Calculate goodwill on the date of acquisition

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Reference no: EM133156337

Question - On 1 July 2019, ABC Pty Ltd acquired all the share capital of Ten Pty Ltd for $750,000. At that date, Ten Pty Ltd's equity consisted of: Share capital $200,000, General Reserve $182,000 and Retained earnings $114,000.

At 1 July 2019, all the identifiable assets and liabilities of Ten Pty Ltd were recorded at fair value. Both companies employ the perpetual inventory system.

Financial information for ABC and Ten Pty Ltd for the year ended 30 June 2020 is presented below:

Financial statements

ABC Pty Ltd

Ten Pty Ltd

Sales revenue

2,392,000

1,856,000

Cost of sales

1,776,000

1,340,000

Wages and salaries

115,000

124,000

Depreciation

10,400

9,600

Other expenses

8,000

-

Total expenses

1,909,400

1,473,600

 

482,600

382,400

Proceeds from sale of equipment

12,000

-

Carrying amount of equipment sold

14,000

-

Gain(loss)

-2,000

-

Profit before income tax

480,600

382,400

Income tax expense

192,240

176,960

Profit

288,360

205,440

Retained earnings (1/7/2020)

201,640

80,560

 

490,000

286,000

Dividend paid

100,000

-

Retained earnings (30/6/2021)

390,000

286,000

Share capital

1,000,000

600,000

General reserve

280,000

192,000

Deferred tax liability

104,000

86,000

 

1,774,000

1,164,000

Investment in subsidiary Ltd

944,000

-

Cash

160,000

86,000

Inventory

336,000

72,000

Other current assets

50,000

736,000

Land

200,000

240,000

Equipment

104,000

56,000

Accumulated depreciation

-20,000

-26,000

 

1,774,000

1,164,000

Additional information:

1. On 1 January 2020, Ten Pty Ltd sold inventory costing $60,000 to ABC Pty Ltd for $100,000. Half of this inventory was still on hand with ABC Pty Ltd at 30 June 2021.

2. On 31 March 2020, ABC Pty Ltd sold equipment to Ten Pty Ltd for $12,000 which was $2,000 below its carrying amount to ABC Pty Ltd at that date. Ten Pty Ltd charged deprecation at the rate of 10% p.a. on this time.

3. In the 2020 period, ABC Pty Ltd sold a block of land to Ten Pty Ltd at $40,000 above cost. The land is still held by Ten Pty Ltd.

4. There was a profit in the beginning inventory of ABC Pty Ltd of $12,000 on goods acquired from Ten Pty Ltd in the previous period.

5. The tax is 30 per cent.

Required -

1. Calculate goodwill on the date of acquisition;

2. Prepare journal entries for consolidation worksheet;

3. Prepare consolidation worksheet for ABC Pty Ltd for the year ended 30 June 2020.

4. Prepare consolidated financial statements for the year ended 30 June 2020.

Reference no: EM133156337

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