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Questions: On 1 July 2015, Victoria Ltd acquired 70% of the shares of Melbourne Ltd for $526,000 on a cum div. basis. Victoria Ltd had acquired 30% of the shares of Melbourne Ltd two years earlier for $180,000. This investment, classified as an available-for-sale investment, was recorded at a fair value on 1 July 2015 of $226,000. At 1 July 2015, the equity and liability sections of Melbourne Ltds statement of financial position showed the following balances: Share Capital 460,000 General Reserve 50,000 Retained Earnings 100,000 Other liabilities 100,000 Dividend payable 30,000 At acquisition date, all the identifiable assets and liabilities of Melbourne Ltd were recorded at amounts equal to fair value except for: Carrying Amount Fair Value Land 95,000 100,000 Vehicle (@ cost 40,000) 35,000 39,000 Equipment (@ cost 420,000) 294,000 309,000 Inventory 98,000 101,00 The Vehicle, which was estimated to have a further four year life at acquisition date, was sold on 1 January 2018. The equipment had a further five year life at acquisition date and was expected to be used evenly over that time. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. Melbourne Ltd had not recorded an internally developed patent. Victoria Ltd valued this patent at $90,000 and was assumed to have a ten year life. In May 2017, Melbourne sold this patent to an external party for $100,000. It also had a contingent liability of $19,000 that Victoria Ltd considered to have a fair value of $15,000. This liability was settled in July 2017. The dividend liability was paid on 1 September 2015. All inventories on hand at acquisition date were sold by June 2016. The land was sold on 1 June 2018 to Peters Ltd. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed. On 30 May 2017, Melbourne Ltd transferred $8,000 from the general reserve (pre-acquisition) to retained earnings. A bonus dividend of $10,000 was paid in December 2017 out of pre-acquisition profits. Goodwill was tested annually for impairment. For the year ended 30 June 2017, an impairment loss on goodwill of $4,000 was recorded. Additional information: (i) Melbourne Ltd sold a warehouse with a carrying amount of $82,000 to Victoria Ltd for $100,000. The transaction took place on 1 January 2017. Victoria Ltd charges depreciation at 5% p.a. on a straight-line basis. (ii) On 31 March 2017, Victoria Ltd sold some land to Melbourne Ltd. The land had originally cost Victoria Ltd $64,000, but was sold to Melbourne Ltd for $63,000. To help Melbourne Ltd pay for the land, Victoria Ltd gave Melbourne Ltd an interest-free loan of $29,000. Melbourne Ltd has as yet made no repayments on the loan. (iii) In April 2017, Victoria Ltd sold inventory to Melbourne Ltd for $12,000, at a mark-up of 20% on cost. One quarter of this inventory was unsold by Melbourne Ltd at 30 June 2017. The remaining inventory was sold in the following three months. (iv) On 1 October 2017, Victoria Ltd issued 1,000 15% debentures of $100 at nominal value. Melbourne Ltd acquired 400 of these. Interest is payable half-yearly on 31 March and 30 September. Accruals have been recognised in the legal entities accounts. (v) On 18 February 2018, interim dividend was paid by Melbourne Ltd from profits before acquisition date. The final dividend was from current year profits. Shareholder approval is not required in relation to dividends. (vi) On 1 April 2018, Melbourne Ltd transferred an item of plant with a carrying amount of $32,000 to Victoria Ltd for $41,000. Victoria Ltd treated this item as inventory. The item was still