On 1 July 2011, Amy Ltd acquired all the issued ordinary shares (cum div.) and gained control of Zara Ltd for a consideration of $528,000. At that date the shareholders’ equity of Zara Ltd was:


Share Capital                                    $310,000

General Reserve                                   38,000

Retained Earnings                                68,000


At acquisition date, all the identifiable assets and liabilities of Zara Ltd were recorded at amounts equal to fair value except for:

Carrying                          Fair

                                                                            Amount                       Value

Goodwill                                              40,000                      82,000

Inventory                                         $100,000                  $120,000

Land                                                     80,000                    120,000

Machinery (cost $30,000)                    23,000                      25,000

Plant & Equipment (cost $460,000)  280,000                    286,000

Trademark (cost $225,000)                150,000                    180,000


In addition at the date of acquisition, Zara Ltd had a provision for dividend of $20,000 and other provisions of $254,000. The dividend liability was paid on 1 September 2011. It also had a contingent liability of $13,000 that Amy Ltd considered to have a fair value of $11,000. This liability was settled in July 2015.


The machinery, which was estimated to have a further ten year life at acquisition date, was sold on 1 January 2016. The plant and equipment had a further six year life at acquisition date and was expected to be used evenly over that time. The trademark had a further ten year life. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation.


During the year ended 30 June 2012, all inventories on hand at acquisition date were sold, and the land was sold on 1 June 2016. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed.


Goodwill was tested annually for impairment. For the year ended 30 June 2015, an impairment loss on goodwill of $2,500 was recorded.


On 30 June 2015, Zara Ltd transferred $10,000 from the general reserve (pre-acquisition) to retained earnings.

Additional information:


  • On 4 May 2015, Amy Ltd sold some land to Zara Ltd. The land had originally cost Amy Ltd $40,000, but was sold to Zara Ltd for $46,000. To help Zara Ltd pay for the land, Amy Ltd gave Zara Ltd an interest-free loan of $18,000. Zara Ltd has as yet made any repayments on the loan.


  • On 1 July 2015, Zara Ltd has on hand inventory worth $23,000, being transferred from Amy Ltd in May 2015. The inventory had previously cost Amy Ltd $15,000. All this inventory was sold in the following four months.


  • On 1 January 2016, Amy Ltd sold furniture to Zara Ltd for $12,000. This had originally cost Amy Ltd $26,000 and had a carrying amount at the time of sale of $14,000. Both entities charge depreciation at a rate of 10% p.a.


  • On 3 February 2016, interim dividend was paid by Zara Ltd from profits before acquisition date. The final dividend was from current year profits. Shareholder approval is not required in relation to dividends.


  • On 1 April 2016, Zara Ltd transferred an item of plant with a carrying amount of $21,000 to Amy Ltd for $29,000. Amy Ltd treated this item as inventory. The item was still on hand at the end of the year. Zara Ltd applied a 20% depreciation rate to this plant.


  • On 4 May 2016, Zara Ltd acquired $19,000 inventory from Amy Ltd. This inventory originally cost Amy Ltd $13,000. The profit in inventory at hand at 30 June 2016 was $2,000.


  • During the year ending 30 June 2016, Zara Ltd sold inventory costing $24,000 to Amy Ltd for $36,000. One quarter of this was sold to external parties for $13,500.


  • The tax rate is 30%.

On 30 June 2016 the trial balances of Amy Ltd and Zara Ltd were as follows:


Amy Ltd                     Zara Ltd


Cost of sales                                                    $282,000                     $256,000

Other expenses                                                    66,000                         60,000

Income tax expense                                            43,000                         39,000

Interim dividend paid                                         21,000                           9,000

Final dividend declared                                      22,000                         10,000

Cash                                                                    10,000                         87,000

Dividend receivable                                            10,000                                   –

Other receivables                                                88,000                         42,000

Inventory                                                          120,000                       110,000

Deferred tax assets                                             27,000                                   –

Machinery                                                           68,000                         60,000

Plant & equipment                                            540,000                       490,000

Land                                                                  108,000                         46,000

Furniture                                                             20,000                         25,000

Shares in Zara Ltd                                            508,000                                   –

Trademark                                                                     –                       325,000

Goodwill                                                             62,000                         40,000

Loan to Zara Ltd                                                18,000                                   

2,013,000                    1,599,000


Sales                                                                  400,000                      364,000

Other income                                                      62,000                         56,000

Share capital                                                      728,000                       310,000

General reserve                                                   70,000                       100,000

Retained earnings (1/7/15)                                409,000                       190,000

Final dividend payable                                       22,000                         10,000

Current tax liabilities                                             7,000                           5,000

Other provisions                                                  80,000                         40,000

Loan from Amy Ltd                                                     –                         18,000

Accumulated depreciation – P & E                  216,000                       320,000

Accumulated depreciation – Machinery             13,000                         33,000

Accumulated depreciation – Furniture                 6,000                          33,000

Accumulated amortisation – trademark                       –                       120,000

2,013,000                    1,599,000




  1. Prepare the acquisition analysis at 1 July 2011. (3 Marks).


Consequential errors will be penalised.


  1. Prepare the BVCR and pre-acquisition worksheet entries ONLY at 1 July 2011. (4 marks)


Journal entry – 1 tick for each correct line entry – i.e. correct account description AND amount (NO TICK for correct description only or correct amount only.)

Consequential errors will not be penalised.


  1. Prepare the consolidation worksheet entries (BCVR, pre-acquisition and intra-group adjustment entries) at 30 June 2016. (13 marks)



Journal entry – 1 tick for each correct line entry – ie correct account description AND amount (NO TICK for correct description only or correct amount only.)

Consequential errors will not be penalised.




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