Individual Assignment

ACC705

 

On 1 July 2015, Tuna Ltd acquired all the issued shares of Brim Ltd. Tuna Ltd paid $30 000 in cash and 20 000 shares in Tuna Ltd valued at $3 per share. At this date, the equity of Brim Ltd consisted of $66 000 share capital and $6000 retained earnings.

   At 1 July 2015, all the identifiable assets and liabilities of Brim Ltd were recorded at amounts equal to their fair values except for:

 

  Carrying amount          Fair value
Plant (cost $150 000) $120 000 $123 000
Patents 90 000 105 000
Inventory 18 000 22 500

 

The plant was considered to have a further 5-year life. The patents were sold for $120 000 to

an external entity on 18 August 2015. The inventory was all sold by 30 June 2016.

Additional information

(a)   Tuna Ltd sells certain raw materials to Brim Ltd to be used in its manufacturing process.

       At 1 July 2016, Brim Ltd held inventory sold to it by Tuna Ltd in the previous year at a profit of $600. During the 2016–17-year, Tuna Ltd sold inventory to Brim Ltd for $21 000. None of this was on hand at 30 June 2017.

(b)   Brim Ltd also sells items of inventory to Tuna Ltd. During the 2016–17 year, Brim Ltd sold goods to Tuna Ltd for $4500. At 30 June 2017, inventory which had been sold to Tuna Ltd at a profit of $300 was still on hand in Tuna Ltd.’s inventory.

(c)   On 1 July 2016, Brim Ltd sold an item of plant to Tuna Ltd for $15 000. This plant had a

       carrying amount in the records of Brim Ltd of $14 000 at time of sale. This type of plant is

       depreciated at 10% p.a. on cost.

(d)   On 1 January 2015, Tuna Ltd sold an item of inventory to Brim Ltd for $18 000. The

       inventory had cost Tuna Ltd $16 000. This item was classified by Brim Ltd as plant. Plant of this type is depreciated by Brim Ltd at 20% p.a.

(e)   On 1 March 2017, Brim Ltd sold an item of plant to Tuna Ltd. Whereas Brim Ltd classified this as plant, Tuna Ltd classified it as inventory. The sales price was $9000 which included a profit to Brim Ltd of $1500. Tuna Ltd sold this to another entity on 31 March for $9900.

(f)   The tax rate is 30%.

 

At 30 June 2017, the following financial information was provided by the two companies: 

 

  Tuna Ltd Brim Ltd
  Dr Cr Dr Cr
Sales revenue   64 500   78 000
Cost of sales 30 900   46 350  
Trading expenses 4 800   9 000  
Office expenses 7 950   4 050  
Depreciation expenses 1 800   3 900  
Proceeds on sale of plant   9 000   15 000
Carrying amount of plant sold 7 500   14 000  
Income tax expense 11 100   7 300  
Share capital   96 000   66 000
Retained earnings (1/7/16)   48 000   31 500
Current liabilities   21 100   10 500
Deferred tax liability   11 000   15 000
Plant 57 000   107 250  
Accumulated depreciation – plant   18 300   33 450
Intangibles 12 000   11 100  
Deferred tax assets 8 100   9 450  
Shares in Brim Ltd 90 000   0  
Inventory 28 500   24 600  
Receivables 8 250   12 450  
  267 900 267 900 249 450 249 450

 

 

Required

 

  1. Calculate acquisition analysis for Tuna Ltd (10 marks)
  2. Prepare consolidation journal entries for Tuna Ltd (10 marks)
  3. Prepare a consolidated set of financial statements for the group. Use the worksheet provided. (10 marks)

        

 

Worksheet for requirement 3.

 

  Tuna

Ltd

Brim

Ltd

Journal number Adjustments Journal   Group
Dr Cr number
Sales revenue 64 500 78 000  

 

 

 

     
Cost of sales 30 900 46 350      

 

   
Gross profit 33 600 31 650          
Trading expenses 4 800 9 000          
Office expenses 7 950 4 050          
Depreciation 1 800 3 900        

 

 
  14 550 16 950          
Profit from trading 19 050 14 700          
Proceeds from sale of plant 9 000 15 000  

 

       
Carrying amount of plant sold 7 500 14 000        

 

 
Gain/loss on sale of machinery 1 500 1 000          
Profit before tax 20 550 15 700          
Tax expense 11 100 7 300          
Profit 9 450 8 400          
Retained earnings (1/7/16) 48 000 31 500          
Retained earnings (30/6/17) 57 450 39 900          
Share capital 96 000 66 000          
BCVR        

 

 
Total equity 153 450 105 900          
               
Current liabilities 21 100 10 500          
Deferred tax liability 11 000 15 000          
 Total liabilities 32 100 25 500          
Total equity and liabilities 185 550 131 400          
               

 

 

        Dr Cr    
Plant 57 000 107 250          
Accumulated depreciation (18 300) (33 450)          
Intangibles 12 000 11 100          
Shares in Brim Ltd 90 000          
Deferred tax asset 8 100 9 450          
Inventory 28 500 24 600          
Receivables 8 250 12 450          
Goodwill 0 0          
Total assets 185 550 131 400          

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