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FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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
Transcribed Image Text:Information
Reason Limited (Reason) is a group comprised of companies that own and operate various retail stores. On 1 July
2022, Reason acquired 90% of the shares of Lucy Limited (Lucy). Lucy operates a chain of bookshops.
Reason's financial accountant has correctly prepared the acquisition analysis at 1 July 2022, as below:
Item
$
Consideration transferred
Non-controlling interest's (NCI's) proportionate share of the fair value of
identifiable net assets (FVINA)
Recorded net assets
Fair value adjustments net of tax
Brand name ($1,400,000 × (1 - 30%))
$
17,600,000
1,898,000
19,498,000
18,000,000
980,000
18,980,000
518,000
FVINA
Goodwill acquired
Reason's board has decided that Lucy is no longer a strategic fit for Reason's business. In February 2024, the Board
decided that, if a buyer was willing to pay a reasonable price for Lucy, then the investment would be sold.
On 30 June 2024, Reason sold its investment in Lucy for $16 million.
Additional Information
- The fair value of Lucy's internally generated brand name at the acquisition date was determined by an
independent valuer to be $1.4 million. At that date, the useful life of the brand name was assessed to be 10
years.
-
Unless stated, all assets and liabilities acquired were stated at fair value at the acquisition date.
Lucy has neither paid nor declared any dividends since its acquisition by Reason.
At 30 June 2023, a goodwill impairment loss of $200,000 relating to Lucy was recognised in Reason's
consolidated financial statements.
Reason controls several other entities; therefore, it continues to prepare consolidated financial statements
following the sale of its shares in Lucy.
The investment in Lucy was carried at cost in Reason's general ledger throughout the ownership period. No
impairment on the investment was recognised.
The tax rate is 30%.
Reason and Lucy's year end is 30 June.
Net Assets
Share Capital
Retained Earnings
Total Equity
Lucy's profits post-acquisition
Revenue
Expenses
Profit Before Tax
Income Tax Expense
Net Assets as at 1 July
2022
Net Assets as at 1 July
2023
Net Assets as at 1 July
2024
12,000,000
12,000,000
6,000,000
6,420,000
12,000,000
7,070,000
18,000,000
18,420,000
19,070,000
Year ended 30 June 2023
3,500,000
(2,900,000)
600,000
(180,000)
420,000
Year ended 30 June 2024
2,300,000
(1,400,000)
900,000
(250,000)
650,000
Profit After Tax
Task
Prepare the consolidation journal entry for the sale of the investment in Lucy for the year ended 30 June 2024. Show
your workings.
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