Consolidations Week 2 TEXT CHAP 15 TEXT CHAP 15. Carrying amount of assets @ acquisition nSo far it...
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Transcript of Consolidations Week 2 TEXT CHAP 15 TEXT CHAP 15. Carrying amount of assets @ acquisition nSo far it...
Carrying amount of assets Carrying amount of assets @ acquisition@ acquisition
So far it has been assumed that the subsidiary’s net So far it has been assumed that the subsidiary’s net assets are recorded at fair valuesassets are recorded at fair values
When the carrying amount of the subsidiary's When the carrying amount of the subsidiary's assets are different from fair values AASB 1024 assets are different from fair values AASB 1024 sets out two (2) approaches to recognising the sets out two (2) approaches to recognising the necessary adjustmentsnecessary adjustments
(1) to recognise the necessary adjustment on (1) to recognise the necessary adjustment on consolidationconsolidation
(2) to revalue the assets in the accounting records (2) to revalue the assets in the accounting records of the subsidiaryof the subsidiary
Adjustment on Adjustment on ConsolidationConsolidation
The non-current assets of the subsidiary are The non-current assets of the subsidiary are adjusted to the fair values on consolidationadjusted to the fair values on consolidation
The differences being recorded in the assets The differences being recorded in the assets revaluation reserverevaluation reserve
The asset revaluation reserve is then part of the The asset revaluation reserve is then part of the equity acquired equity acquired
Inventory has to carried at the lower of cost or net Inventory has to carried at the lower of cost or net realisable value, they cannot be adjusted to assets realisable value, they cannot be adjusted to assets revaluation reserve but adjusted directly in pre-revaluation reserve but adjusted directly in pre-acquisition entryacquisition entry
Example - LandExample - Land
Green Ltd purchased all of the shares of Frog Ltd on 1 Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date July 19x5 for $117,000. The equity of Frog Ltd at that date was :-was :-
CAPITAL $80,000CAPITAL $80,000
RETAINED PROFITS 30,000RETAINED PROFITS 30,000
All the identified net assets of Frog Ltd were recorded at fair All the identified net assets of Frog Ltd were recorded at fair value value
Except for land which had a carrying amount of $26000, $10 Except for land which had a carrying amount of $26000, $10 000 less than its fair value of $36,000.000 less than its fair value of $36,000.
Example - LandExample - Land
Green Ltd purchased all of the shares of Frog Ltd on 1 Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date July 19x5 for $117,000. The equity of Frog Ltd at that date was :-was :-
CAPITAL $80,000CAPITAL $80,000
RETAINED PROFITS 30,000RETAINED PROFITS 30,000
All the identified net assets of Frog Ltd were recorded at fair All the identified net assets of Frog Ltd were recorded at fair value value
Except for land which had a carrying amount of $26000, $10 Except for land which had a carrying amount of $26000, $10 000 less than its fair value of $36,000.000 less than its fair value of $36,000.
FV of INA= 80+30+.7(10) =117Cost =117
FV of INA= 80+30+.7(10) =117Cost =117
Example - LandExample - Land
Green Ltd purchased all of the shares of Frog Ltd on 1 Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date July 19x5 for $117,000. The equity of Frog Ltd at that date was :-was :-
CAPITAL $80,000CAPITAL $80,000
RETAINED PROFITS 30,000RETAINED PROFITS 30,000
All the identified net assets of Frog Ltd were recorded at fair All the identified net assets of Frog Ltd were recorded at fair value value
Except for land which had a carrying amount of $26000, $10 Except for land which had a carrying amount of $26000, $10 000 less than its fair value of $36,000.000 less than its fair value of $36,000.
FIRST CONS ENTRY::
DR LAND 10,000 CR Deferred Tax Liab 3 000 CR ASSET REVALN RESERVE 7,000
FIRST CONS ENTRY::
DR LAND 10,000 CR Deferred Tax Liab 3 000 CR ASSET REVALN RESERVE 7,000
Example - LandExample - Land
Green Ltd purchased all of the shares of Frog Ltd on 1 Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date July 19x5 for $117,000. The equity of Frog Ltd at that date was :-was :-
CAPITAL $80,000CAPITAL $80,000
RETAINED PROFITS 30,000RETAINED PROFITS 30,000
All the identified net assets of Frog Ltd were recorded at fair All the identified net assets of Frog Ltd were recorded at fair value value
Except for land which had a carrying amount of $26000, $10 Except for land which had a carrying amount of $26000, $10 000 less than its fair value of $36,000.000 less than its fair value of $36,000.
