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Question 4 (35 Marks)
Part A (30 Marks)
At 1 July 2011, White Ltd acquired 80% of the share capital of Pages Ltd for $290,000 (cum div.). At this date the statement of financial position of Pages Ltd, including comparative information on fair values for assets, was as shown as follows.
Carrying amount Fair value
Current assets
Inventory 60,000 65,000
Receivables 40,000
Allowance for doubtful debts 5,000 35,000 35,000
Total current assets 95,000
Non-current assets
Plant and machinery (at cost) 200,000
Accumulated depreciation125,000 75,000 90,000
Vehicles (at cost) 80,000
Accumulated depreciation 10,000 70,000 75,000
Buildings (at cost) 120,000
Accumulated depreciation 5,000 115,000 115,000
Trademark (at valuation) 100,000 100,000
Other assets 40,000 40,000
Goodwill 20,000
Total non-current assets 420,000
Total assets515,000
Equity
Share capital 200,000
Asset revaluation surplus 50,000
Retained earnings50,000
Total equity 300,000
Current liabilities
Accounts payable 40,000
Dividend payable 20,000
Total current liabilities 60,000
Non-current liabilities
Debentures155,000
Total non-current liabilities 155,000
Required:
1. Determine the gain on bargain purchase or goodwill as at acquisition date using the partial goodwill method. (2 marks)
2. Determine the gain on bargain purchase or goodwill as at acquisition date using the full goodwill method. Assume the fair value of the Non-controlling interest at 1 July 2011 was $67,000. (3 marks)
3. Prepare the consolidation journal entries for White Ltd using the full goodwill method at 1 July 2011, immediately after acquisition. (7 marks)
4. Prepare the consolidation journal entries for White Ltd using the full goodwill method at 30 June 2014. (18 marks)
Total liabilities215,000
Total equity and liabilities515,000
At 1 July 2011, the depreciable assets had the following remaining useful lives:
Plant and machinery 5 years
Vehicles 10 years
Trademark 100 years
Buildings 10 years
All the inventory on hand at 1 July 2011 was sold by Pages Ltd by 30 June 2012. Adjustments for differences between fair values and carrying amounts at acquisition date are made on consolidation.
