ACCT20073 Term 1 2018 Part B Assignment 10 Marks
Hahndorf Ltd acquired 100% of the shares of Sarina Ltd on 1 July 2015 for $700,000, when the equity of Sarina Ltd consisted of:
Share Capital $500,000
General Reserve 80,000
Retained Earnings 30,000
All identifiable assets and liabilities of Sarina Ltd were fairly valued at acquisition except the machinery, which had a fair value of $140,000. The machinery had a further 7-year life with depreciation based on the straight-line method.
Selected financial information of the two entities as at 1 July 2015 were as follows:
Hahndorf Ltd Sarina Ltd
Retained earnings at 30/6/15 240,000 30,000
Share capital 700,000 500,000
General reserve 60,000 80,000
Total equity 1,000,000 610,000
Land 350,000 400,000
Machinery at cost 240,000
Accumulated depreciation (200,000)
Equipment at cost 250,000
Accumulated depreciation and (75,000)
Cash 40,000 20,000
Investment in Sarina Ltd 700,000 –
Inventory 40,000 35,000
Liabilities 130,000 60,000
Net assets 1,000,000 610,000
The company income tax rate is 30%.
Prepare the consolidation journal entries resulting from the acquisition on 1 July 2015 as they will be carried forward as at 30 June 2018. (Tip: do the journals related to the revaluation of the machinery as they would have appeared on 1 July 2015 and then do all the consolidation journal entries related to the acquisition and the revaluation of the machinery as at 30 June 2018, i.e. 3 years later). (10 marks)
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