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ACC705 Individual Assignment

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Question 1 (15 marks) Business combination valuation entries, pre-acquisition entries On 1 July 2016, Merelyn Ltd acquired all the issued shares of Cathy Ltd for $220 800. At this date the equity of Cathy Ltd consisted of share capital of $100 000 and retained earnings of $58 800. All the identifiable assets and liabilities of Cathy Ltd were recorded at amounts equal to fair value except for: Carrying amount Fair value Patent $70 000 $72 000 Plant (net of $40 000 depreciation) 40 000 60 000 Inventory 21 600 28 000 The patent was considered to have an inde...

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Question 1 (15 marks) Business combination valuation entries, pre-acquisition entries On 1 July 2016, Merelyn Ltd acquired all the issued shares of Cathy Ltd for $220 800. At this date the equity of Cathy Ltd consisted of share capital of $100 000 and retained earnings of $58 800. All the identifiable assets and liabilities of Cathy Ltd were recorded at amounts equal to fair value except for: Carrying amount Fair value Patent $70 000 $72 000 Plant (net of $40 000 depreciation) 40 000 60 000 Inventory 21 600 28 000 The patent was considered to have an indefinite life. It was calculated that the plant had a further life of 10 years, and was depreciated on a straight-line basis. All the inventory was sold by 30 June 2017. In June 2017, Cathy Ltd conducted an impairment test on the patent, as it was considered to have an indefinite life, and the goodwill. As a result, the goodwill was considered to be impaired by $1300. In May 2017, Cathy Ltd transferred $30 000 from the retained earnings on hand at 1 July 2016 to a general reserve. The tax rate is 30%. Required Prepare the consolidation worksheet adjustments entries at 1 July 2016 and 30 June 2017. Question 2 (15 marks) A junior accounts clerk has prepared the following summarised information as at 30 June 2016 for Heaven Ltd: Assets Inventories (at lower of cost and net realisable value) Accounts receivable Cash Land and buildings Plant and equipment Prepayments Calls in arrears (2500 shares at 20c) Patents — cost $970000 651020 1598080 1750000 1716000 3400 500 100000 $6789000 Liabilities and equity Retained earnings (30/6/16) Liabilities Share capital (5000000 shares) Reserves and provisions 575480 1038520 4086000 1089000 $6789000 Upon further investigation, you have discovered the following additional information: (a) Liabilities of $1038520 comprise: Accounts payable Accrued expenses Mortgage loans $790000 8520 240000 (b) Reserves and provisions of $1089000 include: Employee benefits (payable after 1 July 2023) Current tax liability Dividends Allowance for impairment of receivables Accumulated depreciation – plant and equipment Accumulated depreciation – buildings Accumulated amortisation – patents $400000 160000 200000 10000 72000 207000 40000 (c) Cash of $1598080 consists of: Cash at bank 10% Telstra bonds (regarded as long-term investments) $298080 1300000 (d) Retained earnings balance as at 1 July 2015 was $275000. (e) Profit for the period was $500480. (f) Shareholder approval is not required for final dividends declared by directors. (g) During the year, Earth Ltd paid $75000 to its auditor, of which $19000 related to services other than the annual audit and half-yearly review. Required Prepare, for Heaven Ltd, the statement of financial position, statement of changes in equity and notes thereto at 30 June 2016 in accordance with the requirements of AASB 101.

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Calculation of Value of Goodwill
Purchase Consideration    220800
Less:     
Share Capital    100000
Retained Earnings    58800
Adjustment for fair value:     
Patent    1400
Plant    14000
Inventory    4480
Value of Goodwill     42120
Add: Patent    2000
Net Value of Goodwill    44120

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