Red Ltd is seeking to expand its share of the cosmetics market and has negotiated to acquire the operations of Lip Ltd.

留學(xué)生dissertation網(wǎng)At 1 July 2009, the trial balances of the two companies were as follows:

 

	Carrying amount	Fair Value#p#分頁標(biāo)題#e#
Inventory	$ 30 000	$ 26 000
Land and buildings	40 000	80 000
Shares in listed companies	22 000	18 000
Accounts payable	(40 000)	(49 100)
Accrued leave	0	(29 700)

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In exchange, the shareholders of Lip Ltd are to receive, for every three Lip Ltd shares held, one Red Ltd share worth $2.50 each. Costs to issue these shares are $950. Additionally, Red Ltd will transfer to Lip Ltd its ‘Shares in Listed Companies’ asset, which has fair value of $15,000. These shares, together with those already owned by Lip Ltd, are sold and the proceeds distributed to the Lip Ltd shareholders. Assume that the shares were sold for their fair values.

Red Ltd will also give Lip Ltd sufficient additional cash to enable Lip Ltd to pay all its creditors. Lip Ltd will then liquidate. Liquidation costs are estimated to be $8,700.

 On 1 July 2010, Blue Ltd acquired all the shares of Stick Ltd for $330,000 on an ex-div basis. On this date, the equity and liabilities of Stick Ltd included the following balances:

 

At acquisition date, all the identifiable assets and liabilities of Stick Ltd were recorded at amounts equal to fair value except for:

 Goodwill was not impaired in any period. The plant and equipment had a further five year life at acquisition date and was expected to be used evenly over that time. The trademark was considered to have #p#分頁標(biāo)題#e#http://www.400190.com/Thesis_Writing/Accounting_Assignment/an indefinite life. The machinery, which was estimated to have a further four year life at acquisition date, was sold on 1 January 2012. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation.

 During the year ended 30 June 2011, all inventories on hand at acquisition date were sold, and the land was sold on 1 June 2012. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed.

 Additional information:

(i)                             Shareholder approval is not required in relation to dividends.

(ii)                           On 1 July 2011, Stick Ltd has on hand inventory worth $12 000, being transferred from Blue Ltd in June 2011. The inventory had previously cost Blue Ltd $8 000.

(iii)                         On 31 March 2012, Stick Ltd transferred an item of plant with a carrying amount of $10 000 to Blue Ltd for $15 000. Blue Ltd treated this item as inventory. The item was still on hand at the end of the year. Stick Ltd applied a 20% depreciation rate to this plant.

(iv)                         On 1 January 2012, Stick Ltd acquired $8 000 inventory from Blue Ltd. This inventory originally cost Blue Ltd $5 000. The profit in inventory of hand at 30 June 2012 was $1 000.

(v)                           #p#分頁標(biāo)題#e#During the year ending 30 June 2012, Stick Ltd sold inventory costing $12 000 to Blue Ltd for $18 000. One third of this was sold to external parties for $9 000.

(vi)                         On 1 January 2011, Blue Ltd sold furniture to Stick Ltd for $8 000. This had originally cost Blue Ltd $12 000 and had a carrying amount at the time of sale of $7 000. Both entities charge depreciation at a rate of 10% p.a.

(vii)                       Blue Ltd sold some land to Stick Ltd in December 2011. The land had originally cost Blue Ltd $25 000, but was sold to Stick Ltd for only $20 000. To help Stick Ltd pay for the land, Blue Ltd gave Stick Ltd an interest-free loan of $12 000. Stick Ltd has as yet made no repayments on the loan.

(viii)                     The tax rate is 30%.

 On 30 June 2012 the trial balances of Blue Ltd and Stick Ltd were as follows:

 

 

 

 

a)                  Prepare the  acquisition analysis at 1 July 2010.            ( 5 Marks)

 

b)                  #p#分頁標(biāo)題#e#Prepare the consolidation worksheet entries at 30 June 2012.

(12 marks)

 

 

 

c)      Complete the worksheet below.                                                (8 Marks)

 

 

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