CA Question 21 7 Revised Version

Question 21-7
Acquisition analysis
1 July 2016
Net fair value of identifiable assets
and liabilities of Seal Ltd
= ($120 000 + $90 000) (equity)
+ $30 000 (1 30%) (BCVR - land)
+ $9 000 (1 30%) (BCVR - plant)
+ $6 000 (1 30%) (BCVR - inventory)
= $241 500
(a) Consideration transferred
= $191 000
(b) Non-controlling interest
= $63 000
Aggregate of (a) and (b)
= $254 000
Goodwill
= $254 000 $241 500
= $12 500
Goodwill of Seal Ltd
Fair value of Seal Ltd
= $63 000 x (100/25)
= $252 000
Net fair value of identifiable assets
and liabilities of Seal Ltd
= $241 500
= $252000 - $ 241500
= $10 500
Goodwill of Fur Ltd
Goodwill acquired
= $12 500
= $10 500
Goodwill of Fur Ltd control
= $2 000
premium
1. Consolidation Worksheet Entries - 1 July 2016
1. Business combination valuation entries
Accumulated depreciation - machinery
Machinery
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
Cr
20 000
Inventory
Dr
Cr
Cr
6 000
Goodwill
Dr
Cr
10 500
11 000
2 700
6 300
1 800
4 200
10 500
QUESTION 21.7 (contd)

2. Pre-acquisition entries
Retained earnings (1/7/16)
Share capital
Asset revaluation surplus
Goodwill
Shares in Seal Ltd
Dr
Dr
Dr
Dr
Dr
Cr
67 500
90 000
15 750
15 750
2 000
Dr
Dr
Dr
Dr
Cr
22 500
30 000
5 250
5 250
191 000
3. NCI share of equity at 1 July 2016

Share capital
NCI
(NCI - 25% of balances at 1 July 2016)
2.
63 000
Consolidation Worksheet Entries - 30 June 2017

Accumulated depreciation machinery
Machinery
Dr
Cr
Cr
Cr
20 000
Depreciation expense
Accumulated depreciation - machinery
(1/3 x $9 000 p.a.)
Dr
Cr
3 000

Income tax expense
Dr
Cr
900
Cost of sales
Income tax expense
Transfer from business combination
valuation reserve
Dr
Cr
6 000
Goodwill
11 000
2 700
6 300
3 000
900
1 800
Cr
Dr
Cr
4 200
10 500
10 500

2. Pre-acquisition entry
Share capital
Goodwill
Shares in Seal Ltd
Dr
Dr
Dr
Dr
Dr
Cr
67 500
90 000
15 750
15 750
2 000

valuation reserve
(75% x $4200)
Dr
Cr
3 150
Dr
Dr
Dr
Dr
Cr
22 500
30 000
5 250
5 250
191 000
3 150

Share capital
NCI
63 000
4. NCI share of equity: 1 July 2016 - 30 June 2017

NCI share of profit
Dr
NCI
Cr
(25% [$15000 ($3 000 - $900) ($6 000 - $1 800)])
valuation reserve
(25% x $4200)
Gain on Asset revaluation
NCI
(25% x $3000)
$3000 share
2 175
2 175
Dr
Cr
1 050
Dr
Cr
750
1 050
750

3.
Consolidation Worksheet Entries - 30 June 2018

Accumulated depreciation - plant
Plant
Dr
Cr
Cr
Cr
20 000
Depreciation expense
Accumulated depreciation - plant
Dr
Dr
Cr
3 000
3 000

Income tax expense
Dr
Cr
Cr
1 800
Dr
Cr
10 500
Retained earnings (1/7/17) *

Share capital
Business combination valuation reserve**
Goodwill
Shares in Seal Ltd
*RE: [$67 500 + $3 150 BCVR - inventory]
** [$15750 - $3 150 BCVR inventory]
Dr
Dr
Dr
Dr
Dr
Cr
70 650
90 000
15 750
12 600
2 000
Transfer from asset revaluation surplus

(75% x $21000)
Dr
Cr
15 750
Dr
Dr
Dr
Dr
Cr
22 500
30 000
5 250
5 250
Goodwill
11 000
2 700
6 300
6 000
900
900
10 500
191 000
15 750

