Posted: December 5th, 2016
Determine goodwill and record relevant journal entries of acquisition using the ‘cost method’ of accounting for F Ltd for the year ending 30 June 2010.
On 1 July 2009 F Ltd acquires 25% of the ordinary issued capital of R Ltd for $750 000. Upon acquisition of this financial interest in R Ltd, F Ltd appoints three directors to the twelve-seat board of directors of R Ltd. All identifiable net assets of R Ltd are stated at fair value except for the following:
| Item | Carrying value ($) |
Fair value ($) |
Difference ($) |
| Depreciable assets – | 1 280 000 | 1 400 000 | 120 000 |
| Land – | 1 500 000 | 2 000 000 | 500 000 |
The depreciable assets are considered to have a further 10 years useful life. The share capital and reserves of R Ltd at 1 July 2009 are:
| Share Capital | $800 000 |
| Retained earnings | $550 000 |
| General reserve | $150 000 |
| $1 500 000 |
Reconciliation of Retained Earnings (opening and closing) for the year ending 30 June 2010
| F Ltd ($) |
R Ltd ($) |
|
| Profit before tax
Income tax expense Profit after tax Retained earnings – opening
Transfer to reserves Dividend paid Dividend proposed Retaining earnings – closing |
1 000 000
390 000 610 000 520 000 1 130 000 – 60 000 140 000 930 000 |
910 000
370 000 540 000 550 000 1 090 000 50 000 180 000 60 000 800 000
|
Balance Sheets as at 30 June 2010
| F Ltd ($) |
R Ltd ($) |
|
| Current assets
Inventory Cash
Non-current assets Investments in associates Property, plant and equipment
Total assets Liabilities Net assets
Shareholders’ funds Share capital Retained earnings Revaluation reserve General reserve
|
2 850 000 1 740 000 4 590 000
750 000 4 500 000 5 250 000 9 840 000 (4 768 000) 5 072 000
2 000 000 930 000 642 000 1 500 000 5 072 000
|
1 350 000 240 000 1 590 000
– 2 524 000 2 524 000 4 114 000 (2 314 000) 1 800 000
800 000 800 000 – 200 000 1 800 000
|
Additional Information:
- F Ltd has a number of subsidiaries.
- F Ltd recognises dividends only when received.
- R Ltd has a policy of paying dividends out of current year profits before utilising previous years’ profit.
- On 30 June 2010, F Ltd holds inventory sold to it by R Ltd at a profit of$15 000. This inventory is sold to F Ltd for $20 000.
- On 30 June 2010, R Ltd holds inventory sold to it by F Ltd at a profit of $5 000. This inventory is sold to R Ltd for $10 000.
- The tax rate is 39%.
Required:
(i) Determine goodwill and record relevant journal entries of acquisition using the ‘cost method’ of accounting for F Ltd for the year ending 30 June 2010.
(ii) Record relevant journal entries using ‘equity method’ of accounting for F Ltd and its associates R Ltd for the year ending 30 June 2010, in accordance with AASB128.
Also calculate the final amount at which the investment in R Ltd. would be shown in the consolidated worksheet prepared by F Ltd as at 30 June 2010
Expert paper writers are just a few clicks away
Place an order in 3 easy steps. Takes less than 5 mins.