Sem 1 2014 Assignment 2 Question and Solution.

xls

Date Details Dr Cr
1. Business combination valuation entries at 30 June 2013
Accumulated depreciation Dr 33,000.00
Plant Cr 15,000.00
Deferred tax liability Cr 5,400.00
Business combination valuation reserve Cr 12,600.00
(FV adjustment of $18,000 to plant on consolidation)

Depreciation expense Dr 1,800.00

Retained earnings (1/7/12) Dr 12,600.00
Accumulated depreciation Cr 14,400.00
(recognition of 7 yrs additional depreciation @
$1800 pa from FV adjustment)

Deferred tax liability Dr 4,320.00

Income tax expense Cr 540.00
Retained earnings (1/7/12) Cr 3,780.00
(recognition of increase to tax expense from
depreciation adjustment)

Goodwill Dr 240,900.00
Business combination valuation reserve Cr 240,900.00 Goodwill can either be recognised here or as part of the pre-acquisition equity en
(recognition of goodwill on consolidation)

Note: Land was sold in 2008. The FV adjustment of $17,500 is made via retained earnings as this adjustment is
included in the profit realised on sale. This adjustment is therefore incorporated into the entry that eliminates
subsidiary equity.

2. Pre-acquisition entries as at 30 June 2013

Retained earnings (1/7/12) Dr 57,500.00 [$40,000 + $17500 fv adj to land]
Share capital Dr 204,000.00
General reserve Dr 5,000.00
Business combination valuation reserve Dr 253,500.00 [$240,900 goodwill +12,600]
Shares in Hare Ltd Cr 520,000.00
(elimination Hare's pre-acquisition equity)

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 Sem 1 2014 Assignment 2 Question and Solution.xls

3. Unrealised profit in opening inventory: Turtle Ltd to Hare Ltd

Retained earnings (1/7/12) Dr 7,000.00 [Unrealised profit in opening inventory $10,000]
Income tax expense Dr 3,000.00
Cost of sales Cr 10,000.00
(Elimination of unrealised profit in Hare's Inventory
on consolidation)

4. Unrealised profit in closing inventory: Hare Ltd to Turtle Ltd

Sales Dr 75,000.00 [Intra-group sales $75,000]
Cost of sales Cr 63,000.00
Inventory Cr 12,000.00 [Unrealised profit in closing inventory $12,0000]
(Elimination of unrealised profit in Turtle's
Inventory on consolidation)

Deferred tax asset Dr 3,600.00

Income tax expense Cr 3,600.00 [30% x 12,000]
(Reduction in tax expense as result of elimination of
profit in closing inventory)

5. Inventory to non-current asset transfer: Hare Ltd - Turtle Ltd

The sale occurred in a prior period.
Retained earnings (1/7/12) Dr 7,000.00
Deferred tax asset Dr 3,000.00
Plant Cr 10,000.00
(elimination of profit on transfer of inventory to
non current asset)

6. Depreciation on inventory to non-current asset transfer

Prior Period:
Recorded = 16,500.00 [10% x 5.5 yrs x $30,000]
Group = 11,000.00 [10% x53.5 yrs x $20,000]
Difference = 5,500.00

Current Period
Recorded = 3,000.00 [10% x 1 yr x $30,000]
Group = 2,000.00 [10% x 1 yr x $20,000]
Difference = 1,000.00

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 Sem 1 2014 Assignment 2 Question and Solution.xls

Accumulated depreciation Dr 6,500.00 [$5,500 + $1,000]

Depreciation expense Cr 1,000.00 [current period depreciation]
Retained earnings (1/7/12) Cr 5,500.00 [prior period depreciation]
(elimination of depreciation recognised on
inventory transfer)

Income tax expense Dr 300.00

Retained earnings (1/7/12) Dr 1,650.00
Deferred tax asset Cr 1,950.00
(recognition of tax expense adjustment as a result
of inventory transfer adjustment)

7. Intragroup services
Director and consulting fees Dr 16,600.00 [note students should use the correct revenue account]
Administrative expenses Cr 13,600.00 [note students should use the correct expense account]
Technical services Cr 3,000.00 [note students should use the correct expense account]

(elimination of intra-group transfer of services)

8. Debentures
Debentures Dr 170,000.00
Debentures in Hare Ltd Cr 170,000.00

(elimination of intra-group debenture holdings)

Debenture interest revenue Dr 17,000.00 [10% x $260,000]

Financial expenses Cr 17,000.00
(elimination of intra-group interest payments

9. Dividend paid
Dividend revenue Dr 17,000.00
Interim Dividend Paid Cr 17,000.00
(elimination of intra-group dividends paid in
current period)

10. Dividend declared

Dividend payable Dr 8,500.00
Final dividend declared Cr 8,500.00

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 Sem 1 2014 Assignment 2 Question and Solution.xls

(elimination of intra-group dividends declared in

current period)

Dividend revenue Dr 8,500.00

Dividend receivable Cr 8,500.00
(elimination of intra-group dividend receivable in
current period)

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 Sem 1 2014 Assignment 2 Question and Solution.xls

ill can either be recognised here or as part of the pre-acquisition equity entry

17500

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