Acquisition Issues - ACCT 2 5 4 2 5 Class Test for 2010 th QUESTION ONE What is the definition of control that is used to identify the corporate

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ACCT 2542 5 th Class Test for 2010 QUESTION ONE What is the definition of control that is used to identify the corporate group? QUESTION TWO On 1 July 20X6 A Ltd acquired all the ordinary voting shares of B Ltd in exchange for cash consideration of $550,000. At the acquisition date the balance sheets of A Ltd and B Ltd and fair values of B Ltd’s assets and liabilities are as follows: A Ltd B Ltd Carrying Amount Carrying Amount Fair Value $ $ Equity Share capital 550,000 300,000 Retained profits 350,000 140,000 Liabilities Provisions 30,000 60,000 60,000 Accounts payable 27,000 34,000 34,000 Tax liabilities 10,000 6,000 6,000 Total Equity and Liabilities 967,000 540,000 Assets Cash 15,000 5,000 5,000 Inventory 42,000 75,000 95,000 Plant – at cost 620,000 480,000 360,000 Accumulated depreciation (380,000) (170,000) Land – at cost 120,000 150,000 180,000 Investment in B Ltd 550,000 - Total Assets 967,000 540,000 Additional information The company income tax rate is 30%. REQUIRED (A) Prepare an acquisition analysis for A Ltd’s acquisition of B Ltd. (B) Prepare the consolidation journal entries needed for the consolidation of A Ltd and B Ltd at the acquisition date of 1 July 20X6.
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2 QUESTION ONE SOLUTION (10 marks) Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. (2 marks) QUESTION TWO SOLUTION PART (A) Acquisition analysis $ $ Cost of business combination to A Ltd 550,000 1/2 Book net assets (equity) of B Ltd Share capital 300,000 Retained profits 1/7/X6 140,000 440,000 1/2 Fair value adjustments: Inventory (20,000 x 0.7) 14,000 1/2 Plant (50,000 x 0.7) 35,000 1/2 Land (30,000 x 0.7) 21,000 70,000 1/2 Identifiable net assets acquired at fair value 510,000 Difference – Purchased Goodwill 40,000 1/2 PART (B) Consolidation Journal Entries 1 July 20X6 $ $ (1) Dr. Inventory 20,000 Cr. Deferred tax liability 6,000 1 Cr. Business combination valuation reserve 14,000 (2) Dr. Land 30,000 Cr. Deferred tax liability 9,000 1 Cr. Business combination valuation reserve 21,000 (3) Dr. Accumulated depreciation 170,000 Cr. Plant – at cost 120,000 Cr. Deferred tax liability 15,000 1 Cr. Business combination valuation reserve 35,000 (4) Dr. Goodwill 40,000 Cr. Business combination valuation reserve 40,000 1 (5) Dr. Share capital 300,000 Dr. Retained profits 1/7/X6 140,000 Dr. Business combination valuation reserve 110,000 1 Cr. Investment in B Ltd 550,000 ACCT 2542
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This note was uploaded on 01/31/2012 for the course ACCT 2542 taught by Professor Knapp during the Three '11 term at University of New South Wales.

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Acquisition Issues - ACCT 2 5 4 2 5 Class Test for 2010 th QUESTION ONE What is the definition of control that is used to identify the corporate

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