DR CAPITAL 80,000DR RETAINED PROFITS 30,000DR A.R.R. 7,000 CR SHARES IN FROG LTD 117,000
DR CAPITAL 80,000DR RETAINED PROFITS 30,000DR A.R.R. 7,000 CR SHARES IN FROG LTD 117,000
FV of INA= 80+30+.7(10) =117Cost =117
FV of INA= 80+30+.7(10) =117Cost =117
Example - Depreciable Example - Depreciable AssetAsset
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog ltd were recorded at fair value All the identified net assets of Frog ltd were recorded at fair value
Except for a depreciable asset Plant which has a fair value Except for a depreciable asset Plant which has a fair value $10,000 greater than its carrying amount (Frog Ltd has it $10,000 greater than its carrying amount (Frog Ltd has it recorded at $45,000 with accumulated depreciation $5,000)recorded at $45,000 with accumulated depreciation $5,000)
Example - Depreciable Example - Depreciable AssetAsset
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog ltd were recorded at fair value All the identified net assets of Frog ltd were recorded at fair value
Except for a depreciable asset Plant which has a fair value Except for a depreciable asset Plant which has a fair value $10,000 greater than its carrying amount (Frog Ltd has it $10,000 greater than its carrying amount (Frog Ltd has it recorded at $45,000 with accumulated depreciation $5,000)recorded at $45,000 with accumulated depreciation $5,000)
F.V. Assets acquired = (Capital $80 000 + RP $30 000 + 70 %ARR $10 000) = 117 000Cost of Acquisition = 117 000
F.V. Assets acquired = (Capital $80 000 + RP $30 000 + 70 %ARR $10 000) = 117 000Cost of Acquisition = 117 000
Example - Depreciable Example - Depreciable AssetAsset
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog ltd were recorded at fair value All the identified net assets of Frog ltd were recorded at fair value
Except for a depreciable asset Plant which has a fair value Except for a depreciable asset Plant which has a fair value $10,000 greater than its carrying amount (Frog Ltd has it $10,000 greater than its carrying amount (Frog Ltd has it recorded at $45,000 with accumulated depreciation $5,000)recorded at $45,000 with accumulated depreciation $5,000)
second cons entry::DR PLANT 10,000 Cr Deferred Tax Lia 3,000 CR A.R.R. 7,000
second cons entry::DR PLANT 10,000 Cr Deferred Tax Lia 3,000 CR A.R.R. 7,000
Write off accum depn::DR Accumulated Depn 5,000 CR Plant 5,000
Write off accum depn::DR Accumulated Depn 5,000 CR Plant 5,000
Example - Depreciable Example - Depreciable AssetAsset
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog ltd were recorded at fair value All the identified net assets of Frog ltd were recorded at fair value
Except for a depreciable asset Plant which has a fair value Except for a depreciable asset Plant which has a fair value $10,000 greater than its carrying amount (Frog Ltd has it $10,000 greater than its carrying amount (Frog Ltd has it recorded at $45,000 with accumulated depreciation $5,000)recorded at $45,000 with accumulated depreciation $5,000)
DR CAPITAL 80,000DR R.P. 30,000DR A.R.R. 7,000 CR SHARES IN FROG 117,000
DR CAPITAL 80,000DR R.P. 30,000DR A.R.R. 7,000 CR SHARES IN FROG 117,000
F.V. Assets acquired = (Capital $80 000 + RP $30 000 + 70 %ARR $10 000) = 117 000Cost of Acquisition = 117 000
F.V. Assets acquired = (Capital $80 000 + RP $30 000 + 70 %ARR $10 000) = 117 000Cost of Acquisition = 117 000
Example - Depreciable Example - Depreciable AssetAsset
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog ltd were recorded at fair value All the identified net assets of Frog ltd were recorded at fair value
