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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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