Assignment Task
Case study
On 1 July 2020, Big Ltd acquired all the shares of Ben Ltd on an ex-div. basis. Big Ltd paid $700,000 cash and issued 20,000 shares which had a fair value of $30.00 on acquisition date. On this date, Ben Ltd included the following balances:
| Share capital | $200,000 |
| General reserve | 5,000 |
| Retained earnings | 45,000 |
| Dividend Payable –ex div basis | 10,000 |
| Goodwill | 3,000 |
At acquisition date, all the identifiable assets and liabilities of Ben Ltd were recorded at amounts equal to fair value except for:
| Carrying amount($) | Fair value($) | Useful life at acquisition date | |
| Land | 1,200,000 | 2,000,000 | Not applicable |
| Plant and equipment (cost $900,000) | 800,000 | 950,000 | 5 years |
| Inventories | 18,000 | 28,000 | 100% sold externally during the year ended 30/6/2021 |
Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed. Dividends were paid and declared by Ben Ltd during the current financial year. See worksheet.
Required
a. Prepare the acquisition analysis as at 1 July 2020 for the Big Ltd Group.
b. Prepare the consolidation worksheet entries as at 30 June 2022 for the Big Ltd Group.
c. Prepare the consolidation worksheet for the Big Ltd Group as at 30 June 2022, using the attached template.
d. Prepare a consolidated Balance sheet using account format, for the Big Ltd Group as at 30 June 2022. Please ensure all sub-headings and sub-totals are included.
Question
1. Discuss the accounting adjustments you have made in your worksheet, year ended 30 June 2022 to account for the fair value adjustment of inventories. Provide a reason for these consolidation entries.
2. Ben Ltd recorded a Dividend payable for $80,000. Explain the worksheet entries you have made for dividends owing between both companies.
3. Discuss the accounting processes, calculations and reason for the worksheet entries you have made for the Plant and all the related accounts, including depreciation and tax effects.
4. Big Ltd provided Ben Ltd with a loan for $90,000 in June 2021. Explain the accounting processes, calculations and reason for all worksheet entries you have made for this transaction (including interest). In your discussion, explain why there are no tax effects for any of these loan and interest related adjustments for the Group.
Assessment
Jenny Jonesis the assistant accountant for the Anzac Ltd corporate group. Jenny has recorded the following entries in the consolidation worksheet for the year ended 30 June 2023, using a tax rate of 30%:
1. Plant had a carrying amount of $35,000. The subsidiary plans to use this plant as an item of inventory. This plant was depreciated by Anzac Ltd at a rate of 10% on cost. Suggested time:
| Account name | Debit ($) | Credit ($) |
| Sales | 100,000 | |
| Cost of goods sold expense | 35,000 | |
| Plant | 65,000 | |
| Deferred Tax Asset (DTA) | 19,500 | |
| Income tax expense (ITE) | 19,500 | |
| Accumulated Depreciation | 6,500 | |
| Depreciation expense | 6,500 |
2. Anzac Ltd sold inventory for $10,000 to its subsidiary on 30 April 2023. Anzac Ltd had paid $8,000 for this inventory. On 30 June 2023 the subsidiary company undertook a stocktake which reported 100% of this inventory had been sold to external parties for $122,000. (4 marks) Suggested time:
| Account name | Debit ($) | Credit ($ |
| Sales | 10,000 | |
| Cost of goods sold expense | 8,000 | |
| Inventory | 2,000 | |
| Deferred Tax Asset (DTA) | ||
| Income tax expense (ITE) | 600 |