Acquisition Analysis: Peace Ltd. & Sublime Ltd. Consolidation

This assignment presents a detailed financial analysis of the acquisition of Sublime Ltd. by Peace Ltd. as of July 1, 2015. The analysis begins with calculating the net fair value of identifiable assets and liabilities, determining goodwill, and outlining pre-acquisition entries. It proceeds with comprehensive consolidation worksheet entries, including business combination valuation adjustments for equipment, machinery, and land, along with adjustments for depreciation and tax implications. The document addresses inter-entity transactions, such as sales of inventory and equipment, and eliminates inter-company profits. It also covers the elimination of inter-entity advances and the impairment of goodwill. The final section presents the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity, and the consolidated statement of financial position for the year ended June 30, 2017, providing a complete financial picture of the combined entities. This assignment is a comprehensive guide to understanding the financial impact of acquisitions and the consolidation process.

Acquisition Analysis as on 1 July, 2015
Net fair value of identifiable assets and liabilities of Sublime Ltd.
Share capital 30,000
General reserves 15,000
Other reserves 3,000
Retained earnings 10,500
Inventories ((28000-25000)*(1-30%)) 2,100
Equipment ((16000-12000)*(1-30%)) 2,800
Machinery ((8000-7500)*(1-30%)) 350
Land ((12240-9240)*(1-30%)) 2,100
Net fair value 65,850
Net consideration paid 68,600
Goodwill 2,750
Consolidation Worksheet entries
1 Pre - Acquisition Entry as on 1 July, 2015
Share capital Dr 30,000
General reserves Dr 15,000
Other reserves Dr 3,000
Retained earnings Dr 10,500
Business combination valuation reserve Dr 7,350
Goodwill Dr 2,750
To Shares in Sublime Ltd Cr (68,600)
(To record acquisition analysis)
2
Business Combination Valuation Entries as on 30 June,
2017
2(a) Accumulated Depreciation - Equipment Dr 3,000
Equipment Dr 1,000
To Deferred tax liability Cr (1,200)
To Business combination valuation reserve Cr (2,800)
(To record fair valuation of equipment)
2(b
) Depreciation exp - Equipment Dr 500
Retained earnings (1/7/16) Dr 500
Accumulated Depreciation - Equipment Cr (1,000)
(To record depreciation on fair valued amount of
equipment)
2(c) Deferred tax liability Dr 300
To Income tax expense Cr (150)
To Retained earnings (1/7/16) Cr (150)

(To record tax expense on above depreciation)
2(d
) Depreciation expense - machinery Dr 50
Gains/(losses) on sale of non-current assets Dr 350
To Income tax expense Cr (120)
Retained earnings (1/7/16) Dr 70
To Transfer from business combination valuation
reserve Cr (350)
(To record sale of machinery)
2(e) Retained earnings (1/7/16) Dr 3,000
To Retained earnings (1/7/16) Cr (900)
To Transfer from business combination valuation
reserve Cr (2,100)
(Sale of land recorded)
2(f) Retained earnings (1/7/16) Dr 3,000
To Retained earnings (1/7/16) Cr (900)
To Transfer from business combination valuation
reserve Cr (2,100)
(Sale of inventory recorded)
3 Dividend
Other reserves Dr 3,000
To Share capital Cr (3,000)
(To record issuance of bonus shares)
Inter-entity sales of Inventory
4 Sales revenue Dr 6,000
To Cost of Sales Cr (6,000)
(To record Inter entity sales of inventory)
5 Sales revenue Dr 1875
To Cost of Sales Cr (1,375)
To Inventory Cr (500)
(To record profit elimination on Inter entity sales of
inventory)
6(a) Retained earnings (1/7/16) Dr 1,050
Deferred tax asset Dr 450
To Equipment Cr (1,500)
(To record inter-entity sale of equipment)
6(b
) Accumulated Dep - Equipment Dr 225
To Depreciation - Equipment Cr (150)
To Retained earnings (1/7/16) Cr (75)
(To record additional depreciation on above sale)

6(c) Income tax expense Dr 45
Retained earnings (1/7/16) Dr 23
To Deferred tax asset Cr (68)
(To record tax expense on above depreciation)
7(a) Gains/(losses) on sale of non-current assets Dr 1,000
To Machinery Cr (1,000)
(To record elimination on inter entity sale of
machinery)
7(b
) Deferred tax asset Dr 300
To Income tax expense Cr (300)
(To record elimination of tax expense on above sale)
7(c) Accumulated Dep - Machinery Dr 50
To Depreciation - Machinery Cr (50)
(To record elimination of depreciation on above sale)
7(d
) Income tax expense Dr 15
To Deferred tax asset Cr (15)
(To record tax expense on above depreciation)
8 Accumulated impairment losses Dr 1,375
To Goodwill Cr (1,375)
(To record impairment of goodwill)
9 Advance from Peace Ltd Dr 5,000
Advance to Sublime Ltd Cr (5,000)
(To record elimination of inter entity advance)

