ACC705: Comprehensive Financial Statement Consolidation - Tuna Ltd

This assignment solution provides a detailed analysis of the acquisition of Brim Ltd by Tuna Ltd on July 1, 2015, including the calculation of goodwill and the preparation of consolidation journal entries. The solution covers pre-acquisition entries, sales and profit in closing inventory, profit in opening inventory, and current and prior period sales of plant and inventory. It also presents a consolidated set of financial statements for the group, including the sales revenue, cost of sales, trading expenses, profit from trading, proceeds from the sale of plant, and retained earnings. Adjustments are made to account for intercompany transactions and fair value adjustments, ensuring accurate consolidation of the financial positions of Tuna Ltd and Brim Ltd. The consolidated financial statements include a balance sheet with total equity and liabilities, as well as detailed calculations for plant, accumulated depreciation, intangibles, deferred tax assets, inventory, and receivables.

Q1. Acquisition analysis for Tuna Ltd at 1 July 2015
=66000 + 6000 (equity) + 4500 (1 – 30%) (Inventory)+ 3000 (1 – 30%) (Plant)+ 15000 (1 – 30%)
(Patents)
= 87750
Therefore, net fair value of Brim Ltd is $87,750
Goodwill = $90,000-$87,750=$2250
Q2. Consolidation journal entries for Tuna Ltd at 1 July 2015
1. Combined Business
Debit Credit
Accumulated depreciation 30,000
Plant 27,000
Deferred tax liability 900
Business combination valuation reserve 2,100
Depreciation expense 600
Retained earnings 600
Accumulated depreciation 1,200
Deferred tax liability 360
Income tax expense 180
Retained earnings 180
Goodwill 2,250
Business combination valuation reserve 2,250
2 Entries - Pre-acquisition
Debit Credit
Retained earnings 6,000
Share capital 66,000
Business combination valuation reserve 18,000
Shares in Brim Ltd 90 000
Retained earnings (1/7/16)
(6000 + 3150 + 10500) 19,650
Share capital 66,000
Business combination valuation reserve 4,350
Shares in Brim Ltd 90,000

3. Sales and profit in closing inventory
Debit Credit
Sales revenue 21,000
Cost of sales 21,000
Sales revenue 4,500
Cost of sales 4,200
Inventory 300
Deferred tax asset 90
Income tax expense 90
4. Profit in opening inventory of Brim Ltd
Debit Credit
Retained earnings 420
Income tax expense 180
Cost of sales 600
5. Current period Sale of Plant
Debit Credit
Proceeds on sale of plant 15,000
Carrying amount of plant sold 14,000
Plant 1,000
Deferred tax asset 300
Income tax expense 300
Accumulated depreciation 100
Depreciation expense 100
(0.1*1000)
Income tax expense 30
Deferred tax asset 30
6. Prior period -Sale of Inventory (Plant ):
Debit Credit
Retained earnings (1/7/16) 1,400
Deferred tax asset 600
Plant 2,000
Accumulated depreciation 1000
Depreciation expense 400
Retained earnings (1/7/16) 600
(0.2*2000)
Income tax expense 120
Retained earnings (1/7/16) 180
Deferred tax asset 300

7. Current period - Sale of Plant (Inventory)
Debit Credit
Proceeds on sale of plant 9 000
Cost of sales 1 500
Carrying amount of plant sold 7 500
Q3. Consolidated set of financial statements for the group
Tuna
Ltd
Brim
Ltd
Journal
number
Adjustments Group
DR CR
Sales revenue 64 500 78 000 3 21,000
4,500
117,000
Cost of sales 30 900 46 350 3
3
4
7
21,000
4,200
600
1,500
49,950
Gross profit 33 600 31 650 67,050
Trading expenses 4 800 9 000 13,800
Office expenses 7 950 4 050 12,000
Depreciation 1 800 3 900 1,5
6
600 100
400
5,800
14 550 16 950 31,600
Profit from trading 19 050 14 700 35,450
Proceeds from sale of
plant
9 000 15 000 5
7
15,000
9,000
-

Carrying amount of
plant sold
7 500 14 000 5
7
14,000
7,500
-
Gain/loss on sale of
machinery
1 500 1 000
Profit before tax 20 550 15 700 35,450
Tax expense 11 100 7 300 4,1
5,3
6,5
180
30
120
180
90
300
18,160
Profit 9 450 8 400 17,290
Retained earnings
(1/7/16)
48 000 31 500 1,1
2,6
4
6
6
600
19,650
420
1,400
60
180
200
57,750
Retained earnings
(30/6/17)
57 450 39 900 75,040
Share capital 96 000 66 000 2 66,000 96,000
BCVR -- -- 2,1
1
4,350 2,100
2,250
0
Total equity 153 450 105 900 171,140
Current liabilities 21 100 10 500 31,600
Deferred tax liability 11 000 15 000 1 360 900 26,540
Total liabilities 32 100 25 500 58,140
Total equity and
liabilities
185 550 131 400 229,180

DR CR
Plant 57 000 107 250 1
6
5
27,000
2,000
1,000
134,250
Accumulated
depreciation
(18 300) (33 450) 1,1
6
5
30,000
600
100
1,200 (22,250)
Intangibles 12 000 11 100 23,100
Shares in Brim Ltd 90 000 - 90,000 0
Deferred tax asset 8 100 9 450 3
5
6
90
300
600
30
180
18,330
Inventory 28 500 24 600 3 300 52,800
Receivables 8 250 12 450 20,700
Goodwill 0 0 1 2,250 2,250
Total assets 185 550 131 400 177,210 177,210 229,180