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.

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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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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