Consolidation Worksheet
Debit balances Peace Ltd Sublime Ltd Total Adjustments
$ $ Ref. Dr Cr Ref. Total
Shares in Sublime Ltd 68,600 -
68,60
0
68,60
0 1 -
Inventory 85,790 35,16
0 120,950 50
0 5 120,450
Other current assets 4,310 1,55
0
5,86
0
5,86
0
Deferred tax assets 8,100 3,70
0
11,80
0
6(a) &
7(b)
75
0
8
3
6(c) &
7(d)
12,46
8
Machinery 14,000 11,00
0
25,00
0
1,00
0 7(a) 24,00
0
Land - 12,24
0
12,24
0
12,24
0
Equipment 17,000 18,65
0
35,65
0 2(a) 1,00
0
1,50
0 6(a) 35,15
0
Goodwill - 1
2,75
0
1,37
5 8
1,37
5
Cost of sales 32,500 26,75
0
59,25
0
7,37
5 4 & 5 51,87
5
Other expenses 11,000 13,50
0
24,50
0
24,50
0
Accumulated impairment losses 8
1,37
5
1,37
5
Depreciation exp - Equipment 2(b) 50
0
15
0 6(b) 35
0
Depreciation expense -
machinery 2(d) 5
0
5
0 7(c) -
Income tax expense 3,600 1,00
0
4,60
0
6(c) &
7(d)
6
0
57
0
2(c) &
2(d) &
7(b)
4,09
0
Interim dividend paid 2,000 1,00
0
3,00
0
3,00
0
Final dividend declared 5,000 1,50
0
6,50
0
6,50
0
Advance to Sublime Ltd 5,000 -
5,00
0
5,00
0 9 -
256,900 126,05
0 382,950 6,48
5
86,20
3 303,233
Credit balances
Share capital 85,000 33,00
0 118,000 1 & 3 33,00
0
85,00
0
General reserve 20,500 15,00
0
35,50
0 1
15,00
0
20,50
0
Retained earnings (1/7/16) 8,000 17,75
0
25,75
0
1 &
2(b) &
2(d) &
18,14
3
2,02
5
2(c) &
2(e) &
6(b) &
9,63
3

2(e) &
6(a) &
6(c) &
2(f)
2(f)
Business combination valuation
reserve - 1
7,35
0
7,35
0
2(a) &
2(d) &
2(e) &
2(f)
-
Debentures 60,000 -
60,00
0
60,00
0
Final dividend payable 5,000 1,50
0
6,50
0
6,50
0
Deferred tax liability 2(c) 30
0
1,20
0 2(a) 90
0
Current tax liabilities 4,000 1,25
0
5,25
0
5,25
0
Other payables 17,400 5,05
0
22,45
0
22,45
0
Advance from Peace Ltd - 5,00
0
5,00
0 9
5,00
0 -
Sales 42,500 32,50
0
75,00
0 4 & 5 7,87
5
67,12
5
Other revenue 9,500 10,50
0
20,00
0
20,00
0
Gains/(losses) on sale of non-
current assets 2,000 50
0
2,50
0
2(d)
& 7(a)
1,35
0
1,15
0
Accumulated depreciation –
machinery 2,000 1,00
0
3,00
0 7(c) 5
0
2,95
0
Accumulated depreciation –
equipment 1,000 3,00
0
4,00
0
2(a) &
6(b)
3,22
5
1,00
0 2(b) 1,77
5
256,900 126,05
0 382,950 91,29
3
11,57
5 303,233

Peace Ltd.
Consolidated Statement of Profit or loss and other comprehensive income
for the period ended on 30 June, 2017
Particulars Amount
Sales revenue 67,125
Other income 20,000
Total Income 87,125
Cost of Sales 51,875
Other expenses 24,500
Depreciation & amortization
Accumulated impairment losses 1,375
Depreciation expense - Equipment 350
Depreciation expense - machinery - 1,725
Total expenses 78,100
Profit from operations 9,025
Gain on sale of non-current assets 1,150
Profit before tax 10,175
Income tax expense 4,090
Profit for the period 6,085
Profit for the period 6,085
Peace Ltd
Consolidated Statement of Changes in Equity
For the year ended on 30 June, 2017
Particulars Share Capital Retained
Earnings
General
Reserve
Balance as at 1 July, 2016 85,000 9,633 20,500
Profit for the year 6,085
Transactions with owners in their capacity as
owners:
- dividends provided for (9,500)
Balance as at June 30, 2017 85,000 6,218 20,500

PEACE LTD.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
For the year ended on 30 June, 2017
(Amount in $)
Particulars As at
30 June, 2017
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories 120,450
Other current assets 5,860
Total current assets 126,310
Non-current assets
Property, plant and equipment
- Machinery 24,000
- Accumulated depreciation - Machinery (2,950) 21,050
- Equipment 35,150
- Accumulated depreciation - Equipment (1,775) 33,375
- Land 12,240 12,240
Intangible assets - Goodwill 1,375
Deferred tax assets 12,468
Total non-current assets 80,508
Total assets - (a) 206,818
Current liabilities
Trade and other payables 22,450
Current tax liabilities 5,250
Dividend payable 6,500
Total current liabilities 34,200
Non-current liabilities
Financial liabilities - Debentures 60,000
Deferred tax liability 900
Total non-current liabilities 60,900
Total liabilities - (b) 95,100
Net assets (a-b) 111,718
Equity
Share capital 85,000
General reserve 20,500
Retained earnings 6,218 111,718
Total equity 111,718