Question

Individual Assignment

ACC705

On 1 July 2015, Tuna Ltd acquired all the issued shares of Brim Ltd. Tuna Ltd paid $30 000 in cash and 20 000 shares in Tuna Ltd valued at $3 per share. At this date, the equity of Brim Ltd consisted of $66 000 share capital and $6000 retained earnings.

   At 1 July 2015, all the identifiable assets and liabilities of Brim Ltd were recorded at amounts equal to their fair values except for:

	Carrying amount	Fair value
Plant (cost $150 000)	$120 000	$123 000
Patents	90 000	105 000
Inventory	18 000	22 500

The plant was considered to have a further 5-year life. The patents were sold for $120 000 to

an external entity on 18 August 2015. The inventory was all sold by 30 June 2016.

Additional information

(a) Tuna Ltd sells certain raw materials to Brim Ltd to be used in its manufacturing process.

       At 1 July 2016, Brim Ltd held inventory sold to it by Tuna Ltd in the previous year at a profit of $600. During the 2016–17-year, Tuna Ltd sold inventory to Brim Ltd for $21 000. None of this was on hand at 30 June 2017.

(b) Brim Ltd also sells items of inventory to Tuna Ltd. During the 2016–17 year, Brim Ltd sold goods to Tuna Ltd for $4500. At 30 June 2017, inventory which had been sold to Tuna Ltd at a profit of $300 was still on hand in Tuna Ltd.’s inventory.

(c) On 1 July 2016, Brim Ltd sold an item of plant to Tuna Ltd for $15 000. This plant had a

       carrying amount in the records of Brim Ltd of $14 000 at time of sale. This type of plant is

       depreciated at 10% p.a. on cost.

(d) On 1 January 2015, Tuna Ltd sold an item of inventory to Brim Ltd for $18 000. The

       inventory had cost Tuna Ltd $16 000. This item was classified by Brim Ltd as plant. Plant of this type is depreciated by Brim Ltd at 20% p.a.

(e) On 1 March 2017, Brim Ltd sold an item of plant to Tuna Ltd. Whereas Brim Ltd classified this as plant, Tuna Ltd classified it as inventory. The sales price was $9000 which included a profit to Brim Ltd of $1500. Tuna Ltd sold this to another entity on 31 March for $9900.

(f) The tax rate is 30%.

At 30 June 2017, the following financial information was provided by the two companies:

	Tuna Ltd		Brim Ltd
	Dr	Cr	Dr	Cr
Sales revenue		64 500		78 000
Cost of sales	30 900		46 350
Trading expenses	4 800		9 000
Office expenses	7 950		4 050
Depreciation expenses	1 800		3 900
Proceeds on sale of plant		9 000		15 000
Carrying amount of plant sold	7 500		14 000
Income tax expense	11 100		7 300
Share capital		96 000		66 000
Retained earnings (1/7/16)		48 000		31 500
Current liabilities		21 100		10 500
Deferred tax liability		11 000		15 000
Plant	57 000		107 250
Accumulated depreciation – plant		18 300		33 450
Intangibles	12 000		11 100
Deferred tax assets	8 100		9 450
Shares in Brim Ltd	90 000		0
Inventory	28 500		24 600
Receivables	8 250		12 450
	267 900	267 900	249 450	249 450

Required

Calculate acquisition analysis for Tuna Ltd

Prepare consolidation journal entries for Tuna Ltd

Prepare a consolidated set of financial statements for the group. Use the worksheet provided.

        

Worksheet for requirement 3.

	Tuna Ltd	Brim Ltd	Journal number	Adjustments		Journal	Group
				Dr	Cr	number
Sales revenue	64 500	78 000
Cost of sales	30 900	46 350
Gross profit	33 600	31 650
Trading expenses	4 800	9 000
Office expenses	7 950	4 050
Depreciation	1 800	3 900
	14 550	16 950
Profit from trading	19 050	14 700
Proceeds from sale of plant	9 000	15 000
Carrying amount of plant sold	7 500	14 000
Gain/loss on sale of machinery	1 500	1 000
Profit before tax	20 550	15 700
Tax expense	11 100	7 300
Profit	9 450	8 400
Retained earnings (1/7/16)	48 000	31 500
Retained earnings (30/6/17)	57 450	39 900
Share capital	96 000	66 000
BCVR	--	--
Total equity	153 450	105 900
Current liabilities	21 100	10 500
Deferred tax liability	11 000	15 000
Total liabilities	32 100	25 500
Total equity and liabilities	185 550	131 400

				Dr	Cr
Plant	57 000	107 250
Accumulated depreciation	(18 300)	(33 450)
Intangibles	12 000	11 100
Shares in Brim Ltd	90 000	-
Deferred tax asset	8 100	9 450
Inventory	28 500	24 600
Receivables	8 250	12 450
Goodwill	0	0
Total assets	185 550	131 400

Answer 1