Financial Analysis of Mercy Limited

This report presents a comprehensive financial analysis of Mercy Limited, detailing the company's statement of financial position as of June 30, 2016. It includes calculations of net fair value, goodwill, and various accounting entries related to business combinations. The report also outlines the company's assets, liabilities, and equity, providing insights into its financial health and performance over the fiscal year.

Solution 1
Net fair value of identifiable assets and liabilities of Sam Ltd
Particulars Amount
Share Capital 100,000
Reserves 5,000
Retained Earnings 10,000
Plant (2000 (1 - 30%)) 1,400
Land (5000 (1 - 30%)) 3,500
Inventory (4000 (1 - 30%)) 2,800
Databases (6000 (1 - 30%)) 4,200
Damages payable (-10000 x (1 - 30%)) - 7,000
Goodwill - 5,000
Net fair value 114,900
Calculation of consideration paid
Particulars Amount
Consideration paid 123,500
Less: Dividend receivable - 6,000
Net Consideration paid 117,500
Calculation of Goodwill
Particulars Amount
Net Consideration paid 117,500
Net fair value 114,900
Goodwill 2,600
Recorded already goodwill 5,000
Goodwill to be reversed - 2,400
Worksheet entries at 30 June 2017:
Business combination valuation entries
Particulars Dr./Cr. Amount (Dr.) Amount (Cr.)
Accumulated depreciation - Plant A/c Dr. 26,000
To Plant A/c 24,000
To Deferred tax liability A/c 600
To BCVR A/c 1,400
Depreciation expense A/c Dr. 200
To Retained earnings A/c (01/07/2016) Dr. 600
To Accumulated depreciation A/c (1/10 x 2000 x
4) 800
Deferred tax liability A/c Dr. 240
To Income tax expense A/c 60
To Retained earnings A/c (01/07/2016) 180
Amortisation Expense - Databases A/c Dr. 1,500
Retained earnings A/c (01/07/2016) Dr. 3,150
To Transfer from BCVR A/c 4,200

To Income tax expense A/c 450
Transfer from BCVR A/c Dr. 7,000
Income tax expense A/c Dr. 3,000
To Damages expense A/c 7,500
To Profit A/c 2,500
Accumulated impairment losses - Goodwill A/c Dr. 7,000
BCVR A/c Dr. 2,400
To Goodwill A/c 9,400
Pre-acquisition entries
at 1st July-2013:
Particulars Dr./Cr. Amount (Dr.) Amount (Cr.)
Retained earnings A/c
(01/07/2013) Dr. 10,000
Share Capital A/c Dr. 100,000
Reserves A/c Dr. 5,000
BCVR A/c Dr. 2,500
To Shares in Sam Ltd. A/c 117,500
Dividend Payable A/c Dr. 6,000
To Dividend Receivable A/c 6,000
at 30th June-2017:
Particulars Dr./Cr. Amount (Dr.) Amount (Cr.)
Retained earnings A/c
(01/07/2016) Dr. 19,300
Share Capital A/c Dr. 100,000
Reserves A/c Dr. 2,000
To BCVR A/c 3,800
To Shares in Sam Ltd. A/c 117,500
Transfer from Reserves A/c Dr. 2,000
To Reserves A/c 2,000
BCVR A/c Dr. 7,000
To Transfer from BCVR A/c 7,000
Transfer from BCVR A/c Dr. 4,200
To BCVR A/c 4,200

Solution 2
Mercy Limited
Statement of Financial Position
as at 30 June 2016
Particulars Notes $ Amount ($)
ASSETS
Current assets
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
Goodwill $300,000
Investments $460,000
Total non-current assets $3,060,000
Total Assets $4,170,000
LIABILITIES
Current liabilities
Trade and other payables 3 $656,000
Short term borrowings $200,000
Current tax payable $249,000
Total current liabilities $1,105,000
Net Assets $3,065,000
EQUITY
Share capital $2,400,000
Reserves $290,000
Retained earnings $375,000
Total equity $3,065,000
Mercy Limited
Statement of Changes in Equity
for the year ended 2016
Particulars
Share
Capital
General
Reserve
Retained
Earning
s
Opening Balance (1st Jul-15) $2,400,000 $260,000 $80,000
Income for the year $581,000
Dividend payable -

$256,000
Transfer to general reserve $30,000 -$30,000
Closing Balance (30th Jun-16) $2,400,000 $290,000 $375,000
Notes:
Note 1
Trade and other receivables
Particulars Amount ($)
Account receivables $600,000
Allowance for doubtful debts -$60,000
Other debtors $50,000
Trade and other receivables $590,000
Note 2
Property, plant and equipment
Particulars
Amount
($)
Plant and equipment (net of depreciation) $800,000
Land $600,000
Buildings (net of depreciation) $900,000
Trade and other receivables
$2,300,00
0
Note 3
Trade and other payables
Particulars Amount ($)
Accounts payable $400,000
Dividend payable (3200000 x 0.08) $256,000
Trade and other receivables $656,000