Except for a depreciable asset Plant which has a fair value Except for a depreciable asset Plant which has a fair value $10,000 greater than its carrying amount (Frog Ltd has it $10,000 greater than its carrying amount (Frog Ltd has it recorded at $45,000 with accumulated depreciation $5,000)recorded at $45,000 with accumulated depreciation $5,000)
cons entry::DR PLANT 10,000 Cr DTL 3,000 CR A.R.R. 7,000DR DEPN 2,500 CR ACC DEPN 2,500DR DTL 750 CR Income tax Exp 750
cons entry::DR PLANT 10,000 Cr DTL 3,000 CR A.R.R. 7,000DR DEPN 2,500 CR ACC DEPN 2,500DR DTL 750 CR Income tax Exp 750
ENTRY AFTER 1 YEARS ASSUMINGPLANT HAS LIFEOF 4 YEARS
Example - Depreciable Example - Depreciable AssetAsset
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog ltd were recorded at fair value All the identified net assets of Frog ltd were recorded at fair value
Except for a depreciable asset Plant which has a fair value Except for a depreciable asset Plant which has a fair value $10,000 greater than its carrying amount (Frog Ltd has it $10,000 greater than its carrying amount (Frog Ltd has it recorded at $45,000 with accumulated depreciation $5,000)recorded at $45,000 with accumulated depreciation $5,000)
second cons entry::DR PLANT 10,000 Cr DTL 3,000 CR A.R.R. 7,000DR DEPN 2,500DR RP 2,500 CR ACC DEPN 5,000DR DTL 1,500 CR Income tax Exp 750 Cr RP 750
second cons entry::DR PLANT 10,000 Cr DTL 3,000 CR A.R.R. 7,000DR DEPN 2,500DR RP 2,500 CR ACC DEPN 5,000DR DTL 1,500 CR Income tax Exp 750 Cr RP 750
ENTRY AFTER 2 YEARS ASSUMINGPLANT HAS LIFEOF 4 YEARS
Example - InventoriesExample - Inventories
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog Ltd were recorded at fair All the identified net assets of Frog Ltd were recorded at fair value value
Except for inventory which had a carrying amount of $10 000 Except for inventory which had a carrying amount of $10 000 greater than its book value.greater than its book value.
Example - InventoriesExample - Inventories
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog Ltd were recorded at fair All the identified net assets of Frog Ltd were recorded at fair value except for inventory which had a carrying amount of value except for inventory which had a carrying amount of $10 000 greater than its book value.$10 000 greater than its book value.
F.V. Assets acquired = (Capital $80 000 + RP $30 000 + 70 % Invent $10 000) = 117 000Cost of Acquisition = 117 000
F.V. Assets acquired = (Capital $80 000 + RP $30 000 + 70 % Invent $10 000) = 117 000Cost of Acquisition = 117 000
Example - InventoriesExample - Inventories
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog Ltd were recorded at fair All the identified net assets of Frog Ltd were recorded at fair value value
Except for inventory which had a carrying amount of $10 000 Except for inventory which had a carrying amount of $10 000 greater than its book value.greater than its book value.
CONS ENTRY:: DR CAPITAL 80,000DR R.P. 30,000DR INVENTORY 10,000 CR Deferred Tax Liab 3,000 CR SHARES IN FROG 117,000
CONS ENTRY:: DR CAPITAL 80,000DR R.P. 30,000DR INVENTORY 10,000 CR Deferred Tax Liab 3,000 CR SHARES IN FROG 117,000
F.V. Assets acquired = (Capital $80 000 + RP $30 000 + 70 % Invent $10 000) = 117 000Cost of Acquisition = 117 000
F.V. Assets acquired = (Capital $80 000 + RP $30 000 + 70 % Invent $10 000) = 117 000Cost of Acquisition = 117 000
Example - InventoriesExample - Inventories
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog Ltd were recorded at fair All the identified net assets of Frog Ltd were recorded at fair value value
Except for inventory which had a carrying amount of $10 000 Except for inventory which had a carrying amount of $10 000 greater than its book value.greater than its book value.
