On 1 July 2015, Victoria Ltd a

Question description

On 1 July 2015, Victoria Ltd acquired 70% of the shares of Melbourne Ltd for
$526,000 on a cum div. basis. Victoria Ltd had acquired 30% of the shares of
Melbourne Ltd two years earlier for $180,000. This investment, classified as an
available-for-sale investment, was recorded at a fair value on 1 July 2015 of
$226,000. At 1 July 2015, the equity and liability sections of Melbourne Ltd’s
statement of financial position showed the following balances: 
 

Share Capital

 
460,000

General Reserve

 
50,000

Retained Earnings

 
100,000

Other liabilities

 
100,000

Dividend payable

 
30,000

 
At acquisition date, all the identifiable assets and
liabilities of Melbourne Ltd were recorded at amounts equal to fair value
except for:
 

 Carrying
Amount 

Fair Value

Land

 
95,000

 
100,000

Vehicle (@ cost 40,000)

 
35,000

 
39,000

Equipment (@ cost 420,000)

 
294,000

 
309,000

Inventory

 
98,000

 
101,000

 
The Vehicle, which was estimated to have a further four year life
at acquisition date, was sold on 1 January 2018. The equipment had a further
five year life at acquisition date and was expected to be used evenly over that
time. Any adjustments for differences between carrying amounts at acquisition
date and fair values are made on consolidation.
Melbourne Ltd had not recorded an internally developed
patent. Victoria Ltd valued this patent at $90,000 and was assumed to have a
ten year life. In May 2017, Melbourne sold this patent to an external party for
$100,000. It also had a contingent liability of $19,000 that Victoria Ltd
considered to have a fair value of $15,000. This liability was settled in July
2017. 
The dividend liability was paid on 1 September 2015.
All inventories on hand at acquisition date were sold by June 2016. The land
was sold on 1 June 2018 to Peters Ltd. Any valuation reserves created are
transferred on consolidation to retained earnings when assets are sold or fully
consumed.
On 30 May 2017, Melbourne Ltd transferred $8,000 from
the general reserve (pre-acquisition) to retained earnings. A bonus dividend of
$10,000 was paid in December 2017 out of pre-acquisition profits.
Goodwill was tested annually for impairment. For the
year ended 30 June 2017, an impairment loss on goodwill of $4,000 was
recorded. 
Additional information:
(i)  Melbourne
Ltd sold a warehouse with a carrying amount of $82,000 to Victoria Ltd for
$100,000. The transaction took place on 1 January 2017. Victoria Ltd charges
depreciation at 5% p.a. on a straight-line basis.
(ii)  On
31 March 2017, Victoria Ltd sold some land to Melbourne Ltd. The land had
originally cost Victoria Ltd $64,000, but was sold to Melbourne Ltd for
$63,000. To help Melbourne Ltd pay for the land, Victoria Ltd gave Melbourne
Ltd an interest-free loan of $29,000. Melbourne Ltd has as yet made no
repayments on the loan.
(iii)  In
April 2017, Victoria Ltd sold inventory to Melbourne Ltd for $12,000, at a
mark-up of 20% on cost. One quarter of this inventory was unsold by Melbourne
Ltd at 30 June 2017. The remaining inventory was sold in the following three
months.
(iv)  On
1 October 2017, Victoria Ltd issued 1,000 15% debentures of $100 at nominal
value. Melbourne Ltd acquired 400 of these. Interest is payable half-yearly on
31 March and 30 September. Accruals have been recognised in the legal entities’
accounts.
(v)  On
18 February 2018, interim dividend was paid by Melbourne Ltd from profits
before acquisition date. The final dividend was from current year profits.
Shareholder approval is not required in relation to dividends.
(vi)  On
1 April 2018, Melbourne Ltd transferred an item of plant with a carrying amount
of $32,000 to Victoria Ltd for $41,000. Victoria Ltd treated this item as
inventory. The item was still on hand at the end of the year. Melbourne Ltd
applied a 20% depreciation rate to this plant.
(vii)  During
the year ending 30 June 2018, Melbourne Ltd sold inventory to Victoria Ltd for
$60,000, recording a before-tax profit of $16,000. One quarter of this
inventory was unsold by Victoria Ltd at 30 June 2018. 
(viii)  The
tax rate is 30%.

On 30 June 2018 the trial balances of
Victoria Ltd and Melbourne Ltd were as follows:

Victoria Ltd

Melbourne
Ltd

Cost of sales

338,000

307,000

Other expenses

80,000

72,000

Income tax expense

41,000

40,000

Interim dividend paid

21,000

14,000

Final dividend declared

22,000

15,000

Cash

181,000

105,000

Dividend receivable

20,000

Other receivables

206,000

227,000

Inventory

244,000

132,000

Deferred tax assets

35,000

Trucks

82,000

72,000

Plant & equipment

648,000

380,000

Land

130,000

123,000

Warehouses

180,000

90,000

Debentures in Victoria Ltd

40,000

Shares in Melbourne Ltd

722,000

Goodwill

74,000

30,000

Loan to Melbourne Ltd 

29,000

3,053,000

1,647,000

Sales

480,000

437,000

Other revenue & income

79,000

56,000

Share capital

874,000

470,000

Share options

80,000

General reserve

84,000

72,000

Retained earnings (1/7/2017)

490,000

228,000

Final dividend payable

22,000

15,000

Current tax liabilities

8,000

12,000

Other liabilities

96,000

60,000

Debentures

400,000

Loan from Victoria Ltd

29,000

Accumulated depreciation – P & E

388,000

228,000

Accumulated depreciation – Trucks 

25,000

22,000

Accumulated depreciation – Warehouses

27,000

18,000

3,053,000

1,647,000

Required
a) 
Prepare
the acquisition analysis as at 1 July 2015. (3
Marks). 
b) 
Prepare
the BVCR and pre-acquisition worksheet entries ONLY as
at 30 June 2016. (5 marks)
c) 
Prepare
full consolidation worksheet entriesas at 30
June 2018. (12 marks)

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