Analysis of Acquisitions and Financial Statement Preparation

This project presents a detailed analysis of an acquisition, including the calculation of net fair value of identifiable assets and liabilities, goodwill, and the preparation of consolidation worksheet entries. It covers business combination valuation entries, pre-acquisition entries, and adjustments for various transactions. The second part of the project involves the preparation of financial statements for Mercy Limited, including a statement of financial position and a statement of changes in equity. The financial position includes detailed notes on receivables, property, plant, and equipment, and payables. The statement of changes in equity outlines the movements in share capital, reserves, and retained earnings. The project adheres to AASB-101 guidelines and provides a comprehensive overview of financial reporting and consolidation principles.

Solution-1
Acquisition Analysis
Net fair value of identifiable assets and liabilities of Sam Ltd
Share 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:
Particulars Dr./Cr. Amount (Dr.) Amount (Cr.)
Business combination valuation entries
Accumulated depreciation - Plant Dr. 26,000
To Plant Cr. 24,000
To Deferred tax liability Cr. 600
To Business Combination Valuation Reserve Cr. 1,400
(To record fair valuation of Plant)
Depreciation expense Dr. 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 liability Dr. 240
To Income tax expense Cr. 60
To Retained earnings (1/7/16) Cr. 180

(To record tax expense on above depreciation)
Amortization expense - databases Dr. 1,500
Retained earnings (1/7/16) Dr. 3,150
To Transfer from Business Combination Valuation
Reserve Cr. 4,200
To Income tax expense Cr. 450
(To record amortization expense)
Transfer from Business Combination Valuation Reserve Dr. 7,000
Income tax expense Dr. 3,000
To Damages expense Cr. 7,500
To Gain Cr. 2,500
(To record damages)
Accumulated impairment losses - goodwill Dr. 7,000
Business Combination Valuation Reserve Dr. 2,400
To Goodwill Cr. 9,400
(To record impairment of goodwill)
Pre-acquisition entries
at 1st July-2013:
Retained earnings (1/7/13) Dr. 10,000
Share Capital Dr. 100,000
Reserves Dr. 5,000
Business Combination Valuation Reserve Dr. 2,500
To Shares in Sam Ltd. Cr. 117,500
(To record acquisition)
Dividend Payable Dr. 6,000
To Dividend Receivable Cr. 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

- de-recognition of databases in current period
Particulars Dr./Cr.
Retained earnings (1/7/16) Dr.
Share Capital Dr.
Reserves Dr.
To Business Combination Valuation Reserve Cr.
To Shares in Sam Ltd. Cr.
(To record acquisition entry)
Transfer from Reserves Dr.
To Reserves Cr.
(To record transfer from reserves)
Business Combination Valuation Reserve Dr.
To Transfer from Business Combination Valuation
Reserve Cr.
(To record transfer of BCVR)
Transfer from Business Combination Valuation
Reserve Dr.
To Business Combination Valuation Reserve Cr.
(To record transfer of BCVR)

Solution-2
Mercy Limited
STATEMENT OF FINANCIAL POSITION
For the year ended on 30 June, 2016
(Amount in $)
Particulars Notes As at
30 June, 2016
Current assets
Cash and cash equivalents
Trade and other receivables 1 590,000
Inventories 520,000
Total current assets 1,110,000
Non-current assets
Property, plant and equipment 2 2,300,000
Intangible assets - Goodwill 300,000
Investments 460,000
Total non-current assets 3,060,000
Total assets - (a) 4,170,000
Current liabilities
Trade and other payables 3 656,000
Short term borrowings 200,000
Current tax liabilities 249,000
Total current liabilities 1,105,000
Non-current liabilities
Total non-current liabilities -
Total liabilities - (b) 1,105,000
Net assets (a-b) 3,065,000
Equity
Share capital 2,400,000
Reserves 290,000
Retained earnings 375,000
Total equity 3,065,000

Notes:
As per AASB-101, Para 77 - An entity shall disclose, either in the statement of financial position or in the notes,
further sub-classifications of the line items presented, classified in a manner appropriate to the entity’s operations.
The required notes to the above financial statements are presented below:
1 - Trade and other receivables
Particulars Amount (in $)
Receivable from trade customers
Account receivables $600,000
Allowance for impairment of receivables -$60,000 $540,000
Receivable from others
Other debtors $50,000
Total $590,000
2 - Property, Plant & Equipment
Particulars Amount (in $)
Plant and equipment (net of depreciation) $800,000
Buildings (net of depreciation) $900,000
Land $600,000
Total $2,300,000
3 - Trade and other payables
Particulars Amount (in $)
Trade Payables
Accounts payable $400,000
Other Payables
Dividend payable (3200000 x 0.08) $256,000
Total $656,000

Statement of Changes in Equity
Mercy Limited
Statement of Changes in Equity
For the year ended 30 June, 2016
Particulars
Share
Capital
General
Reserve
Retained
Earnings Total
Balance as on 1 July 2015 $2,400,000 $260,000 $80,000 $2,740,000
Total comprehensive income for the year $581,000 $581,000
Dividend payable - ordinary ($256,000) -$256,000
Transfer to general reserve $30,000 ($30,000) $0
Balance as on 30 June 2016 $2,400,000 $290,000 $375,000 $3,065,000