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    mizazn's Avatar
    mizazn Posts: 6, Reputation: 1
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    #1

    Sep 23, 2008, 07:41 AM
    Consolidation Worksheet and Journal Entries
    CASE STUDY

    CONSOLIDATION WORKSHEET

    On 1 July 2007, Mickey Ltd acquired 80% of the shares of Mouse Ltd on an ex div basis. At this date, all the identifiable assets and liabilities of Mouse Ltd were recorded at amounts equal to fair value except for:
    Carrying Fair
    Amount Value
    Inventory $120 000 $130 000
    Machinery (cost $200 000) 160 000 165 000

    The inventory was all sold by 30 November 2007. The machinery had a further 5-year life but was sold on 1 April 2010. At acquisition date Mouse Ltd reported a contingent liability of $15 000 that Mickey Ltd considered to have a fair value of $7 000. This liability was settled in June 2008 for $10 000. At acquisition date, Mouse Ltd had not recorded an asset relating to equipment design as the asset was still in the research phase. Mickey Ltd placed a fair value on the asset of $12 000, reflecting expected benefits existing at acquisition date. The asset was considered to have a further 10-year life. On 1 January 2009, the asset met the requirements of IAS 38 Intangible Assets and subsequent expenditure by Mouse Ltd on the asset was capitalised.

    Additional information:
    (a) On 1 July 2008, Mouse Ltd sold an item of plant to Mickey Ltd at a profit before tax of $4 000. Mickey Ltd depreciates this class of plant at a rate of 10% per annum on cost while Mouse Ltd applies a rate of 20% per annum on cost.
    (b) At 30 June 2009 Mickey Ltd has on hand some items of inventory purchased from Mouse Ltd in June 2008 at a profit before tax of $500. These were all sold by 30 June 2010.
    (c) During the 2009-10 period Mickey Ltd sold $12 000 inventory to Mouse Ltd at a mark-up of 20% on cost. $3 000 of this inventory remains unsold by 30 June 2010.
    (d) The other components of equity relate to available-for-sale financial assets. These assets are measured at fair value with movements in fair value being taken directly to equity.
    (e) The parent and the subsidiary are considered to be separate cash generating units. Management have analysed the impairment indicators on an annual basis and conducted an impairment test on the subsidiary cash generating unit in the 2008-09 year which resulted in the writing down of goodwill by $4 000. There have been no other business combinations involving these entities since 1 July 2007.
    (f) The tax rate is 30%.
    (g) Shareholder approval is not required in relation to dividends.



    (h) On 30 June 2010 the trial balances of Mickey Ltd and Mouse Ltd were as follows:

    Mickey Ltd Mouse Ltd

    Shares in Mouse Ltd $295 200 -
    Inventory 180 000 $60 000
    Available for-sale financial assets 229 000 215 000
    Other current assets 10 000 2 000
    Deferred tax assets 15 800 8 000
    Plant and machinery 462 500 303 000
    Land 144 200 42 000
    Equipment design - 18 000
    Goodwill 20 000 22 000
    Cost of sales 120 000 70 000
    Other expenses 50 000 10 000
    Income tax expense 35 000 40 000
    Dividend paid 14 000 6 000
    Dividend declared 20 000 4 000
    1 595 700 800 000

    Share capital 800 000 330 000
    Other components of equity 100 000 80 000
    Other reserves 50 000 1 000
    Retained earnings (1/7/09) 45 000 16 000
    Transfer from other reserves - 2 000
    Sales 200 000 160 000
    Other income 50 000 10 000
    Debentures 70 000 20 000
    Deferred tax liability 20 000 12 000
    Other current liabilities 38 700 35 000
    Dividend payable 10 000 4 000
    Accumulated amortisation
    – equipment design - 4 000
    Accumulated impairment losses – goodwill - 16 000
    Accumulated depreciation – plant
    and machinery 212 000 110 000
    $1 595 700 $800 000







