On 1 July 2020, Kent Ltd acquired all the share capital (Ex-dividend) of Sub Ltd for $500,000. The financial statements of Kent Ltd showed the equity of Sub Ltd at that date to be:                                 Share capital — 60 000 $5 shares                              $300 000                                 General reserve 40 000                                 Retained earnings 90 000 All the assets and liabilities of Sub Ltd were recorded at amounts equal to their fair values at that date except the following:   Carrying Amount Fair value Land $150 000 $170 000 Plant (Cost $400 000) $300 000 $350 000 Inventory $75 000 $80 000   Additional information: On 10 September 2020, Sub Ltd paid interim cash dividend of $10,000. At acquisition date, 1 July 2020, Sub Ltd has an unrecorded Patent that has a fair value of $20,000, and a Contingent Liability that has a fair value of $15 000. Plant has expected to have a further 5-year life. The tax rate is 30%. Required: a) Prepare the acquisition analysis as at 1 July 2020. b) Prepare the consolidation entries (i.e., BCVR and pre-acquisition elimination entries) at 30 June 2021.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On 1 July 2020, Kent Ltd acquired all the share capital (Ex-dividend) of Sub Ltd for $500,000. The financial statements of Kent Ltd showed the equity of Sub Ltd at that date to be:

                                Share capital — 60 000 $5 shares                              $300 000

                                General reserve 40 000

                                Retained earnings 90 000

All the assets and liabilities of Sub Ltd were recorded at amounts equal to their fair values

at that date except the following:

 

Carrying Amount

Fair value

Land

$150 000

$170 000

Plant (Cost $400 000)

$300 000

$350 000

Inventory

$75 000

$80 000

 

Additional information:

  • On 10 September 2020, Sub Ltd paid interim cash dividend of $10,000.
  • At acquisition date, 1 July 2020, Sub Ltd has an unrecorded Patent that has a fair value of $20,000, and a Contingent Liability that has a fair value of $15 000.
  • Plant has expected to have a further 5-year life.
  • The tax rate is 30%.

Required:

a) Prepare the acquisition analysis as at 1 July 2020.

b) Prepare the consolidation entries (i.e., BCVR and pre-acquisition elimination entries) at 30 June 2021.

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