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Corporate Accounting 16. On 1 January 2020, Big Ltd acquired all the issued shares (non cum....

Corporate Accounting

16. On 1 January 2020, Big Ltd acquired all the issued shares (non cum. div.) of small Ltd for $750 000. At that date, the equity of small Ltd was recorded at:

                                                Share capital                       $350,000

                                                Reserves                               150,000

                                                Retained earnings              100 000

On 1 January 2020, the records of small Ltd also showed that the carrying value of the land is $40,000 with a fair value of $50,000 . Further small Ltd had a dividend payable of $5 000, the dividend to be paid in March 2020. All other assets and liabilities except land were carried at amounts equal to their fair values. Applicable tax rate of 30%.

The Pre-acquisition entry for the year ended 30/06/2021:

Select one:

a. Dr Share capital $350,000, Dr Reserves $150,000, Dr Retained earnings $100,000, Dr BCVR $150,000, Dr Dividend payable $5,000, Cr Dividend receivable $5,000, Cr Shares in Kent $750,000

b. Dr Share capital $350,000, Dr Reserves $150,000, Dr Retained earnings $100,000, Dr Goodwill $150,000, Dr Dividend payable $5,000, Cr Shares in Kent $750,000, Cr Dividend receivable $5,000

c. Dr Shares in Kent $750,000, Dr Dividend receivable $5,000, Cr Share capital $350,000, Cr Reserves $150,000, Dr Retained earnings $100,000, Cr BCVR $145,000, Cr Dividend payable $5,000

d. Dr Share capital $350,000, Dr Reserves $150,000, Dr Retained earnings $100,000, Dr BCVR $150,000, Cr Shares in Kent $750,000

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Homework Answers

Answer #1

The answer is option (d)

d) Dr Share Capital $350,000, Dr Reserves $150,000, Dr Retained Earnings $100,000, Dr BCVR $150,000, Cr Shares in Kent $750,000

AASB 102 allows all inventory recorded at lower cost. When the Fair value is higher than the cost, such an adjustment is not made in subsidiary books. AASB 138 do not allow internally generated goodwill in the subsidiary books. Hence the Option (b) is omitted.

There is no dividend received or yet to be received by the company. Therefore the Option (a) and Option (c) is omitted.

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