CONS ENTRY:: YEAR INVENTORY SOLDDR CAPITAL 80,000DR R.P. 30,000DR COST OF SALES 10,000 CR TAX EXPENSE 3,000 CR SHARES IN FROG 117,000
CONS ENTRY:: YEAR INVENTORY SOLDDR CAPITAL 80,000DR R.P. 30,000DR COST OF SALES 10,000 CR TAX EXPENSE 3,000 CR SHARES IN FROG 117,000
Example - InventoriesExample - Inventories
Green Ltd purchased all of the shares of Frog Ltd on 1 July Green Ltd purchased all of the shares of Frog Ltd on 1 July 19x5 for $117,000. The equity of Frog Ltd at that date was :-19x5 for $117,000. The equity of Frog Ltd at that date was :-
Capital $80,000Capital $80,000
Retained profits 30,000Retained profits 30,000
All the identified net assets of Frog Ltd were recorded at fair All the identified net assets of Frog Ltd were recorded at fair value value
Except for inventory which had a carrying amount of $10 000 Except for inventory which had a carrying amount of $10 000 greater than its book value.greater than its book value.
CONS ENTRY:: FOLLOWING YEARSDR CAPITAL 80,000DR R.P. 37,000 (30,000+10,000-3,000) CR SHARES IN FROG 117000
CONS ENTRY:: FOLLOWING YEARSDR CAPITAL 80,000DR R.P. 37,000 (30,000+10,000-3,000) CR SHARES IN FROG 117000
Revaluation of assets in Revaluation of assets in Subsidiary’s booksSubsidiary’s books
As per AASB 1010 subsidiary can revalue non current As per AASB 1010 subsidiary can revalue non current assets in its books ie assets in its books ie
DR Non current assetDR Non current asset
CR Deferred Tax LiabilityCR Deferred Tax Liability
CR Asset revaluation reserveCR Asset revaluation reserve If depreciable assets accumulated depreciation must be If depreciable assets accumulated depreciation must be
written off as beforewritten off as before If revalue in books no need to adjust depreciationIf revalue in books no need to adjust depreciation
as this will be adjusted in the booksas this will be adjusted in the books Inventory as per AASB 1019 cannot be written up and Inventory as per AASB 1019 cannot be written up and
therefore still adjusted on consolidationtherefore still adjusted on consolidation
Revaln in Subsidiary’s Revaln in Subsidiary’s books - goodwillbooks - goodwill
On 1 January 19x7, Buddy Ltd acquired all the issued shares of On 1 January 19x7, Buddy Ltd acquired all the issued shares of Holly Ltd for $52,000. At this date the financial position of Holly Ltd for $52,000. At this date the financial position of Holly Ltd was as followsHolly Ltd was as follows:-:-
CAPITAL 22,000CAPITAL 22,000
RETAINED PROFITS 18,000RETAINED PROFITS 18,000
F. V.F. V.
PLANT (COST $20,000) 15,000 18,000PLANT (COST $20,000) 15,000 18,000
LAND 5,000 7,000LAND 5,000 7,000
INVENTORY 20,000 25,000INVENTORY 20,000 25,000
Holly revalues to fair values (except inventory)Holly revalues to fair values (except inventory)
Revaln in Subsidiary’s Revaln in Subsidiary’s books - goodwillbooks - goodwill
On 1 January 19x7, Buddy Ltd acquired all the issued shares of On 1 January 19x7, Buddy Ltd acquired all the issued shares of Holly Ltd for $52,000. At this date the financial position of Holly Ltd for $52,000. At this date the financial position of Holly Ltd was as followsHolly Ltd was as follows:-:-
CAPITAL 22,000CAPITAL 22,000
RETAINED PROFITS 18,000RETAINED PROFITS 18,000
F. V.F. V.
PLANT (COST $20,000) 15,000 18,000PLANT (COST $20,000) 15,000 18,000
LAND 5,000 7,000LAND 5,000 7,000
INVENTORY 20,000 25,000INVENTORY 20,000 25,000
Holly revalues to fair values (except inventory)Holly revalues to fair values (except inventory)
FV of Assets Acq= 22000+18000+.7(3000+2000+5000)=47 000Cost 52 000Goodwill 5 000
FV of Assets Acq= 22000+18000+.7(3000+2000+5000)=47 000Cost 52 000Goodwill 5 000
Revaln in Subsidiary’s Revaln in Subsidiary’s books - goodwillbooks - goodwill
On 1 January 19x7, Buddy Ltd acquired all the issued shares of On 1 January 19x7, Buddy Ltd acquired all the issued shares of Holly Ltd for $52,000. At this date the financial position of Holly Ltd for $52,000. At this date the financial position of Holly Ltd was as followsHolly Ltd was as follows:-:-
