ACCTING 3501 Corporate Accounting: Acquisition Analysis Big Ltd

Questions:

Part A

1.

Big Ltd acquired all the issued shares (cum div.) of Mac Ltd on 1 July 2019 for $240,900. At this date Mac Ltd had recorded a dividend payable of $35 000 and equity of:

 

Share capital

150 000

Retained earnings

60 000

General reserve

  6 000

All the identifiable assets and liabilities of Mac Ltd were recorded at amounts equal to their fair values at acquisition date except for:

Asset 

Carrying Amount ($) 

Fair Value ($) 

Inventories

128 000

132 000

Plant (cost $300 000)

240 000

310 000

Additional information:

  • The plant has a further 5-year life.
  • All inventory on hand at acquisition date was sold by 30 June 2020.
  • The company tax rate is 30%.
  • Financial results are provided for both individual companies on the attached worksheet.

Required:   

  • Prepare the acquisition analysis at 1 July 2019. (10 marks)
  • Prepare the consolidation entries at acquisition date, 30 June 2020. Include narrations for each entry. (11 marks)
  • Prepare the consolidation worksheet as at 30 June 2020. Enter zeros not dashes for any amounts which to not have a balance in the Group column. (34 marks)
  • Prepare a Statement of Changes in Owners’ Equity as at 30 June 2020, for the reporting Group, Big Ltd.

Part B:  Video Presentation

Prepare a video presentation and script to address each of the following questions. You will be assessed on your technical understanding of each question and also your presentation skills.

  1. Explain each of the steps involved in preparing your acquisition analysis in Question 1(a).
  1. Explain the Business Combination entry you have prepared for the Plant information given in Part A. Explain whyyou have debited and credited each account and how you calculated each amount. Include any affected Depreciation/Accumulated depreciation accounts in your discussion. 

Asset

Carrying amount ($)

Fair Value ($)

Plant (cost $300,000)

240,000

310,000

  1. Discuss how you have recorded the fair value difference for inventory. Explain each account and amount you have used in your entry. Explain why you have debited or credited that particular account and amount.
  2. Explain the entry you have made to record the Goodwill on acquisition. In your discussion, include all relevant accounts, that you have used and how you have calculated the amount recorded in the worksheet.

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