    (I) Extracts from the Statement of Changes in Equity for Mouse Ltd were as follows:
    2007-08 2008-09 2009-10
    Retained earnings (opening balance) $20 000 $19 000 $16 000
    Profit for the period 20 000 20 000 50 000
    Dividends paid * (3 000) * (6 000) (6 000)
    Dividends declared (15 000) (17 000) * (4 000)
    Transfers to/from other reserves * (3 000) * 2 000
    Retained earnings (closing balance) 19 000 16 000 58 000
    Other reserves (opening balance) 30 000 33 000 33 000
    Transfers to/from retained earnings * 3 000 0 * (2 000)
    Bonus issue 0 0 * (30 000)
    Other reserves (closing balance) 33 000 33 000 1 000
    Other components of equity (op. bal.) 10 000 42 000 72 000
    Movements in fair value 32 000 30 000 8 000
    Other components of equity (cl. bal.) 42 000 72 000 80 000
    Share capital (opening balance) 300 000 300 000 300 000
    Bonus issue 0 0 * 30 000
    Share capital (closing balance) 300 000 300 000 330 000

    * these items were from equity earned prior to the date of acquisition

    Required

    1. Prepare the consolidation worksheet for Mickey Ltd for the preparation of consolidated financial statements at 30 June 2010 using the consolidation worksheet provided.

    2. The consolidation worksheet journal entries used to prepare the worksheet are to be attached to the worksheet.




    Can somebody tell me where to start? And what direction i should be heading? IM CLUELESS:eek::eek:
    jkminor's Avatar
    jkminor Posts: 1, Reputation: 1
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    #2

    Oct 1, 2008, 12:37 PM
    There is a process that will help in doing problems of this type.

    1.) compute the Differential (Difference between purchase price and book value, remember to compute only the 80%)
    2.)ammortize and allocate the differential
    3.) Complete the first 2 columns of a 3 part worksheet
    4.) T-account the Investment.

    This process will help you know what eliminating entries to do. Also you should start with the beginning entries if the problem is asking you for entries for the year of acquisition. If its subsequent years journal entry the entries that would happen that year such as dividends and income.

    Hope this helps.

    Jaunice Minor
    alisonch86's Avatar
    alisonch86 Posts: 2, Reputation: 1
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    #3

    Oct 2, 2008, 10:14 PM

    First of all,are you a student from Curtin University?I'm currently ttaking an Accounting unit with a similar question.

    I know quite a bit on the first step to the solutions.

    The first thing you should do is to do the acquisition analysis at 1 July 2007.
    Calculate the net fair values of the assets,liabilities and contingent liabilities.Then apply only 80% of the total as the net fair value acquired.
    The cost of combination can be found from the trial balance.Then compute the goodwill and write the BCV entries.

    As for the rest,I still couldn't figure out what to do.If you have any latest updates from your coursemates,would you mind sharing the knowledge?

    Thank you.
    kiki13's Avatar
    kiki13 Posts: 3, Reputation: 1
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    #4

    Oct 15, 2008, 02:25 PM
    Hi guys ?
    Did you guys manage to answer it??
    When calculating the acquisition analysis... do you take the opening balances of retains earnings,other reserves, other components of equity and share capitals?
    Is the Cost of combination the 295000 ? (shares in mouse ) ?
    What goodwill did you get?

    Any help would be awesome! I have a sample question that ressembles this one with the entries needed except the goodwill part and I can't seem to calculate the goodwill?1
    epic76's Avatar
    epic76 Posts: 8, Reputation: 1
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    #5

    Oct 16, 2008, 12:12 AM
    Hi I amstruggling with this one 2!!

    Got as far as that shares in Mouse Ltd were $295,200 as per trial balance. And got goodwill amt of $3,280. I have no idea if any of this is actually right, though.

    Still trying to work on other bcvr entries. Not much time and have not gotten very far with this??
    mizazn's Avatar
    mizazn Posts: 6, Reputation: 1
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    #6

    Oct 16, 2008, 02:53 AM
    I have friends who have gotten an EXCESS/GOODWILL of 4000-6000

    how did you calculate the goodwill?
    3280 is wrong, looking at the notes I have on it

    would you do TWO pre acquisition entries... one for 2007 and the other 2010?

