2:15 2018 10 Marks Term Part ACCT20073 Assignment Hahndorf Ltd acquired 100% of
ID: 2512232 • Letter: 2
Question
2:15 2018 10 Marks Term Part ACCT20073 Assignment Hahndorf Ltd acquired 100% of the shares of Sarina Ltd on 1 July 2015 for $700,000, when the equity of Sarina Ltd consisted of Share Capita $500,000 General Reserve 80,000 Retained Earnings 30,000 All identifiable assets and liabilities of Sarina Ltd were fairly valued at acquisition except the machinery, which had a fair value of S140,000. The machinery had a further 7-year life with depreciation based on the straight-line method. Selected financial information of the two entities as at 1 July 2015 were as follows: Hahndorf Ltd Sarina Ltd Retained earnings at 306/15 240,000 30,000 Share capita 700,000 500,000 General reserve 60,000 80.000 Total equity 1.000.000 610.000 Land 350,000 400,000 Machinery at cost Accumulated depreciation Equipment at cost Accumulated depreciation and impairment losses Cash 40,000 20,000 Investment in Sarina Ltd 700,000 - Inventory 40,000 35,000 Liabilities 130.000 60.000 Net assets1.000,000 610.000 240,000 (200,000) 250,000 (75,000) The company income tax rate is 30%. Required Prepare the consolidation journal entries resulting from the acquisition on 1 July 2015 as they will be carried forward as at 30 June 2018. (Tip: do the journals related to the revaluation of the machinery as they would have appeared on 1 July 2015 and then do all the consolidation journal entries related to the acquisition and the revaluation of the machinery as 30 June 2018, e. 3years later) (10 marks)Explanation / Answer
Consolidation Journal as on 1 July 2015
Calculation of goodwill
Fair value of net assets acquired
500,000
80,000
30,000
Fair valuation impact of machinery
Book value (240,000-200,000=40,000), Fair value 140,000, difference 100,000
100,000
Total fair value of net assets
710,000
Less: Purchase consideration
700,000
Profit on acquisition
10,000
Consolidation journal on 1 July 2015
Particulars
Dr/Cr
Amount
Net assets acquired (book value)
Dr
610,000
Machinery (fair value adjustment)
Dr
100,000
Investment in Sarina Ltd
Cr
(700,000)
Profit and loss account
Cr
(10,000)
Consolidation journal on 30 June 2016
Particulars
Dr/Cr
Amount
Profit and loss account
Dr
14,285
Accumulated depreciation on machinery (100,000/7)
Cr
14,285
Depreciation impact on fair valuation element of machinery
Consolidation Journal on 30 June 2017
Particulars
Dr/Cr
Amount
Net assets acquired (book value)
Dr
610,000
Machinery (fair value adjustment)
Dr
100,000
Investment in Sarina Ltd
Cr
(700,000)
Reserves (gain on acquisition)
Cr
(10,000)
Reserves (year 1 depreciation on machinery)
Dr
14,285
Profit and loss account (current year depreciation on machinery)
Dr
14,285
Accumulated depreciation on machinery (2 years depreciation)
Cr
(28,570)
Consolidation Journal on 30 June 2018
Particulars
Dr/Cr
Amount
Net assets acquired (book value)
Dr
610,000
Machinery (fair value adjustment)
Dr
100,000
Investment in Sarina Ltd
Cr
(700,000)
Reserves (gain on acquisition)
Cr
(10,000)
Reserves (year 1 and 2 depreciation on machinery)
Dr
28,570
Profit and loss account (current year depreciation on machinery)
Dr
14,285
Accumulated depreciation on machinery (2 years depreciation)
Cr
(42,855)
Fair value of net assets acquired
- Share capital
500,000
- Retained earning
80,000
- General reserve
30,000
Fair valuation impact of machinery
Book value (240,000-200,000=40,000), Fair value 140,000, difference 100,000
100,000
Total fair value of net assets
710,000
Less: Purchase consideration
700,000
Profit on acquisition
10,000
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