Required
Prepare the following:
1.  Acquisition analysis at 1 July 2009.
 
According to the formula:
Net FV of identifiable assets and liabilities of subsidiary
=    recorded equity [capital + reserves] of subsidiary
   + differences between CA & FV of each recorded asset & liability after tax  
+ FV of each unrecorded asset, liability and contingent liability recognized as part of the business combination after tax
 
 
Recorded equity [capital + reserves] of subsidiary:
Share Capital  $180, 000
General Reserve  $20, 000
Plant Maintenance Reserve  $30, 000
Retained Earnings  $72, 000
Subtotal: $302,000
 
Differences between CA & FV of each recorded asset & liability after tax:
Land               $75, 000-$50,000=$25,000
Building            $57, 000-$55,000=$2,000
Inventory           $60, 000-$45,000=$15,000
Plant               $190,000-$182,000=$8,000
Delivery Truck       $38, 000-$36,000=$2,000
Subtotal: $52,000 (1-30%) =$36,400
 
FV of each unrecorded asset, liability and contingent liability recognized after tax:
Unrecorded patent:  $45,000
Court case:          ($30,000)
Subtotal: $15,000 (1-30%) =$10,500
 
So, the Net FV of identifiable assets and liabilities of subsidiary is $348,900. So the consideration transferred is 360,000, so the goodwill is $11,100.
 
 
2.  The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June 2012.
BCVR entries at 30 June 2012:
1) Land                       Dr  25,000
    Deferred tax liability                     Cr    7,500
BCV reserve                            Cr    17,500
 
2) Accumulated depreciation       Dr  (75,000-55,000)=20,000
    Building                                Cr    18,000
    Deferred tax liability                     Cr     600
    BCV reserve                            Cr    1,400
 
Depreciation expense            Dr  200
Retained earnings               Dr  400
Accumulated depreciation               Cr    600
(10% x $2000 x 3 of difference between FV and CA)
 
Deferred tax liability              Dr  180
Income tax expense                     Cr    60
Retained earnings                       Cr  120
(30% x $600 Dep. Expense)
 
3) Cost of sales                  Dr  15,000
Income tax expense                    Cr   4,500
BCV reserve                           Cr   10,500
(Inventory was sold during 2010)
 
4) Accumulated depreciation       Dr  (260,000-182,000)=78,000
     Plant                                  Cr    70,000
     Deferred tax liability                    Cr    2,400
BCV reserve                           Cr    5,600
 
Depreciation expense            Dr  1,600
Retained earnings               Dr  3,200
Accumulated depreciation               Cr    4,800
(20% x $8000 x 3 of difference between FV and CA)
 
Deferred tax liability              Dr  1,440
Income tax expense                     Cr    480
Retained earnings                       Cr    960
(30% x $4,800 Dep. Expense)
 
5) Accumulated depreciation       Dr  (90,000-36,000)=54,000
     Delivery truck                          Cr    52,000
     Deferred tax liability                    Cr    600
BCV reserve                           Cr    1,400
 
Deprec. Expense                      Dr      375
Carrying amount of delivery truck sold  Dr      850
Income Tax Expense                           Cr     525
Retained Earnings                  Dr    700
Transfer from BCV reserve                  Cr   1,400
 
For calculation:
Depreciation expense           Dr  375
Retained earnings              Dr  1000
         Accumulated depreciation               Cr    1,375
(25% x $2,000 x 9 months difference between FV and CA)
Deferred tax liability            Dr  412.5
Income tax expense                     Cr    112.5
Retained earnings                       Cr    300
(30% x $1000 Dep. Expense) 
Deferred tax liability            Dr  412.5
Income tax expense                     Cr    412.5
(Truck sold in 2012)
 
 
6) Unrecorded patent
Goodwill                       Dr  45,000
    Deferred tax liability                  Cr    13,500
  BCV reserve                         Cr    31,500
 
7) Unrecorded court case
Deferred tax liability                  Dr     9,000
BCV reserve                         Dr    21,000
Damage expense              Cr  30,000
8) Goodwill                           Dr  11,100 
         BCV reserve                       Cr    11,100
 
Pre-acquisition entries at 30 June 2012:
 
1）Pre-acquisition entry for reserve transfer
In Napoli company:
Transfer to general reserves      Dr  10,000
General reserve                     Cr    10,000
 
Gneral reserves      Dr  10,000
Transfer to general reserve          Cr    10,000
 
2）Pre-acquisition entry for general reserve
Retained earnings          Dr  62,000
Share capital               Dr  180,000
General reserve            Dr   30,000
Plant Maintenance Reserve  Dr  30, 000
BCVR                     Dr   58,000
Shares in Napoli Ltd         Cr    360,000
 
 
 
3.  All of the consolidation worksheet journal entries at 30 June 2013.
 
BCVR entries at 30 June 2013:
1) Accumulated depreciation       Dr  (75,000-55,000)=20,000
    Building                                Cr    18,000
    Deferred tax liability                     Cr     600
    BCV reserve                            Cr    1,400
 
