Tien Ltd acquired 80% of Chai Ltd on 1 July 2010. At the acquisition date, the equity
of Chai Ltd was:
$
Share capital (100,000 shares) 100,000
General reserve 3,000
Retained earnings 37,000
All the identifiable net assets of Chai Ltd were recorded at fair value at the date of
acquisition, except for the following assets:
Carrying amount Fair value
$ $
Plant (cost $75,000) 50,000 55,000
Land 30,000 38,000
The plant has a further 10 year life, with benefits expected to be received evenly over
that period. The land was sold on 1 February 2011 for $40,000. Any valuation reserve
in relation to the land is transferred to retained earnings on consolidation.
Three years after acquisition, the financial information at 30 June 2013 of the two
companies appears as follows:
Tien Ltd Chai Ltd
$ $
Sales 316,000 220,000
Other revenue:
Debenture interest 5,000
Management and consulting fees 5,000
Dividends from Chai Ltd 12,000
Total revenue 338,000 220,000
Cost of sales 130,000 85,000
Manufacturing expenses 90,000 60,000
Depreciation on plant 15,000 15,000
Administrative expenses 15,000 8,000
Financial expenses 11,000 5,000
Other expenses 14,000 12,000
Total expenses 275,000 185,000
Profit before tax 63,000 35,000
Income tax expense (25,000) (17,000) Page 2 of 4
Operating profit after tax 38,000 18,000
Retained earnings 1 July 2012 50,000 45,000
88,000 63,000
Transfer to general reserve 3,000
Interim dividend paid 10,000 10,000
Final dividends declared 10,000 5,000
23,000 15,000
Retained earnings 30 June 2013 65,000 48,000
General reserve 50,000 10,000
Other components of equity 13,000 10,000
Share capital 300,000 100,000
Debentures 200,000 100,000
Current tax liability 25,000 17,000
Dividend payable 10,000 5,000
Deferred tax liability 7,000
Other liabilities 90,000 12,000
753,000 309,000
Assets
Financial assets 50,000 60,000
Debentures in Chai Ltd 100,000
Shares in Chai Ltd 131,600
Plant (cost) 120,000 102,000
Accumulated depreciation – plant (65,000) (55,000)
Other depreciable assets 76,000 55,000
Accumulated depreciation (40,000) (25,000)
Inventory 90,000 85,000
Deferred tax asset 85,400 30,000
Land 201,000 57,000
Dividend receivable 4,000
753,000 309,000
Additional information:
(a) Tien Ltd uses the full goodwill method. The fair value of non controlling
interest at 1 July 2010 was $31,500.
(b) The inventory on hand of Chai Ltd on 1 July 2012 included a quantity priced at
$10,000 that was transferred from Tien Ltd during the prior financial year. This
inventory had cost Tien Ltd $7,500. This entire inventory was sold by Chai Ltd
to parties external to the group during the current financial year.
(c) Chai Ltd sold inventory to Tien Ltd for $60,000 during the year. This inventory
had an original cost to Chai Ltd of $55,000. This entire inventory was held by
Tien Ltd during the year.
(d) On 1 January 2012, Chai Ltd sold an item from its inventory to Tien Ltd for
$20,000. Tien Ltd had treated this item as an addition to its plant. The item was
put into service as soon as received by Tien Ltd and depreciation charged at
20% p.a. The cost of that item to Chai Ltd was $15,000.
Page 3 of 4
(e) The management and consulting fees of Tien Ltd were all paid by Chai Ltd and
represented charges made for administration $2,200 and technical services
$2,800. The latter were recognised as manufacturing expenses by Chai Ltd.
(f) All debentures issued by Chai Ltd are held by Tien Ltd. The related interest has
been recorded by Tien Ltd accordingly and Chai Ltd recorded the interest paid
in financial expenses.
(g) Other components of equity relate to movements in the fair values of the
financial assets. The balance of these accounts on 1 July 2012 was $10,000 for
Tien Ltd and $8,000 for Chai Ltd.
(h) The tax rate is 30%.
Required:
A. Prepare an acquisition analysis and the consolidation journal entries necessary
for preparation of the consolidated financial statements for the year ending 30
June 2013 for the group comprising Tien Ltd and Chai Ltd.
B. Complete a detailed consolidation worksheet for the year ending 30 June 2013.
Note: show all necessary workings, narrations are not required
Attachments:
kjjj.docx