Question

Nick Ltd acquired 100% of the issued capital of Wing Ltd on 1 July 2011 for $270000. The statements of financial position of the companies immediately after the acquisition are provided below. All assets have been reported following fair value.

Statement of Financial Position

For the year ended 1 July 2011

Nick Ltd                      Wing Ltd

$                                  $

Shareholders’ equity

Share capital                                                                 450,000                       180,000

General reserve                                                                         45,000                                     25,000

Retained earnings                                                         140,000                       20,000

Total shareholders’ equity                                            635,000                       225,000

Assets

Current assets

Cash at Bank                                                                50,000                                     30,000

Accounts Receivable                                                    20,000                                     10,000

Inventory                                                                      100,000                       25,000

170,000                       65,000

Non-current assets

Investment in Wing Ltd                                                    270,000                       ----

Land                                                                             250,000                       200,000

Plant & Equipment                                                       100,000                       80,000

620,000                       280,000

Total assets                                                                   790,000                       345,000

Liabilities

Current liabilities

Accounts Payable                                                         40,000                                     10,000

Interest Payable                                                            15,000                                     8,000

55,000                                     18,000

Non-current liabilities

Bank loan                                                                     100,000                       102,000

Total liabilities                                                              155,000                       120,000

Net assets                                                                      635,000                       225,000

Required

1. Calculate Goodwill (show workings)

2. Prepare consolidation journal entry at the date of acquisition.

3. Prepare consolidation worksheet.

4. Prepare the consolidated statement of financial position as at 1 July 2011 (immediately after the acquisition).

Answer 1

1.

	Total consideration paid	270000
Less	Total stockholder's equity	225000
Less	excess of FMV over BV	0
	Goodwill	45000

2.

Date
Jule 1st, 2011	Share capital	$180,000
	General reserve	$25,000
	Retained earnings	$20,000
	Investment in Wing Ltd.		$270,000
	Goodwill	$45,000
	[Consolidation entry passed as on acquisition date]

3.

4.

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