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
|
| |
Dr
|
Cr
|
|
|
|
Sales revenue
|
480,000
|
437,000
|
|
|
|
|
|
|
Other revenue & income
|
74,000
|
56,000
|
|
|
|
|
|
| |
554,000
|
493,000
|
|
|
|
|
|
|
Cost of sales
|
338,000
|
307,000
|
|
|
|
|
|
|
Other expenses
|
80,000
|
72,000
|
|
|
|
|
|
| |
418,000
|
379,000
|
|
|
|
|
|
|
Profit before tax
|
136,000
|
114,000
|
|
|
|
|
|
|
Tax expense
|
41,000
|
40,000
|
|
|
|
|
|
|
Profit
|
95,000
|
74,000
|
|
|
|
|
|
|
Retained earnings
(1/7/2017)
|
490,000
|
228,000
|
|
|
|
|
|
|
Transfer from BCV reserve
|
--
|
--
|
|
|
|
|
|
| |
585,000
|
302,000
|
|
|
|
|
|
|
Dividend paid
|
21,000
|
11,000
|
|
|
|
|
|
|
Dividend declared
|
22,000
|
15,000
|
|
|
|
|
|
| |
43,000
|
26,000
|
|
|
|
|
|
|
Retained earnings
(30/6/2018)
|
542,000
|
276,000
|
|
|
|
|
|
|
Share capital
|
874,000
|
410,000
|
|
|
|
|
|
|
Share options
|
80,000
|
60,000
|
|
|
|
|
|
|
General Reserve
|
84,000
|
72,000
|
|
|
|
|
|
|
BCVR
|
-
|
-
|
|
|
|
|
|
|
Total Equity
|
1,580,000
|
818,000
|
|
|
|
|
|
|
DTL
|
-
|
-
|
|
|
|
|
|
|
Dividend Payable
|
22,000
|
15,000
|
|
|
|
|
|
|
Current Tax Liabilities
|
8,000
|
7,000
|
|
|
|
|
|
|
Other liabilities
|
96,000
|
65,000
|
|
|
|
|
|
|
Debentures
|
400,000
|
-
|
|
|
|
|
|
|
Loan from Black Ltd
|
-
|
29,000
|
|
|
|
|
|
|
Total Liabilities
|
526,000
|
116,000
|
|
|
|
|
|
|
Total Liabilities + Equity
|
2,106,000
|
934,000
|
|
|
|
|
|
| |
Black
Ltd
|
White
Ltd
|
|
Adjustments |
|
Group
|
|
Dr
|
Cr
|
|
|
Cash
|
181,000
|
90,000
|
|
|
|
|
|
|
Dividend receivable
|
15,000
|
-
|
|
|
|
|
|
|
Other receivables
|
206,000
|
227,000
|
|
|
|
|
|
|
Inventory
|
244,000
|
132,000
|
|
|
|
|
|
|
Deferred tax assets
|
35,000
|
-
|
|
|
|
|
|
|
Land
|
130,000
|
123,000
|
|
|
|
|
|
|
Trucks
|
82,000
|
72,000
|
|
|
|
|
|
|
Accumulated depreciation - Trucks
|
(25,000)
|
(22,000)
|
|
|
|
|
|
|
Plant & equipment
|
648,000
|
380,000
|
|
|
|
|
|
|
Accumulated depreciation - Plant & Equipt.
|
(388,000)
|
(228,000)
|
|
|
|
|
|
|
Warehouses
|
180,000
|
90,000
|
|
|
|
|
|
|
Accumulated depreciation - Warehouses
|
(27,000)
|
(18,000)
|
|
|
|
|
|
|
Trademark
|
|
|
|
|
|
|
|
|
Accumulated amortisation - Trademark
|
|
|
|
|
|
|
|
|
Debentures in Black Ltd
|
-
|
40,000
|
|
|
|
|
|
|
Shares in White Ltd
|
722,000
|
-
|
|
|
|
|
|
|
Goodwill
|
74,000
|
48,000
|
|
|
|
|
|
|
Accumulated impairment losses
|
-
|
-
|
|
|
|
|
|
|
Loan to White Ltd
|
29,000
|
-
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Total assets
|
2,106,000
|
934,000
|
|
|
|
|
|