CAPITAL 22,000CAPITAL 22,000
RETAINED PROFITS 18,000RETAINED PROFITS 18,000
F. V.F. V.
PLANT (COST $20,000) 15,000 18,000PLANT (COST $20,000) 15,000 18,000
LAND 5,000 7,000LAND 5,000 7,000
INVENTORY 20,000 25,000INVENTORY 20,000 25,000
Holly revalues to fair values (except inventory)Holly revalues to fair values (except inventory)
entries in BOOKS OF SUBDr Land 2,000 Cr Deferred Tax Lia 600 Cr ARR 1,400DR ACC DEPN 5,000 CR PLANT 5,000Dr Plant 3,000 Cr DTL 900 Cr ARR 2,100
entries in BOOKS OF SUBDr Land 2,000 Cr Deferred Tax Lia 600 Cr ARR 1,400DR ACC DEPN 5,000 CR PLANT 5,000Dr Plant 3,000 Cr DTL 900 Cr ARR 2,100
Revaln in Subsidiary’s Revaln in Subsidiary’s books - goodwillbooks - goodwill
On 1 January 19x7, Buddy Ltd acquired all the issued shares of On 1 January 19x7, Buddy Ltd acquired all the issued shares of Holly Ltd for $52,000. At this date the financial position of Holly Ltd for $52,000. At this date the financial position of Holly Ltd was as followsHolly Ltd was as follows:-:-
CAPITAL 22,000CAPITAL 22,000
RETAINED PROFITS 18,000RETAINED PROFITS 18,000
F. V.F. V.
PLANT (COST $20,000) 15,000 18,000PLANT (COST $20,000) 15,000 18,000
LAND 5,000 7,000LAND 5,000 7,000
INVENTORY 20,000 25,000INVENTORY 20,000 25,000
Holly revalues to fair values (except inventory)Holly revalues to fair values (except inventory)
CONS entries::DR CAPITAL 22,000DR R.P. 18,000DR A.R.R. 3,500DR G’WILL 5,000DR INVENT. 5,000 CR Deferred Tax Liab 1,500 CR SHARES S 52,000
CONS entries::DR CAPITAL 22,000DR R.P. 18,000DR A.R.R. 3,500DR G’WILL 5,000DR INVENT. 5,000 CR Deferred Tax Liab 1,500 CR SHARES S 52,000
FV of Assets Acq= 22000+18000+.7(3000+2000+5000)=47 000Cost 52 000Goodwill 5 000
FV of Assets Acq= 22000+18000+.7(3000+2000+5000)=47 000Cost 52 000Goodwill 5 000
Revaln in Subsidiary’s Revaln in Subsidiary’s books - goodwillbooks - goodwill
On 1 January 19x7, Buddy Ltd acquired all the issued shares of On 1 January 19x7, Buddy Ltd acquired all the issued shares of Holly Ltd for $52,000. At this date the financial position of Holly Ltd for $52,000. At this date the financial position of Holly Ltd was as followsHolly Ltd was as follows:-:-
CAPITAL 22,000CAPITAL 22,000
RETAINED PROFITS 18,000RETAINED PROFITS 18,000
F. V.F. V.
PLANT (COST $20,000) 15,000 18,000PLANT (COST $20,000) 15,000 18,000
LAND 5,000 7,000LAND 5,000 7,000
INVENTORY 20,000 25,000INVENTORY 20,000 25,000
Holly revalues to fair values (except inventory)Holly revalues to fair values (except inventory)
entries (after 1 year)::Dr Goodwill Exp 500DR CAPITAL 22,000DR R.P. 18,000DR A.R.R. 3,500DR G’WILL 5,000 CR Acc Amort 500DR Cost of Sales 5,000 CR Tax Expense 1,500 CR SHARES S 52,000
entries (after 1 year)::Dr Goodwill Exp 500DR CAPITAL 22,000DR R.P. 18,000DR A.R.R. 3,500DR G’WILL 5,000 CR Acc Amort 500DR Cost of Sales 5,000 CR Tax Expense 1,500 CR SHARES S 52,000
CONS entries::DR CAPITAL 22,000DR R.P. 18,000DR A.R.R. 3,500DR G’WILL 5,000DR INVENT. 5,000 CR Deferred Tax Liab 1,500 CR SHARES S 52,000
CONS entries::DR CAPITAL 22,000DR R.P. 18,000DR A.R.R. 3,500DR G’WILL 5,000DR INVENT. 5,000 CR Deferred Tax Liab 1,500 CR SHARES S 52,000
DiscountDiscountadj on consolidationadj on consolidation
On 1 July 19x7, Big Ltd acquired all the issued shares of Boppa Ltd On 1 July 19x7, Big Ltd acquired all the issued shares of Boppa Ltd for $31,530. The financial position of Boppa Ltd at that date wasfor $31,530. The financial position of Boppa Ltd at that date was
CAPITAL 20,000CAPITAL 20,000
RESERVES 6,000RESERVES 6,000
RETAINED PROFITS 4,000RETAINED PROFITS 4,000
F.V.F.V.
