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Mercy Limited Financial Statements Analysis

   

Added on  2020-03-02

6 Pages974 Words329 Views
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Solution-1Acquisition AnalysisNet fair value of identifiable assets and liabilities of Sam LtdShare Capital= 100,000 Reserves= 5,000 Retained Earnings= 10,000 Plant (2000 x (1 - 30%))= 1,400 Land (5000 x (1 - 30%))= 3,500 Inventory (4000 x (1 - 30%))= 2,800 Databases (6000 x (1 - 30%))= 4,200 Damages payable (-10000 x (1 - 30%))= (7,000) Goodwill=(5,000) 114,900 Consideration paid= 123,500 Less: Dividend receivable=(6,000) Net Consideration paid 117,500 Goodwill= 117,500 - 114,900 = 2,600 Recorded goodwill= 5,000 Unrecorded goodwill= 2,600 - 5,000 = (2,400) Consolidation Worksheet entries at 30 June 2017: ParticularsDr./Cr. Amount (Dr.) Amount (Cr.) Business combination valuation entriesAccumulated depreciation - PlantDr. 26,000 To PlantCr. 24,000 To Deferred tax liabilityCr. 600 To Business Combination Valuation ReserveCr. 1,400 (To record fair valuation of Plant)Depreciation expenseDr. 200 To Retained earnings (1/7/16)Dr. 600 To Accumulated depreciation (1/10 x $2 000 x 4)Cr. 800 (To record depreciation on above fair value)Deferred tax liabilityDr. 240 To Income tax expenseCr. 60 To Retained earnings (1/7/16)Cr. 180
Mercy Limited Financial Statements Analysis_1

(To record tax expense on above depreciation)Amortization expense - databasesDr. 1,500 Retained earnings (1/7/16)Dr. 3,150 To Transfer from Business Combination Valuation ReserveCr. 4,200 To Income tax expenseCr. 450 (To record amortization expense)Transfer from Business Combination Valuation ReserveDr. 7,000 Income tax expenseDr. 3,000 To Damages expenseCr. 7,500 To GainCr. 2,500 (To record damages)Accumulated impairment losses - goodwillDr. 7,000 Business Combination Valuation ReserveDr. 2,400 To GoodwillCr. 9,400 (To record impairment of goodwill)Pre-acquisition entriesat 1st July-2013:Retained earnings (1/7/13)Dr. 10,000 Share CapitalDr. 100,000 ReservesDr. 5,000 Business Combination Valuation ReserveDr. 2,500 To Shares in Sam Ltd.Cr. 117,500 (To record acquisition)Dividend PayableDr. 6,000 To Dividend ReceivableCr. 6,000 (To eliminate inter-entity dividend)at 30th June-2017:the entry at acquisition date is affected by:- sale of inventory in prior period- payment of dividend: $6 000 in prior period- sale of land in prior period- transfer from reserves - $3 000 - in prior period- transfer from reserve - $2 000 – in current period- settlement of court case in current period
Mercy Limited Financial Statements Analysis_2

- de-recognition of databases in current periodParticularsDr./Cr.Retained earnings (1/7/16)Dr.Share CapitalDr.ReservesDr.To Business Combination Valuation ReserveCr.To Shares in Sam Ltd.Cr.(To record acquisition entry)Transfer from ReservesDr.To ReservesCr.(To record transfer from reserves)Business Combination Valuation ReserveDr.To Transfer from Business Combination Valuation ReserveCr.(To record transfer of BCVR)Transfer from Business Combination Valuation ReserveDr.To Business Combination Valuation ReserveCr.(To record transfer of BCVR)
Mercy Limited Financial Statements Analysis_3

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