Week 13 Solutions

Question 19.4 Worksheet entries at acquisition date and in subsequent

year, no fair value/carrying amount differences at
acquisition date, bargain purchase
On 1 July 2016, John Ltd acquired all the issued shares of Robert Ltd for $153 000. At this date
the equity of Robert Ltd was recorded as follows:

Share capital $80 000

General reserve 30 000
Retained earnings 40 000

All the identifiable assets and liabilities were recorded at amounts equal to their fair values.

Required
A. Prepare the consolidation worksheet entries at 1 July 2016 and 1 July 2017 assuming John Ltd
paid $153 000 for the shares in Robert Ltd.
B. Prepare the consolidation worksheet entries at 1 July 2016 and 1 July 2017 assuming John Ltd
paid $148 000 for the shares in Robert Ltd.
C. Prepare the consolidation worksheet entries at 1 July 2016 assuming John Ltd paid $145 000
for the shares in Robert Ltd and at that date Robert Ltd had recorded goodwill of $4000.

A: Consideration of $153 000

Acquisition analysis:
At 1 July 2016:
Net fair value of identifiable assets
and liabilities of Robert Ltd = ($80 000 + $30 000 + $40 000) (equity)
= $150 000
Consideration transferred = $153 000
Goodwill acquired = $153 000 – $150 000
= $3 000

Worksheet entries at 1 July 2016:

Business combination valuation entries

Goodwill Dr 3 000
Business combination valuation reserve Cr 3 000

Pre-acquisition entries

Retained earnings (1/7/16) Dr 40 000

Share capital Dr 80 000
General reserve Dr 30 000
Business combination valuation reserve Dr 3 000
Shares in Robert Ltd Cr 153 000
Worksheet entries at 1 July 2017

The entries are the same as those above.

B: Consideration of $148 000

Acquisition analysis:
At 1 July 2016:
Net fair value of identifiable assets
and liabilities of Robert Ltd = ($80 000 + $30 000 + $40 000) (equity)
= $150 000
Consideration transferred = $148 000
Gain on bargain purchase = $148 000 – $150 000
= $2 000

Worksheet entries at 1 July 2016:

Pre-acquisition entries

Retained earnings (1/7/16) Dr 40 000

Share capital Dr 80 000
General reserve Dr 30 000
Gain on bargain purchase Cr 2 000
Shares in Robert Ltd Cr 148 000

Worksheet entries at 1 July 2017

Retained earnings (1/7/17) Dr 38 000

Share capital Dr 80 000
General reserve Dr 30 000
Shares in Robert Ltd Cr 148 000

C: Consideration of $145 000 and recorded goodwill of $4000

Acquisition analysis:
At 1 July 2016:
Net fair value of identifiable assets
and liabilities of Robert Ltd = ($80 000 + $30 000 + $40 000) (equity)
- $4 000 (goodwill)
= $146 000
Consideration transferred = $145 000
Gain on bargain purchase = $145 000 – $146 000
= $1 000

Worksheet entries at 1 July 2016:

1. Business combination valuation reserve entries

Business combination valuation reserve Dr 4 000

 Goodwill Cr 4 000

2. Pre-acquisition entries

Retained earnings (1/7/16) Dr 40 000

Share capital Dr 80 000
General reserve Dr 30 000
Business combination valuation reserve Cr 4 000
Gain on bargain purchase Cr 1 000
Shares in Robert Ltd Cr 145 000

Question 20.1 Intragroup transactions

Koala Ltd owns all of the shares of Kangaroo Ltd. In relation to the following intragroup
transactions, all parts of which are independent unless specified, prepare the consolidation
worksheet adjusting entries for preparation of the consolidated financial statements as at 30 June
2016.
Assume an income tax rate of 30%.
(a) In April 2016, Koala Ltd sells inventory to Kangaroo Ltd for $12 000. This inventory had
previously cost Koala Ltd $8000, and it remains unsold by Kangaroo Ltd at the end of the
period.
(b) All the inventory in (a) is sold to Cockatoo Ltd, an external party, for $16 500 on
19 June 2016.
(c) Half the inventory in (a) is sold to Galah Ltd, an external party, for $7200 on 20 June 2016.
The remainder is still unsold at the end of the period.
(d) Koala Ltd, in January 2016, sold inventory for $8000. This inventory had been sold to it by
Kangaroo Ltd in the previous year. It had originally cost Kangaroo Ltd $4800, and was sold to
Koala Ltd for $9600.

(a) Sales revenue Dr 12 000

Cost of sales Cr 8 000
Inventory Cr 4 000

(b) Sales revenue Dr 12 000

Cost of sales Cr 12 000

(c) Sales revenue Dr 12 000

Cost of sales Cr 10 000
Inventory Cr 2 000

(d) Retained earnings (1/7/15) Dr 3 360

Cost of sales Cr 4 800
Question 20.7 Consolidation worksheet
On 1 July 2015, Fluffy Ltd acquired all the issued shares of Glider Ltd. Fluffy Ltd paid $30 000 in
cash and 20 000 shares in Fluffy Ltd valued at $3 per share. At this date, the equity of Glider Ltd
consisted of $66 000 share capital and $6000 retained earnings.
At 1 July 2015, all the identifiable assets and liabilities of Glider Ltd were recorded at amounts
equal to their fair values except for:

