Question

On 1 July 2019 Short Ltd acquired 80% of the shares of Tall Ltd for $436 200.

At this date the equity of Tall Ltd consisted of share capital of $280 000 and retained earnings of $140 000. All the identifiable asset and liabilities of Tall Ltd were recorded at amounts equal to fair value except for:

Carrying amount FV

Land 80 000 95 000

Plant (Cost $380 000) 300 000 330 000

Inventories 15 000 18 000

The plant was considered to have a further 10-year life.

All the inventory was sold by 30 June 2020.

A litigation claim of $6 000 and Patent of $20 000 was unrecorded during the 2019 financial year.

The tax rate is 30%. Short Ltd uses the partial goodwill method.

During the 2019-20 period Tall Ltd recorded a profit of $60 000.

Required

A. Using partial goodwill, Calculate acquisition analysis at 1 July 2019

B. Prepare all consolidation journal entries for 30 June 2020

At 1 July 2019:

(a) Worksheet entries at 1 July 2019:

(i) BCVR entries:

Land:

Plant:

Inventories

Patent

Litigation

(ii) Pre-acquisition entries:

(iii) NCI share of equity at 1 July 2019:

Part B

(i) Journal entries 30 June 2020:

Land:

Plant:

Sale of inventory

Patent

Litigation

(ii) Pre-acquisition entries:

(iii) NCI share of equity at 30 June 2020:

(iv) NCI share of equity (1/7/19 - 30/6/20):

Answer 1

	Computation of Synergy-
	Purchase consideration	436,200
	Less:
	Share capital acquired	(224,000)	80% of 280,000
	Retained earnings acquired	(112,000)	80% of 140,000
	Fair value reserve acquired	(33,280)	80% of 15,000
	Goodwill	66,920
	The Company has incurred 66,920 for synergy benefit and shall account as the Goodwill in its books.
Date	General Ledger Account	Debit	Credit
1/7/2019	Land A/c----Dr	15,000
	Plant A/c---Dr	30,000
	Inventory A/c---Dr	3,000
	Patent A/c---Dr	20,000
	To Deferred tax liability A/c		20,400
	To Litigation liability A/c		6,000
	To Fair value reserve A/c		41,600
	Pre-acquisition entries
	Share Capital A/c---Dr	224,000
	Retained Earnings A/c---Dr	112,000
	Fair value reserve A/c--- Dr	33,280
	Goodwill A/c---Dr	66,920
	To Investment A/c		436,200
1/7/2019	Share Capital A/c---Dr	56,000
	Retained Earnings A/c---Dr	28,000
	Fair value reserve A/c--- Dr	8,320
	To Non Controlling Interest A/c		92,320
	(Being NCI recorded proportionately)
30/6/20	Depreciation expenses A/c---Dr	3,000
	To Plant A/c		3,000
	Cost of Goods Sold	3,000
	To Inventory A/c		3,000
	Deferred Tax liability A/c---Dr	1,800
	To Retained earnings A/c		1,800
	Fair value reserve A/c---Dr	4,200
	To Retained earning A/c		4,200
	Retained Earnings A/c---Dr	12,000
	To NCI A/c		12,000