Depreciation expense            Dr  200
Retained earnings               Dr  600
Accumulated depreciation               Cr    800
(10% x $2000 x 4 of difference between FV and CA)
 
Deferred tax liability              Dr  240
Income tax expense                     Cr    60
Retained earnings                       Cr  180
(30% x $800 Dep. Expense)
 
2) Accumulated depreciation       Dr  (260,000-182,000)=78,000
     Plant                                  Cr    70,000
     Deferred tax liability                    Cr    2,400
BCV reserve                           Cr    5,600
 
Depreciation expense            Dr  1,600
Retained earnings               Dr  4,800
Accumulated depreciation               Cr    6,400
(20% x $8000 x 4 of difference between FV and CA)
 
Deferred tax liability              Dr  1,920
Income tax expense                     Cr    480
Retained earnings                       Cr    1,440
(30% x $6,400 Dep. Expense)
3) 2013-1-1, Napoli sold patent
 
Other revenues             Dr 30,000
   Goodwill                    Cr 28,000
BCV reverse                 Cr 2,000
 
Deferred tax asset            Dr  9,000
Income tax expense                 Cr    9,000
 
4) Court case
 
Damage expense            Dr 34,000
   Transfer from BCV             Cr 21,000 
Income tax expense            Cr    9000
Retained earnings              Cr    4000
 
5)
Impairment expense    Dr  5,000
  Accumulated Impairment Losses  Cr  5,000
 
Pre-acquisition entries at 30 June 2013: No entry
 
 
Intra-group transactions:
1) On 2012-7-1, Roma transferred inventory to Napoli:
Sales                   Dr  28,000
Cost of sales                Cr    28,000
 
2) On 2011-4-1, Roma sold inventory to Napoli
Sales                   Dr  25,000
Cost of sales                Cr    27,000
Inventory                   Cr     -2,000
 
Deferred tax asset       Dr  -600
Income tax expense         Cr    -600
 
Depreciation expense           Dr  11,250
Accumulated depreciation               Cr    11,250
 
Deferred tax asset              Dr  3,375
Income tax expense                     Cr    3,375
 
3) 2013-6-30, Roma sold inventory to Napoli, Napoli sold to external:
Sales                   Dr  27,000
Cost of sales                Cr    24,000
Inventory                   Cr     3,000
 
Deferred tax asset       Dr  900
Income tax expense         Cr    900
 
4) 2011-5-1, Roma lent to Napoli:
Loan from Roma Ltd                   Dr  35,000
Loan to Napoli Ltd                       Cr    35,000
Loan reveivable-Napoli                 Dr  2,800
Loan payable-Roma                      Cr    2,800
 
5) 2012-10-1, Napoli sold plant to Roma
 
Proceeds on sale             Dr  14,000
Available for sale                   Cr    11,000
Plant                               Cr     3,000
 
Deferred tax asset            Dr  180
Income tax expense                 Cr    180
 
6) 2013-1-1, Roma sold furniture to Napoli
 
Proceeds on sale             Dr  5,000
Available for sale                  Cr    4,500
Office furniture                     Cr      500
 
Deferred tax asset            Dr  150
Income tax expense                 Cr    150
 
Depreciation expense         Dr    350
Accumulated depreciation          Cr  350
 
(450 for Group, 300 for Roma 3 months, 500 for Napoli 6 months, the adjustment is 500+300-450)
 