on hand at the end of the year. Melbourne Ltd applied a 20% depreciation rate to this plant. (vii) During the year ending 30 June 2018, Melbourne Ltd sold inventory to Victoria Ltd for $60,000, recording a before-tax profit of $16,000. One quarter of this inventory was unsold by Victoria Ltd at 30 June 2018. (viii) The tax rate is 30%. On 30 June 2018 the trial balances of Victoria Ltd and Melbourne Ltd were as follows: Victoria Ltd Melbourne Ltd Cost of sales 338,000 307,000 Other expenses 80,000 72,000 Income tax expense 41,000 40,000 Interim dividend paid 21,000 14,000 Final dividend declared 22,000 15,000 Cash 181,000 105,000 Dividend receivable 20,000 - Other receivables 206,000 227,000 Inventory 244,000 132,000 Deferred tax assets 35,000 - Trucks 82,000 72,000 Plant equipment 648,000 380,000 Land 130,000 123,000 Warehouses 180,000 90,000 Debentures in Victoria Ltd - 40,000 Shares in Melbourne Ltd 722,000 - Goodwill 74,000 30,000 Loan to Melbourne Ltd 29,000 - 3,053,000 1,647,000 Sales 480,000 437,000 Other revenue income 79,000 56,000 Share capital 874,000 470,000 Share options 80,000 - General reserve 84,000 72,000 Retained earnings (1/7/2017) 490,000 228,000 Final dividend payable 22,000 15,000 Current tax liabilities 8,000 12,000 Other liabilities 96,000 60,000 Debentures 400,000 - Loan from Victoria Ltd - 29,000 Accumulated depreciation P E 388,000 228,000 Accumulated depreciation Trucks 25,000 22,000 Accumulated depreciation Warehouses 27,000 18,000 3,053,000 1,647,000 Required Prepare the acquisition analysis as at 1 July 2015. Consequential errors will be penalised. 2016.Prepare the BVCR and pre-acquisition worksheet entries ONLY as at 30 June 2016. Journal entry 1 tick for each correct line entry i.e. correct account description AND amount (NO TICK for correct description only or correct amount only.) Consequential errors will not be penalised. 2018. Prepare full consolidation worksheet entries as at 30 June 2018. Journal entry 1 tick for each correct line entry ie correct account description AND amount (NO TICK for correct description only or correct amount only.) Consequential errors will not be penalised. Answers: 1. Acquisition Analysis as on 1st July,2015 using Partly Goodwill Method:- Net Fair Value of Identifiable Assets Liabilities As on 1st July, 2015 Particulars Amount Amount Amount Liabilities (A) Equity Share Capital 460000 General Reserve 50000 Retained Earnings 100000 TOTAL 610000 Difference Of Carrying amount Fair Value of the Assets (B) Fair Value Carrying Amount Inventory 100000 95000 5000 Vehicles 39000 35000 4000 Equipments 309000 294000 15000 Inventory 101000 98000 3000 TOTAL 27000 Net Fair value of Identifiable Assets Liabilities (A+B) 637000 Goodwill Estimation as per Partly Goodwill Method :- Particulars Amount Amount Consideration Transferred ( C ) : Value of Acquisition 526000 Less:30% of Dividend Payable 9000 517000 Non Controlling Interest ( D ) 191100 (30% of Net Fair Value) TOTAL (C+D) 708100 Less: Net Fair Value 637000 Goodwill of Victoria Ltd. 71100 2. BVCR Pre-Acquisition Journal Entries:- In the Books of Victoria Ltd. Journal Entry Date Particulars Amount Amount Dr. Cr. Business Combination Entries :- Land A/c. (Fair Value - Carrying Amount) Dr. 5000 To, Deferred Tax Liability A/c. (@30%) 1500 To, Business Combination Valuation Reserve A/c. (Balance) 3500 Accumulated Depreciation on Vehicles A/c. (Cost - Carrying Amount) Dr. 5000 To, Vehicle A/c. [Acc. Dep. - (Fair Value - Carrying Amount)] 1000 To, Deferred Tax Liability A/c. (@30% ) 1200 To, Business Combination Valuation Reserve A/c. (Balance) 2800 