PLANT (NET) 25,000 30,000PLANT (NET) 25,000 30,000
LAND 4,000 6,000LAND 4,000 6,000
INVENTORY 4,000 5,000INVENTORY 4,000 5,000
MONETARY ASSETS 2,000 2,000MONETARY ASSETS 2,000 2,000
LIABILITIES (5,000) (5,000)LIABILITIES (5,000) (5,000)
Boppa Ltd revalues Land & Plant . Tax rate 30% Boppa Ltd revalues Land & Plant . Tax rate 30%
DiscountDiscount
On 1 July 19x7, Big Ltd acquired all the issued shares of Boppa Ltd On 1 July 19x7, Big Ltd acquired all the issued shares of Boppa Ltd for $31,530. The financial position of Boppa Ltd at that date wasfor $31,530. The financial position of Boppa Ltd at that date was
CAPITAL 20,000CAPITAL 20,000
RESERVES 6,000RESERVES 6,000
RETAINED PROFITS 4,000RETAINED PROFITS 4,000
F.V.F.V.
PLANT (NET) 25,000 30,000PLANT (NET) 25,000 30,000
LAND 4,000 6,000LAND 4,000 6,000
INVENTORY 4,000 5,000INVENTORY 4,000 5,000
MONETARY ASSETS 2,000 2,000MONETARY ASSETS 2,000 2,000
LIABILITIES (5,000) (5,000)LIABILITIES (5,000) (5,000)
Boppa Ltd revalues Land & Plant . Tax rate 30%Boppa Ltd revalues Land & Plant . Tax rate 30%
F,V, OF ASSETS ACQ(20,000+6,000+4,000+ .7 (A.R.R. 7,000+INV 1,000) = $35,600COST = 31,530
DISCOUNT $ 4,070
F,V, OF ASSETS ACQ(20,000+6,000+4,000+ .7 (A.R.R. 7,000+INV 1,000) = $35,600COST = 31,530
DISCOUNT $ 4,070
DiscountDiscount
On 1 July 19x7, Big Ltd acquired all the issued shares of Boppa Ltd On 1 July 19x7, Big Ltd acquired all the issued shares of Boppa Ltd for $31,530. The financial position of Boppa Ltd at that date wasfor $31,530. The financial position of Boppa Ltd at that date was
CAPITAL 20,000CAPITAL 20,000
RESERVES 6,000RESERVES 6,000
RETAINED PROFITS 4,000RETAINED PROFITS 4,000
F.V.F.V.
PLANT (NET) 25,000 30,000PLANT (NET) 25,000 30,000
LAND 4,000 6,000LAND 4,000 6,000
INVENTORY 4,000 5,000INVENTORY 4,000 5,000
MONETARY ASSETS 2,000 2,000MONETARY ASSETS 2,000 2,000
LIABILITIES (5,000) (5,000)LIABILITIES (5,000) (5,000)
Boppa Ltd revalues Land & Plant . Tax rate 30%Boppa Ltd revalues Land & Plant . Tax rate 30%
Revaluation:Dr Land 2 000 Cr DTL 600 Cr ARR 1 400
Dr Plant 5 000 Cr DTL 1 500 Cr ARR 3 500
Revaluation:Dr Land 2 000 Cr DTL 600 Cr ARR 1 400
Dr Plant 5 000 Cr DTL 1 500 Cr ARR 3 500
DiscountDiscount
On 1 July 19x7, Big Ltd acquired all the issued shares of Boppa Ltd On 1 July 19x7, Big Ltd acquired all the issued shares of Boppa Ltd for $31,530. The financial position of Boppa Ltd at that date wasfor $31,530. The financial position of Boppa Ltd at that date was
CAPITAL 20,000CAPITAL 20,000
RESERVES 6,000RESERVES 6,000
RETAINED PROFITS 4,000RETAINED PROFITS 4,000
F.V.F.V.
