Financial Analysis: Tuna Ltd Acquisition and Consolidation Entries

The assignment focuses on the financial analysis of Tuna Ltd's acquisition of Brim Ltd. It begins with the calculation of the acquisition analysis, determining the net fair value of Brim Ltd and the resulting goodwill. Subsequently, the solution provides detailed consolidation journal entries, including entries for business combination valuation, pre-acquisition adjustments, sales profit, and plant-related transactions. The final part of the assignment involves the preparation of consolidated financial statements for the group, including an income statement, a statement of retained earnings, and a balance sheet. The financial statements incorporate adjustments from the journal entries, reflecting the combined financial position and performance of Tuna Ltd and Brim Ltd. The analysis covers adjustments for intercompany transactions, depreciation, and deferred taxes to ensure accurate reporting.

Solution 1. Calculate Acquisition analysis for Tuna Ltd
= equity +[ Net value Inventory + Net value patents + Net value Plant ]*(1-tax rate)
=(66000 + 6000) + [ 4500 + 3000 + 15000]* (1 – 30%)
= 87750
Therefore, net fair value of Brim Ltd is $87,750
Goodwill = consideration transferred by Tuna – net fair value of Brim
=90,000-87,750=$2,250
Solution 2. Prepare consolidation journal entries for Tuna Ltd
1. Entries- Business combination valuation
Dr Cr
Accumulated depreciation 30,000
Plant 27,000
Deferred tax liability 900
Business combination valuation reserve (BCVR) 2,100
Depreciation expense 600
Retained earnings (1/7/2016) 600
Accumulated depreciation 1,200
Deferred tax liability 360
Income tax expense 180
Retained earnings (1/7/2016) 180
Goodwill 2,250
BCVR 2,250
2 Entries - Pre-acquisition
Dr Cr
Retained earnings (1/7/2015) 6,000
Share capital 66,000
BCVR 18,000
Shares in Brim Ltd 90,000
Retained earnings (1/7/2016)
(6000 + 3150 + 10500) 19,650
Share capital 66,000
Business combination valuation reserve 4,350

Shares in Brim 90,000
3. Entries - Sales profit for closing inventory
Dr Cr
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. Entries - Profit for opening inventory (Brim)
Dr Cr
Retained earnings (1/7/2016) 420
Income tax expense 180
Cost of sales 600
5. Entries- Sale of Plant (current)
Dr Cr
Proceeds from sale 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
Income tax expense 30
Deferred tax asset 30
6. Entries -Sale of Plant (prior period)
Dr Cr
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
Income tax expense 120
Retained earnings (1/7/16) 180
Deferred tax asset 300
7. Entries - Sale of Inventory (current)
Dr Cr
Proceeds from sale plant 9 000
Carrying amount of plant sold 7 500
Cost of sales 1 500

Solution 3. Prepare consolidated set of financial statements for the group
Tuna
Ltd
Brim
Ltd
Journal
number
Adjustments Journal
number
Group
DR CR
Sales revenue 64 500 78 000 3 21,000
4,500
117,000
Cost of sales 30 900 46 350 21,000
4,200
600
1,500
3
3
4
7
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 1 600 100
400
5
6
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 14,000
7,500
5
7
-
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
5
6
180
30
120
180
90
300
1
3
5
18,160
Profit 9 450 8 400 17,290
Retained earnings (1/7/16) 48 000 31 500 1
2
4
6
6
600
19,650
420
1,400
60
180
200
1
6
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 4,350 2,100
2,250
1
1
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
6
5
30,000
600
100
1,200 1 (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
5
6
18,330
Inventory 28 500 24 600 300 3 52,800
Receivables 8 250 12 450 20,700
Goodwill 0 0 1 2,250 2,250
Total assets 185 550 131 400 229,180