Share capital
NCI
63 000

NCI
(RE: 25% ($15 000 [$3 000 - $900])
ARS: 25% x $3 000
BCVR: 25% x 70% x $6 000 inventory
Dr
Dr
Cr
Cr
3 225
750
NCI share of profit

NCI
(25% ($34 500 [$3 000 - $900])
Dr
Cr
8 100
Transfer from asset revaluation surplus

(25% x $21000 plus 25% x $3000)
Dr
Cr
6 000

NCI
(25% x $7 500)
Dr
Cr
1 875
Dr
Cr
Dr
3 000
1 050
2 925
4.
8 100
6 000
1 875
Consolidation Journal entries - 30 June 2019

Depreciation expense - plant
Income tax expense
valuation reserve
Goodwill
900
4 200
Cr
Dr
Cr
6 300
10 500
10 500

Dr
86 400
Share capital
Dr
90 000
Dr
12 600
Goodwill
Dr
2 000
Shares in Seal Ltd
Cr
191 000
* (75% x $90 000) + 75% x 70% ($6 000 inventory + $30 000 land)
valuation reserve
(75% x $6 300 machinery)
Dr
Cr
4 725
Dr
Dr
Dr
Dr
Cr
22 500
30 000
5 250
5 250
Dr
Cr
Cr
Cr
17 325
4 725

Share capital
NCI
63 000

NCI
3 375
1 050
12 900
RE: 25% ($15 000 + $34 500 $4 200 machinery + $24 000 transfer from ARS)
BCVR: 25% (70% x $6 000)
ARS: 25% ($3 000 + $7 500 [$3000 + (70% x $30 000)transfer])
NCI
NCI share of profit/loss
(25% [(9 000) ($3000 - $900)])
valuation reserve
(25% x $6 300 machinery)
NCI
(25% x $10 500)
Dr
Cr
2 775
Dr
Cr
1 575
Dr
Cr
2 625
2 775
1 575
2 625

5.
Consolidation Journal Entries - 30 June 2020

Goodwill
Dr
Cr
10 500
10 500
2. Pre-acquisition entry
Dr
91 125
Share capital
Dr
90 000
Business combination valuation reserve **
Dr
7 875
Goodwill
Dr
2 000
Shares in Seal Ltd
Cr
191 000
* [75% x $90 000 + 75% x 70%($30 000 land + $6 000 inv + $9 000 mach)]
** 75% x $10 500
Share capital
NCI
Dr
Dr
Dr
Dr
Cr
22 500
30 000
5 250
5 250
63 000

Dr
16 125
Cr
2 625
Cr
750
NCI
Cr
12 750
(RE: [25% ($15 000 + $34 500 - $9 000 + ($21 000 + $3 000) tfer from ARS)]
ARS: 25% ($3 000 + $7 500 + $10 500 [$21 000 +$3 000] tfer)
BCVR: 25% x 70% x ($6 000 + $9 000)
NCI share of profit
NCI
(25% x $33 000)
NCI
(25% x $4 000)
Dr
Cr
8 250
Dr
Cr
1 000
8 250
1 000

CA Question 21 7 Revised Version

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CA Question 21 7 Revised Version

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Question 21-7

QUESTION 21.7 (contd)

3. NCI share of equity at 1 July 2016

Consolidation Worksheet Entries - 30 June 2017

1. Business combination valuation entries

Deferred tax liability

QUESTION 21.7 (contd)

Transfer from business combination

3. NCI share of equity at 1 July 2016

4. NCI share of equity: 1 July 2016 - 30 June 2017

QUESTION 21.7 (contd)

Consolidation Worksheet Entries - 30 June 2018

1. Business combination valuation entries

Deferred tax liability

Retained earnings (1/7/17) *

Transfer from asset revaluation surplus

3. NCI share of equity at 1 July 2016

QUESTION 21.7 (contd)

NCI share of profit

Transfer from asset revaluation surplus

Gain on Asset revaluation

5. NCI share of equity: 1 July 2017 - 30 June 2018

Consolidation Journal entries - 30 June 2019

1. Business combination valuation entries

QUESTION 21.7 (contd)

3. NCI share of equity at 1 July 2016

4. NCI share of equity: 1 July 2016 - 30 June 2018

QUESTION 21.7 (contd)

Consolidation Journal Entries - 30 June 2020

1. Business combination valuation entries

4. NCI share of equity: 1 July 2019 - 30 June 2020

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