PLANT (NET) 25,000 30,000PLANT (NET) 25,000 30,000
LAND 4,000 6,000LAND 4,000 6,000
INVENTORY 4,000 5,000INVENTORY 4,000 5,000
MONETARY ASSETS 2,000 2,000MONETARY ASSETS 2,000 2,000
LIABILITIES (5,000) (5,000)LIABILITIES (5,000) (5,000)
Boppa Ltd revalues Land & Plant . Tax rate 30%Boppa Ltd revalues Land & Plant . Tax rate 30%
ALLOCATION OF DISCOUNT: N-M ASSETS F.V. DISCOUNT Grossed Tax Effect Cost upPLANT 30,000 3,000 4286 1286 25714LAND 6,000 600 857 257 5143INVENTORY Net of tax 4,700 470 4230 40,700 $4070Carry Amount of Inventory $4000 Gross up $230 /.7Carrying Amt Plant & Land now fair values
ALLOCATION OF DISCOUNT: N-M ASSETS F.V. DISCOUNT Grossed Tax Effect Cost upPLANT 30,000 3,000 4286 1286 25714LAND 6,000 600 857 257 5143INVENTORY Net of tax 4,700 470 4230 40,700 $4070Carry Amount of Inventory $4000 Gross up $230 /.7Carrying Amt Plant & Land now fair values
DiscountDiscount
On 1 July 19x7, Big Ltd acquired all the issued shares of Boppa Ltd On 1 July 19x7, Big Ltd acquired all the issued shares of Boppa Ltd for $31,530. The financial position of Boppa Ltd at that date wasfor $31,530. The financial position of Boppa Ltd at that date was
CAPITAL 20,000CAPITAL 20,000
RESERVES 6,000RESERVES 6,000
RETAINED PROFITS 4,000RETAINED PROFITS 4,000
F.V.F.V.
PLANT (NET) 25,000 30,000PLANT (NET) 25,000 30,000
LAND 4,000 6,000LAND 4,000 6,000
INVENTORY 4,000 5,000INVENTORY 4,000 5,000
MONETARY ASSETS 2,000 2,000MONETARY ASSETS 2,000 2,000
LIABILITIES (5,000) (5,000)LIABILITIES (5,000) (5,000)
Boppa Ltd revalues Land & Plant . Tax rate 30%Boppa Ltd revalues Land & Plant . Tax rate 30%
F,V, OF ASSETS ACQ(20,000+6,000+4,000+ .7 (A.R.R. 7,000+INV 1,000) = $35,600COST = 31,530
DISCOUNT $ 4,070
F,V, OF ASSETS ACQ(20,000+6,000+4,000+ .7 (A.R.R. 7,000+INV 1,000) = $35,600COST = 31,530
DISCOUNT $ 4,070
ALLOCATION OF DISCOUNT: N-M ASSETS F.V. DISCOUNT Grossed Tax Effect Cost upPLANT 30,000 3,000 4286 1286 25714LAND 6,000 600 857 257 5143INVENTORY Net of tax 4,700 470 4230 40,700 $4070NET GROSS UP /.7230/.7=329
ALLOCATION OF DISCOUNT: N-M ASSETS F.V. DISCOUNT Grossed Tax Effect Cost upPLANT 30,000 3,000 4286 1286 25714LAND 6,000 600 857 257 5143INVENTORY Net of tax 4,700 470 4230 40,700 $4070NET GROSS UP /.7230/.7=329
CONS ENTRY ::
DR CAPITAL 20,000DR G.R. 6,000DR R.P. 4,000DR A.R.R. 4,900 CR PLANT 4,286Dr Deferred Tax Liab 1,286 CR LAND 857DR Deferred Tax Liab 257DR INVENT 329 CR DTL 99 CR SHARES IN B 31,530
CONS ENTRY ::
DR CAPITAL 20,000DR G.R. 6,000DR R.P. 4,000DR A.R.R. 4,900 CR PLANT 4,286Dr Deferred Tax Liab 1,286 CR LAND 857DR Deferred Tax Liab 257DR INVENT 329 CR DTL 99 CR SHARES IN B 31,530