 30 June 2015.
- The consolidation worksheet for Pearl Ltd at 30 June 2015.
- The consolidated financial statements for Pearl Ltd at 30 June 2015.
Attachment:- Workbook8.xlsx
Attachment:- Workbook9.xlsx