Problem
Cat Ltd acquired all the issued share capital of Fish Ltd on 1 July 2019 for cash $2,150,000. At the date of acquisition, all assets of Fish Ltd were recorded at fair value, except for land, which had a carrying amount of $1,000,000 and its fair value was $1,150,000.
The recorded balances of equity in Fish Ltd as at 1 July 2019 were:
|
Share capital
|
$1,360,000
|
|
Retained earnings
|
$ 170,000
|
|
|
$1,530,000
|
The following additional information is available:
• On 1 July 2020, Fish Ltd sold an item of plant to Cat Ltd for $72,000. On the date of sale the plant had a carrying amount of $54,000 (the original cost of the plant was $90,000, and had four years of accumulated depreciation totalling $36,000). At the date of sale it was expected that the plant had a remaining useful life of four years and no residual value.
• During the financial year ended 30 June 2021, Fish Ltd sold inventory for $130,000 to Cat Ltd. This inventory had cost Fish Ltd $100,000 to produce. Cat soon sold all inventory to Kangaroo Ltd for $180,000 on 30 June 2021.
• On 1 July 2021, Cat Ltd sold an item of equipment to Fish Ltd for $116,000 when its carrying amount was $81,000 (the original cost was $135,000). At the date of sale, the equipment had a remaining useful life of five years with a zero residual value.
• On 1 September 2021, Cat Ltd lent $20,000 to Fish Ltd. $2,000 interest was paid at the end of the year.
• On 3 February 2022, Cat Ltd sold inventory to Fish Ltd for $108,000 with a profit of $11,500. By 30 June 2022, Fish Ltd sold 40% of the inventory to Zara Ltd for $75,300.
• During the year ended 30 June 2022, Fish Ltd provided consulting services for $14,000 to Cat Ltd. On 30 June 2022, $5,000 remained unpaid.
• On 30 June 2022, Cat Ltd declared a final dividend of $55,000 and Fish declared a dividend of $66,000.
• Goodwill had been impaired by 10% in the first year following the acquisition. During the year ended 30 June 2022, it was considered that the goodwill has been further impaired by an amount of $13,800.
• The tax rate is 30%.
Task
1. Present the acquisition analysis;
2. Prepare necessary consolidation journal entries for the year ended 30 June 2022, according to the requirements of AASB10 Consolidated Financial Statements.