    And then follow on by doing the MI entries x3?
    kiki13's Avatar
    kiki13 Posts: 3, Reputation: 1
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    #7

    Oct 16, 2008, 06:10 AM

    I've also got 4000 as excess goodwill but I'm not sure whether its correct.
    20000 + 30000+ 10000 + 3000000 = opening balances of minor company

    add
    inventory bcvr
    machine bcvr
    the "asset in research phase" bcvr
    MInus contingent liabilities

    80% of the above - 295200... = 4000

    Though Are u sure u have to add the "Asset in research phase" as in the case study it does mention that the asset "met requirements of ias38 intangible asset ..... " on jan 2009.?


    There is also a mention about bonus share while looking at the changes in equity

    Shouldnd the cost of combination be 295200 - 30000 x 80%?
    kiki13's Avatar
    kiki13 Posts: 3, Reputation: 1
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    #8

    Oct 16, 2008, 11:20 PM
    Add my msn [email protected]
    epic76's Avatar
    epic76 Posts: 8, Reputation: 1
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    #9

    Oct 17, 2008, 12:29 AM
    Have sent u an email
    alisonch86's Avatar
    alisonch86 Posts: 2, Reputation: 1
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    #10

    Oct 17, 2008, 03:48 AM

    I and my friends worked out a $6400 goodwill for the acquisition analysis.The goodwill given in the trial balance is recorded at cost,so we need to minus the accumulated impairment losses(Note that there is a 4000 goodwill write-down in 2008-09)?The goodwill should then be $22000-[$16000-$4000]=$10000.

    The cost of the combination is the amount $295200+all the dividend declared(80%) and dividend paid(80%) which amounts to $305600.

    Some people who consulted the unit controller got to know that we should find a goodwill instead of an excess.I hope the answer I provided here helps you guys.If anyone here managed to move on with the other worksheet entries do remember to post them here for us to see as I'm not sure how to record the entries for the intragroup tx for part (a) to (c).
    epic76's Avatar
    epic76 Posts: 8, Reputation: 1
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    #11

    Oct 17, 2008, 04:09 AM
    Am about to give up on this stupid question. Not very easy towork through at all!!
    epic76's Avatar
    epic76 Posts: 8, Reputation: 1
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    #12

    Oct 17, 2008, 04:13 AM

    I am abou to give up on this as is getting too hard
    mizazn's Avatar
    mizazn Posts: 6, Reputation: 1
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    #13

    Oct 17, 2008, 04:14 AM

    I hear Ken Leo is going to get sacked next semester. Thank god.
    epic76's Avatar
    epic76 Posts: 8, Reputation: 1
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    #14

    Oct 17, 2008, 04:22 AM

    Where does the ex div come in to it then. I thought we not entitled to the dividends pre aquuisition
    epic76's Avatar
    epic76 Posts: 8, Reputation: 1
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    #15

    Oct 17, 2008, 04:38 AM

    Ex Div defined
    Stockmarket designation of a share indicating that the quoted price does not include entitlement to the forthcoming or accrued dividend. If the entitlement exists, the share is called div.

    I think means not entitled to the dividend paid part. But starting to get v. confused though
    mizazn's Avatar
    mizazn Posts: 6, Reputation: 1
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    #16

    Oct 19, 2008, 04:50 AM

    Ex div- parent has no right to this declared @ acquisition date

    I'm finding it quite hard to do the pre acquisition for the year 2010.. any ideas?
    epic76's Avatar
    epic76 Posts: 8, Reputation: 1
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    #17

    Oct 19, 2008, 05:17 AM
    But aren't they only not entilitled to anything from equity prior to acquisition. I had only not entitled to items with 8 next to them.

    The whole thing is hard!

    The pre-acquisition enrty I have got I am not sure if it is anywhere near right. Am just doing whatever now and hoping for the best, just so have something to submit.

    Not many BCVR entries to do and pre-acquisition entry is 80% of figures you get in the acquisition analysis.
    mizazn's Avatar
    mizazn Posts: 6, Reputation: 1
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    #18

    Oct 19, 2008, 07:53 AM

    How did you get the retained earning for pre acquisition for 2010? Retained earnings from 2007 + goodwill 2007 + inventory + 80% dividends and?

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