Palate Company acquires an 80% interest in Suntan Company for $250,000in cash on
ID: 2539501 • Letter: P
Question
Palate Company acquires an 80% interest in Suntan Company for $250,000in cash on January 1, 2015, when Suntan Company has the following balance sheet Assets Current Assets Depreciable Property Plant 200,000 & Equipment Amount $100,000 Liabilities and Equit Current Liabilities Common Stock (S10 Par) 100,000 Amount $50,000 Retained Earnings Total Liabilities and Equit 50,000 $300,000 Total Assets $300,000 Any excess of the price paid over book value is attributable only to the fixed assets, which have a 10 years remaining life. Palate Company uses the simple equity method to record its investment in Suntan. The following trial balances of the two companies are prepared on December 1 2015 SUNTAN $130,000 200,000 20,000 PALATE $60,000 Current Assets Depreciable Pro Accumulated Depreciation Investment in Suntan Current Liabilities Common Stock ($10 par0 Retained Earnings January 1, 2015 Sales Expenses Subsidiary Income Dividends Declares Totals Plant & Equipment 400,000 106,000 266,000 60,000 300,000 (200,000) 150,000 10,000 20,000 40,000 (100,000) (150,000) 100,000) 75,000 5,000 Required 1. Prepare all the eliminations and adjustments that would be made on the 2015 consolidated worksheet 2. Calculate the goodwill arising on the acquisition of Suntan at January 1, 201.5 3. Calculate the carrying amount of the investment in Suntan at December 31, 2015, before the impairment test. Prepare the consolidated Statement of Financial Position of the Palate Group for the year ended December 31,2015/ 4. You may use either the consolidated worksheet approach or the tabular approach. However, your final solution must be presented in accordance with IAS 1 - Presentation of Financial Statements NB: You are required to apply IFRS 3 (Revised) "Business Combinations" and IFRS 10 Consolidated Financial Statements' where necessaryExplanation / Answer
Part 1:
Investment in Suntan
250000
Increase in assets
Current assets
100000
Depreciable property plant and equipment
200000
300000
Less: Current liabilities
50000
250000
Increase in current liabilities
50000
Investment write off
250000
Goodwill creation
50000
Part 2:
Goodwill arising on the date of acquisition
Net assets value as on the date of acquisition
Current assets
100000
Depreciable property plant and equipment
200000
Total assets
300000
Less: Outside liabilities
Current liabilities
50000
50000
Net asset
250000
Share of Palate Company
200000
Cost of acquisition
250000
Goodwill
50000
(Cost of acquisition - Share of Palate in net assets)
Part 3:
Investment un Suntan
250000
Add: Share of profit of Suntan
16000
266000
Less: Share of dividend
4000
Carrying amount of investment
262000
Part 4:
Consolidated statement of financial position
Note
Palate
Suntan
Group
Goodwill
50000
50000
Current assets
60000
104000
164000
Net property plant and equipment
294000
136000
430000
Total assets
644000
Current liabilities
60000
40000
100000
Common stock
300000
300000
Retained earnings
200000
Add: Current year profit
40000
Dividend
4000
244000
244000
Total liabilities and equity
644000
Investment in Suntan
250000
Increase in assets
Current assets
100000
Depreciable property plant and equipment
200000
300000
Less: Current liabilities
50000
250000
Increase in current liabilities
50000
Investment write off
250000
Goodwill creation
50000
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