Question

Sky Ltd acquired all the issued shares (Ex div.) of Nu Ltd on 1 July 2018 for $100 000. At this date Nu Ltd recorded a dividend payable of $10 000 and equity of: | Share capital Retained earnings | Asset revaluation surplus $54 000 36 000 18 000 All the identifiable assets and liabilities of Nu Ltd were recorded at amounts equal to their fair values at acquisition date except for: Inventories Machinery (cost $100 000) Carrying amount 16 000 92 500 Fair value 18 000 94 000

Answer 1

Preparation of acquisition analysis at 1 July 2018 Net Fair Value of identifiable Assets and Netfair value of identifiable assets and liabilities of Nu's Ltd = ($54,000 + $36,000 + $18,000) (Equity) + $1,500 (1 – 30%) (Plant) + $2,000 (1- 30%) (Inventory) =$110,450 Calculation of Gain on Purchase Netfair value of identifiable assets and liabilities of Nu Ltd 110,450 Less Consideration transferred (110,000) Gain on Bargain Purchase 450

Worksheet entries at 1* June 2018 1) Business combination valuation entries Account Title & Explanation Debit Credit Accumulated Depreciation 7500 Plant & Machinery 6000 Deferred Tax Liability (1500 *30%) 450 Business Combination Valuation Reserve 1050 (To record Accumulated depreciation and related tax) Depreciation expense (1500/5) 300 Accumulated depreciation 300 (To record depreciation expense) Deferred Tax Liability 90 Income Tax expense (300*30%) 90

(To record Deferred Tax Liability) Cost of Sales (2000 *90%) 1800 Income Tax expense (1800 * 30%) 540 Transferfrom Business Combination Valuation Reserve 1260 (To record cost of inventory sold) Inventory (2000 – 1800) 200 Deferred Tax Liability (200 *30%) 60 Business Combination Valuation Reserve 140 (To record Inventory and related tax)

2) Pre-acquisition entries At 1* July 2018 Account Title & Explanation Debit Credit Share Capital 54000 Retained Earnings (1/7 /18) 36000 Asset revaluation surplus 18000 Business Combination Valuation Reserve 2450 Gain on Bargain Purchase 450 Shares in 'Nu' limited 11000 (To record shares in Nu Limited)

At 30th June 2019 Retained Earnings (1/7 /18) 36000 Share Capital 54000 Asset revaluation surplus 18000 Business Combination Valuation Reserve 2450 Gain on Bargain Purchase 450 Shares in 'Nu' limited 110000 (To record shares in Nu Limited) Transferfrom Business Combination Valuation Reserve 1260 Business Combination Valuation Reserve 1260 (To record transferto Business Combination Valuation reserve) General Reserve 3000 Transferfrom General Reserve 3000 (To record transferfrom General Reserve)

Worksheet Sky Adjustments Nu Group Ltd. Ltd. Dr Cr Profit before tax 120 000 12 500 1. 300 450 2. 130850 1800 Income tax expense 90 56 000 4 200 1. 59 570 540 8 300 Profit 64 000 71280 80 000 Retained earnings 80 000 36 000 36 000 (1/7/18) Transferfrom BCVR 1260 1260 144 000 44 300 151280 Transferto general (3 000) 3 000 reserve Retained earnings 144 000 41 300 151280 (30/6/19) 2.

Share capital 360 000 54 000 2 54 000 360 000 BCVR 2450 1050 140 1. 1260 3 000 General reserve 10 000 3 000 10 000 521280 514 000 98 300 Asset revaluation 13500 18 000 18 000 13500 surplus (1/7/18) 2 000 Gains 5000 7000 Asset revaluation 18 500 20 000 20 500 surplus (30/6/19) Total Equity 532 500 118 300 541780 Liabilities 55920 42 500 13 000 90 450 60 1. Total Liabilities 575 000 131 300 597700 &Equity

Land 160 000 20 000 180 000 Plant & machinery 360 000 125 600 6000 1. 479600 Accumulated (110 000) (33 000) (135800) 7500 300 depreciation Inventory 55 000 18 700 200 73900 Shares in Nu 110 000 110 000 Total Assets 575 000 131 300 124600 124600 597700

SKY LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income For financial year ended 30 June 2019 Profit before income tax 130850 Income tax expense (59570) Profit for the period 71280 Other comprehensive income Gains on revaluation of assets 7000 Comprehensive income 78280

SKY LTD Consolidated Statement of Changes in Equity For financial year ended 30 June 2019 78280 Comprehensive income for the period Retained earmings at 1 July 2018 80000 Profit for the period 71280 Retained earnings at 30 June 2019 151280 Share capital at 1 July2018 360000 360000 Share capital at 30 June 2019 13500 Asset revaluation surplus at 1 July 2018 Increments 7000 Asset revaluation surplus at 30 June 2019 20500 General reserve at 1 July 2018 10000 10000 General reserve at 30 June 2019

SKY LTD Consolidated Statement of Financial Position As at 30 June 2019 Assets Curent Assets Inventory 73900 Non-curent Assets Property, plant and equipment: Land 180000 Plant & machinery 479600 Accumulated depreciation (135800) Total Non-current Assets 523800 Total Assets 597700

Equity Share capital 360000 Retained eamings 151280 General reserve 10000 Asset revaluation surplus 20500 Total Equity 541780 Liabilities 55920 597700 Total Equity and Liabilities