Depreciation Expense A/c. [(Fair Value - Carrying Amount)*1/4) Dr. 1000 To, Accumulated Depreciation on Vehicle A/c. 1000 Deferred Tax Liability A/c. (30% on Dep. On Vehicle) Dr. 120 To, Income Tax Expense A/c. 120 Accumulated Depreciation on Equipments A/c. (Cost - Carrying Amount) Dr. 126000 To, Equipment A/c. [Acc. Dep. - (Fair Value - Carrying Amount)] 111000 To, Deferred Tax Liability A/c. (@30% ) 4500 To, Business Combination Valuation Reserve A/c. (Balance) 10500 Depreciation Expense A/c. [(Fair Value - Carrying Amount)*1/5) Dr. 3000 To, Accumulated Depreciation on Vehicle A/c. 3000 Deferred Tax Liability A/c. (30% on Dep. On Vehicle) Dr. 450 To, Income Tax Expense A/c. 450 Patent A/c. Dr. 90000 To, Deferred Tax Liability A/c. (@30%) 27000 To, Business Combination Valuation Reserve A/c. (Balance) 63000 Business Combination Valuation Reserve A/c. Dr. 10500 Deferred Tax Liability A/c. (@30%) Dr. 4500 To Contingent Liability A/c. 15000 Cost of Sales A/c. (Fair Value - Carrying Amount) Dr. 3000 To Income Tax Expense A/c. (@30%) 900 To Transfer from Business Combination Valuation Reserve A/c. (Balance) 2100 Transfer from Business Combination Valuation Reserve A/c. Dr. 2100 To, Business Combination Valuation Reserve A/c. 2100 Pre- Acquistion Entry on 1.07.2016:- 01.07.16 Retained Earnings A/c Dr. 70000 Share Capital A/c Dr. 322000 General Reserve A/c Dr. 35000 Goodwill A/c. (Balance) Dr. 49020 Business Combination Valuation Reserve A/c. Dr. 49980 To, Shares in Melbourne Ltd.A/c.. 526000 3. Consolidated worksheet Journal Entries Amount Amount Date Particulars Dr Cr Equipment Design 15000 Deferred ax liability 9400 Business combination value reserve 5600 Amortisation expense 1500 Retained earnings (1/7/2018) 3700 Accumulated amortisation 5200 (1/10*13000 ) Deferred tax liability 1200 Income tax expenses 800 Retained Earnings (1/7/2018) 400 Depreciation expense 850 Profit on Sale of machinery 2550 Income tax expenses 1000 Retained earnings (1/7/2018) 1500 Transfer from business combination Valuation of reserve 4100 (Depreciation is 1/5*6000 p.a) Accumulated impairments losses-goodwill 12000 Goodwill 12000 Goodwill 30000 Business combination valuation reserve 30000 Pre-acquisition entries Retained earnings (1/7/2016) 18000 Share capital 470000 Other reserves 25000 Other components of equity (1/7/2016) 10000 Business combination valuation reserve 6000 Goodwill 30000 Shares in Melbourne ltd 559000 NCI share of changes from equity 1/7/2016 to 30/6/2018 NCI profit share 9510 NCI 9510 NCI dividend 1250 Dividends Paid 1250 NCI 1000 Dividends declared 1000 Transfer from other reserve funds 500 Transfer to retained earnings 500 Share capital 7000 Other reserves and bonus issues 7000 Transfer from business combination 1000 valuation reserve Business combination valuation reserve 1000 Dividends Paid Dividends revenue 5000 Dividends declared 5000 Dividends payable 3500 Dividends receivable 3500 Sale of plant Victoria ltd to Melbourne ltd Retained earnings (1/7/2018) 2500 Deferred tax assets 1500 Plant 5000 NCI effect NCI 600 Retained earnings (1/7/2018) 600 Depreciation Accumulated depreciation 1200 Retained earnings (1/7/2018) 600 Depreciation expense 600 Income tax expense 150 Retained earnings (1/7/2018) 150 Deferred tax 3000 Profit from opening inventory Retained earnings 450 Income tax expense 500 Cost of sales 950 sale of inventory: current period Sales 15000 Cost of sales 12500 Inventories 2500 Deferred tax assets 250 Income tax expense 250 Reference list Abuaddous, M., Hanefah, M.M. and Laili, N.H., 2014. 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