Revaluation adjustments on acquisition

Assignment Help Financial Accounting

Reference no: EM13164429

QUESTION

Using the information below and on the next two pages, prepare the following as at 30th June 2014:

PART A: Adjustment/elimination journal entries for consolidation at that date; and

PART B: Detailed calculation of non-controlling interest balance and consolidation worksheet; and

PART C: Consolidated financial statements and statements of changes in equity for the group and parent.

INFORMATION

For the year ended 30 June 2012:

1. On 1 July 2011 Harbour Ltd created a group entity when it purchased 80% of the issued capital of Bridge Ltd for $440,000 cash. On acquisition Bridge Ltd's accounts showed: Share capital $300,000 and Retained earnings $125,000. All assets and liabilities appearing in Bridge Ltd's financial statements were fairly valued, except:

An item of Bridge Ltd's plant, that had originally cost $157,000 and had a carrying value of $100,480, was undervalued by $30,000. The plant was still on hand at 30 June 2014.
Bridge Ltd had an internally developed identifiable intangible asset, a patent, with a fair value of $35,000.

During the year Bridge Ltd made sales of inventory to Harbour Ltd of $70,200. Harbour Ltd's closing inventories on 30 June 2012 included $33,600 bought from Bridge Ltd (which included the intragroup mark-up on original cost price).

For the year ended 30 June 2013:

2. On 1 January 2013 it was decided that goodwill acquired in Bridge Ltd should be marked down at a rate of 10% per annum from this date forward (% based on the original value you calculated at acquisition).

3. Also on 1 January 2013 Harbour Ltd sold plant to Bridge Ltd for $35,000. This was financed by a short-term interest-free loan from Harbour Ltd. The plant had originally cost $82,000 when purchased on 1 January 2010.

Harbour Ltd declared and paid dividends of $50,000 for the year. Bridge Ltd did not declare or pay any dividends for the year.

For the year ended 30 June 2014:

4. During the year Bridge Ltd made sales of inventory to Harbour Ltd of $88,100.

5. Harbour Ltd's inventories included the following amounts bought from Bridge Ltd (which included the intragroup mark-up on original cost price): Closing inventory on 30 June 2014 was $13,300; and Opening inventory on 1 July 2013 was $9,100.

6. Harbour Ltd charged management fees to Bridge Ltd.

7. Dividends were declared/paid by both companies.

8. Non-controlling interests to be recognized.

ADDITIONAL INFORMATION:

The company tax rate is currently 30% and it has been this rate for many years.
Harbour has the following accounting policies for the group:

(i) Revaluation adjustments on acquisition are to be made on consolidation only, not in the books of any subsidiary;

(ii) Non-controlling interests are measured at the proportionate share of a subsidiary's identifiable net assets;

(iii) Intragroup sales of inventory to be at a markup of 40% on cost;

(iv) Plant is depreciated using the diminishing value method at a rate of 20% p.a. (also known as the declining-balance or diminishing-balance method); and

(v) All calculated amounts to be rounded to the nearest whole dollar.

AT 30 JUNE 2014	HARBOUR LTD	BRIDGE LTD
	$	$
INCOME STATEMENTS
Sales revenue	1,413,500	978,300
Cost of goods sold	798,000	508,300
Gross profit	615,500	470,000
Other income
Management fee revenue	22,600	-
Dividend revenue	69,800	-
Expenses
Depreciation expense	(126,200)	(49,000)
Management fee expense	-	(22,600)
Other expenses	(326,100)	(263,800)
Profit before tax	255,600	134,600
Income tax expense	(76,680)	(40,380)
Profit for the year after tax	178,920	94,220
Retained earnings at start of year	59,120	134,320
Dividend paid/declared	(150,000)	(86,000)
Retained earnings at year end	88,040	142,540

BALANCE SHEETS
*Equity*
Share capital	850,000	300,000
Retained earnings	88,040	142,540
*Current Liabilities*
Accounts payable	191,960	115,860
Income tax payable	95,900	66,700
Dividends payable	75,000	50,000
*Non-Current Liabilities*
Loans	950,000	565,100
Provision for employee benefits	21,900	19,400
Deferred tax liability	6,900	-
	2,279,700	1,259,600
*Current Assets*
Accounts receivable	276,300	104,100
Allowance for doubtful debts	(15,500)	(7,000)
Dividends receivable	40,500	-
Inventory	112,100	144,200
*Non-Current Assets*
Land and buildings	800,000	610,800
Plant - at cost	901,200	601,200
Accumulated depreciation - plant	(294,900)	(194,400)
Deferred tax asset	-	700
Shares in Opera House Ltd	20,000	-
Investment in Bridge Ltd	440,000	-
	2,279,700	1,259,600

Reference no: EM13164429

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