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On 1 July 2017, Hawk Ltd acquired all the issued shares (cum div.) of Magpie Ltd for
$1,200,000. At this date the equity of Magpie Ltd consisted of:
At acquisition date, Magpie Ltd reported a dividend payable of $2 000. All the identifiable
assets and liabilities of Magpie Ltd were recorded at amounts equal to their fair values
except for:
Carrying amount Fair value
Plant (cost $250 000) $200 000 $220 000
Land 320 000 350 000
Inventory 58 000 64 000
The plant was considered to have a further five year life. All inventory was sold by 30 June
2018. The dividend payable recorded at acquisition date was paid in July 2017.
Required
Prepare the acquisition analysis and consolidation worksheet entries for the preparation by
Hawk Ltd of its consolidated financial statements at 30 June 2018. Explain why each entry is
required.
FVINA of Magpie Ltd = ($850 000 + $55 000 + $245 000) (equity)
+ $20 000 (1 30%) (plant BCVR)
+ $30 000 (1 30%) (land BCVR)
+ $6 000 (1 30%) (inventory BCVR)
= $1 189 200
Consideration transferred = $1 200 000 2 000 dividend receivable
= $1 198 000
Goodwill = $8 800
STEP 2: BCVR entries (plant and land on hand, inventory sold in current year)
CA of plant increased by $20 000 (TTD), so depn increases (20 000/5) $4 000 p.a.
CA of plant (TTD) reduced by $4 000, so reverse (4 000 x 30%) $1 200 from DTL
DTL Dr 1 200
Income tax expense Cr 1 200
Land Dr 30 000
DTL (30%) Cr 9 000
BCVR Cr 21 000
Need to consider
- inventory sold in current year
- dividend payable at acquisition has been paid dividend payable and receivable
accounts closed off hence no entry required