ACC705 Advanced Accounting: Consolidation of Tuna Ltd and Brim Ltd

This document presents a comprehensive solution to an accounting assignment focused on the consolidation of Tuna Ltd and Brim Ltd following Tuna Ltd's acquisition of Brim Ltd. The solution includes a detailed acquisition analysis, consolidation journal entries, and a consolidated set of financial statements. The analysis addresses fair value adjustments for plant, patents, and inventory, as well as inter-company transactions involving sales of raw materials and plant assets. Specific attention is given to unrealized profits, depreciation adjustments, and tax implications arising from these transactions. The consolidated financial statements incorporate adjustments to sales revenue, cost of sales, trading expenses, and various asset and liability accounts to accurately reflect the financial position and performance of the consolidated group.

Individual Assignment
ACC705
On 1 July 2015, Tuna Ltd acquired all the issued shares of Brim Ltd. Tuna Ltd paid $30 000 in
cash and 20 000 shares in Tuna Ltd valued at $3 per share. At this date, the equity of Brim Ltd
consisted of $66 000 share capital and $6000 retained earnings.
At 1 July 2015, all the identifiable assets and liabilities of Brim Ltd were recorded at amounts
equal to their fair values except for:
Carrying amount Fair value
Plant (cost $150 000) $120 000 $123 000
Patents 90 000 105 000
Inventory 18 000 22 500
The plant was considered to have a further 5-year life. The patents were sold for $120 000 to
an external entity on 18 August 2015. The inventory was all sold by 30 June 2016.
Additional information
(a) Tuna Ltd sells certain raw materials to Brim Ltd to be used in its manufacturing process.
At 1 July 2016, Brim Ltd held inventory sold to it by Tuna Ltd in the previous year at a
profit of $600. During the 2016–17-year, Tuna Ltd sold inventory to Brim Ltd for $21 000.
None of this was on hand at 30 June 2017.
(b) Brim Ltd also sells items of inventory to Tuna Ltd. During the 2016–17 year, Brim Ltd sold
goods to Tuna Ltd for $4500. At 30 June 2017, inventory which had been sold to Tuna Ltd
at a profit of $300 was still on hand in Tuna Ltd.’s inventory.
(c) On 1 July 2016, Brim Ltd sold an item of plant to Tuna Ltd for $15 000. This plant had a
carrying amount in the records of Brim Ltd of $14 000 at time of sale. This type of plant is
depreciated at 10% p.a. on cost.
(d) On 1 January 2015, Tuna Ltd sold an item of inventory to Brim Ltd for $18 000. The
inventory had cost Tuna Ltd $16 000. This item was classified by Brim Ltd as plant. Plant
of this type is depreciated by Brim Ltd at 20% p.a.
(e) On 1 March 2017, Brim Ltd sold an item of plant to Tuna Ltd. Whereas Brim Ltd classified
this as plant, Tuna Ltd classified it as inventory. The sales price was $9000 which included
a profit to Brim Ltd of $1500. Tuna Ltd sold this to another entity on 31 March for $9900.
(f) The tax rate is 30%.
At 30 June 2017, the following financial information was provided by the two companies:

Tuna Ltd Brim Ltd

Dr Cr Dr Cr
Sales revenue 64 500 78 000
Cost of sales 30 900 46 350
Trading expenses 4 800 9 000
Office expenses 7 950 4 050
Depreciation expenses 1 800 3 900
Proceeds on sale of plant 9 000 15 000
Carrying amount of plant sold 7 500 14 000
Income tax expense 11 100 7 300
Share capital 96 000 66 000
Retained earnings (1/7/16) 48 000 31 500
Current liabilities 21 100 10 500
Deferred tax liability 11 000 15 000
Plant 57 000 107 250
Accumulated depreciation – plant 18 300 33 450
Intangibles 12 000 11 100
Deferred tax assets 8 100 9 450
Shares in Brim Ltd 90 000 0
Inventory 28 500 24 600
Receivables 8 250 12 450
267 900 267 900 249 450 249 450
Required
1. Calculate acquisition analysis for Tuna Ltd (10 marks)
2. Prepare consolidation journal entries for Tuna Ltd (10 marks)
3. Prepare a consolidated set of financial statements for the group. Use the worksheet
provided. (10 marks)
Worksheet for requirement 3.
Tuna
Ltd
Brim
Ltd
Journal
number
Adjustments Journal Group
Dr Cr number
Sales revenue 64 500 78 000 3
3
21000
4500
117700
Cost of sales 30 900 46 350 21000
4200
600
1500
3
3
4
7
49950
Gross profit 33 600 31 650 67050
Trading expenses 4 800 9 000 13800
Office expenses 7 950 4 050 12000
Depreciation 1 800 3 900 1 600 100
400
5
6
5800
14 550 16 950 31600
Profit from trading 19 050 14 700 35450
Proceeds from sale of
plant
9 000 15 000 5
7
15000
9000
0
Carrying amount of
plant sold
7 500 14 000 14000
7500
5
7
0
Gain/loss on sale of
machinery
1 500 1 000 0
Profit before tax 20 550 15 700 35450