Carrying amount Fair value

Plant (cost $150 000) $120 000 $123 000
Patents 90 000 105 000
Inventory 18 000 22 500

The plant was considered to have a further 5-year life. The patents were sold for $120 000 to
an external entity on 18 August 2015. The inventory was all sold by 30 June 2016.
Additional information
(a) Fluffy Ltd sells certain raw materials to Glider Ltd to be used in its manufacturing process.
At 1 July 2016, Glider Ltd held inventory sold to it by Fluffy Ltd in the previous year at a
profit of $600. During the 2016–17 year, Fluffy Ltd sold inventory to Glider Ltd for $21 000.
None of this was on hand at 30 June 2017.
(b) Glider Ltd also sells items of inventory to Fluffy Ltd. During the 2016–17 year, Glider Ltd sold
goods to Fluffy Ltd for $4500. At 30 June 2017, inventory which had been sold to Fluffy Ltd at
a profit of $300 was still on hand in Fluffy Ltd’s inventory.
(c) On 1 July 2016, Glider Ltd sold an item of plant to Fluffy Ltd for $15 000. This plant had a
carrying amount in the records of Glider Ltd of $14 000 at time of sale. This type of plant is
depreciated at 10% p.a. on cost.
(d) On 1 January 2016, Fluffy Ltd sold an item of inventory to Glider Ltd for $18 000. The
inventory had cost Fluffy Ltd $16 000. This item was classified by Glider Ltd as plant. Plant of
this type is depreciated by Glider Ltd at 20% p.a.
(e) On 1 March 2017, Glider Ltd sold an item of plant to Fluffy Ltd. Whereas Glider Ltd classified
this as plant, Fluffy Ltd classified it as inventory. The sales price was $9000 which included a
profit to Glider Ltd of $1500. Fluffy Ltd sold this to another entity on 31 March for $9900.
(f) The tax rate is 30%.
At 30 June 2017, the following financial information was provided by the two companies:

Fluffy Ltd Glider Ltd

Dr Cr Dr Cr
 Sales revenue 64 500 78 000
Cost of sales 30 900 46 350
Trading expenses 4 800 9 000
Office expenses 7 950 4 050
Depreciation expenses 1 800 3 900
Proceeds on sale of plant 9 000 15 000
Carrying amount of plant sold 7 500 14 000
Income tax expense 11 100 7 300
Share capital 96 000 66 000
Retained earnings (1/7/16) 48 000 31 500
Current liabilities 21 100 10 500
Deferred tax liability 11 000 15 000
Plant 57 000 107 250
Accumulated depreciation – plant 18 300 33 450
Intangibles 12 000 11 100
Deferred tax assets 8 100 9 450
Shares in Glider Ltd 90 000 0
Inventory 28 500 24 600
Receivables 8 250 12 450
267 900 267 900 249 450 249 450

Required
Prepare a consolidation worksheet for the preparation of the consolidated financial statements of
Fluffy Ltd at 30 June 2017.

At 1 July 2015:

Net fair value of identifiable assets

and liabilities of Glider Ltd = $66 000 + $6 000 (equity)
+ $4 500 (inventory)
+ $15 000 (patents)
+ $3 000 (plant)
= $94 500
Consideration transferred = $90 000
Gain on bargain purchase = $4 500

1. Business combination valuation entries

Accumulated depreciation Dr 30 000

Plant Cr 27 000
Business combination valuation reserve Cr 3 000

Depreciation expense Dr 600

Retained earnings (1/7/16) Dr 600
Accumulated depreciation Cr 1 200
(1/5 x $3000 p.a. for 2 years)
2. Pre-acquisition entries

At 1/7/15:

Retained earnings (1/7/15) Dr 6 000

Share capital Dr 66 000
Business combination valuation reserve Dr 22 500
Gain on bargain purchase 4500
Shares in Glider Ltd Cr 90 000

At 30/6/17:

Retained earnings (1/7/16)* Dr 21 000

Share capital Dr 66 000
Business combination valuation reserve Dr 3 000
Shares in Glider Ltd Cr 90 000

(* = $6000 + $4 500 + $15 000- 4500)

3. Sales and profit in closing inventory

Sales revenue Dr 21 000
Cost of sales Cr 21 000

Sales revenue Dr 4 500

Cost of sales Cr 4 200
Inventory Cr 300

4. Profit in opening inventory of Glider Ltd

Retained earnings (1/7/16) Dr 600

Cost of sales Cr 600

5. Sale of Plant - current period

Proceeds on sale of plant Dr 15 000

Carrying amount of plant sold Cr 14 000
Plant Cr 1 000

Accumulated depreciation - plant Dr 100

Depreciation expense Cr 100
(10% x $1000)

6. Sale of Inventory classified as Plant : prior period

Retained earnings (1/7/16) Dr 2 000

Plant Cr 2 000
 Accumulated depreciation Dr 600
Depreciation expense Cr 400
Retained earnings (1/7/16) Cr 200
(20% x $2000 p.a. for 1.5 years)

7. Sale of Plant classified as Inventory: current period

Proceeds on sale of plant Dr 9 000

Carrying amount of plant sold Cr 7 500
Cost of sales Cr 1 500