4.  The consolidation worksheet for Roma Ltd at 30 June 2013. 

Account Name	Roma Ltd	Napoli Ltd	Adjustments				Group
				Dr	Cr
Cash	90620.00	96145.00					186765.00
Receivables	36000.00	83800.00					119800.00
Dividend Receivable	8000.00	1200.00					9200.00
Inventory	72000.00	97800.00			-2000		171800.00
					3000		-3000.00
Available-for-Sale -Financial assets	90250.00	27250.00					117500.00
Loan Receivable – Napoli Ltd	35000.00			35000			70000.00
				2800			2800.00
Shares in Napoli Ltd	360000.00						360000.00
Deferred Tax Assets	32080.00	24725.00					56805.00
Land	125000.00	50000.00					175000.00
Buildings	120000.00	75000.00			18000		177000.00
Plant	450000.00	320000.00			70000		700000.00
Delivery Truck	75000.00	120000.00					195000.00
Office Furniture	15000.00	26000.00					41000.00
Goodwill	28000.00				28000		0.00
Cost of Sales	1440100.00	1190500.00			28000		2602600.00
					27000		-27000.00
					24000		-24000.00
Proceeds on sale				14000			14000.00
				5000			5000.00
Amortisation & Depreciation	60000.00	59100.00		200			119300.00
				1600			1600.00
				11250			11250.00
				350			350.00
Damages Expense		34000.00		34000			68000.00
Other expenses	63000.00	162400.00					225400.00
Income tax expense	68100.00	79860.00			480		147480.00
					9000		-9000.00
					9000		-9000.00
					-600		600.00
					3375		-3375.00
					900		-900.00
					180		-180.00
					150		-150.00
Impairment expense				5000			5000.00
Dividend paid	12000.00	10000.00					22000.00
Dividend declared	6000.00	8000.00					14000.00
Transfer to General Reserve	10000.00						10000.00
Total Debit Balances	3196150.00	2465780.00		109200	218485		5552645.00
Account Name	Roma Ltd	Napoli Ltd	Adjustments				Group
				Dr	Cr
Share Capital	450000.00	180000.00					630000.00
General Reserve	80000.00	30000.00					110000.00
Plant Maintenance Reserve		10000.00					10000.00
Available for sale - FA Reserve	40000.00	5000.00					45000.00
Retained Earnings (1/7/12)	89500.00	165340.00		600	1440		255680.00
				4800	4000		-800.00
Dividend Payable	6000.00	8000.00					14000.00
Accounts Payable	37000.00	31400.00					68400.00
Loan Payable – Roma Ltd		35000.00			35000		70000.00
					2800		2800.00
Loan Payable (due 1/7/16)	100000.00	50000.00					150000.00
Current Tax Liability	65200.00	89000.00					154200.00
Deferred Tax Liability	19250.00	26040.00		1920	600		43970.00
				9000	2400		-6600.00
				-600			600.00
				3375			-3375.00
				900			-900.00
				180			-180.00
				150			-150.00
Annual Leave Entitlements	50000.00	25000.00					75000.00
Sales Revenue	1830000.00	1500000.00		28000			3302000.00
				25000			-25000.00
				27000			-27000.00
Available for sale					11000		11000.00
					4500		4500.00
Dividend Revenue	23500.00	3200.00					26700.00
Gain on Sale of NCA	500.00	50000.00					50500.00
Other Revenue	62900.00	16000.00		30000			48900.00
Transfer from PMR		20000.00					20000.00
Accum. Depreciation –Buildings	56000.00	40000.00		20000	800		76800.00
Accum. Depreciation –Plant	252000.00	153000.00		78000	6400		333400.00
					11250		11250.00
					3000		3000.00
Accum Depreciation –Office Furniture	6200.00	13800.00			350		20350.00
					500		500.00
Accum. Depreciation – Delivery Truck	28100.00	15000.00					43100.00
Accum. Impairment loss					5000		5000.00
BCR Reverse					1400		1400.00
					5600		5600.00
					2000		2000.00
Transfer from BCR					21000		21000.00
Total Credit Balances	3196150.00	2465780.00		228325	119040		5552645.00

 
 
5.  The consolidated financial statements for Roma Ltd at 30 June 2013.

Account Name	Group	Account Name	Group
Current Assets		Equity
Cash	186765.00	Share Capital	630000.00
Receivables	119800.00	General Reserve	110000.00
Dividend Receivable	9200.00	Plant Maintenance Reserve	10000.00
Inventory	168800.00	Available for sale - FA Reserve	45000.00
Available-for-Sale -Financial assets	117500.00	Retained Earnings (1/7/12)	254880.00
Loan Receivable – Napoli Ltd	72800.00	BCR Reverse	9000.00
Shares in Napoli Ltd	360000.00	Transfer from BCR	21000.00
Deferred Tax Assets	56805.00	Profit	248625.00
Fixed Assets		Total Equity	1328505.00
Land	175000.00
Buildings	177000.00	Liability
Plant	700000.00	Dividend Payable	14000.00
Delivery Truck	195000.00	Accounts Payable	68400.00
Office Furniture	41000.00	Loan Payable – Roma Ltd	72800.00
Transfer to General Reserve	10000.00	Loan Payable (due 1/7/16)	150000.00
		Current Tax Liability	154200.00
		Deferred Tax Liability	33365.00
		Annual Leave Entitlements	75000.00
		Accum. Depreciation –Buildings	76800.00
		Accum. Depreciation –Plant	347650.00
		Accum Depreciation –Office Furniture	20850.00
		Accum. Depreciation – Delivery Truck	43100.00
		Accum. Impairment loss	5000.00
Total Assets	2389670.00	Total Liability	1061165.00

 
 

Revenue
Sales Revenue	3250000.00
Available for sale	15500.00
Cost of goods sold
Cost of Sales	2551600.00
Proceeds on sale	19000.00
Other expenses
Amortisation & Depreciation	132500.00
Damages Expense	68000.00
Other expenses	225400.00
Income tax expense	125475.00
Impairment expense	5000.00
Dividend paid	22000.00
Dividend declared	14000.00
Other Revenue
Dividend Revenue	26700.00
Gain on Sale of NCA	50500.00
Other Revenue	48900.00
Transfer from PMR	20000.00
Net Income	248625.00