Acquisition Analysis $000

Fair value of identifiable net assets acquired:

Share capital 950
Retained profits 360
General reserve 230
Business combination valuation reserve 42
1,582
Cost of acquisition 1,700
Goodwill on acquisition/(excess) 118

393682712.xlsx
 Debit Credit
$000 $000
a. Revaluation of equipment to fair value at acquisition
Accumulated depreciation - property, plant and equipment 10
Property, plant and equipment 10

Property, plant and equipment 60

Business combination valuation reserve 42
Deferred tax liability 18

b. Goodwill 118
Business combination valuation reserve 118

c. Purchase elimination
Share capital 950
General reserve 230
Retained profits - 1 July 20X2 360
Business combination valuation reserve 160
Investment in Ash Ltd 1,700

d. Additional depreciation because of revaluation of equipment

Depreciation - property, plant and equipment 6.67
Accumulated depreciation - property, plant and equipment 6.67
($60,000/9 year - see next slide for explanation)

Deferred tax liability 2

Income tax expense 2
(6.67*30% = 2) If 9 years remaining * 2 per year = $18k (agrees to total of DTL)

e. Impairment of goodwill this year

Goodwill impairment loss 32
Accumulated impairment losses 32

1,929 1,929

393682712.xlsx
Property Plant and Equipment
Subsidiary Group Difference
Carrying amount at date of acquisition $90,000 $150,000 $60,000

Years remaining at date of acquisition (1 July x2) 9 years 9 years

(10% p.a. - 1 year depreciation recorded)

Depreciation charge per year 10000 16667 $6,667

(100k/10 years) (150/9 years)

From the date of acquisition: Total

Subsidiary will record $10,000 per year for 9 years $ 90,000.00
Group will record $6,667 for 9 years $ 60,000.30
$ 150,000.30

We are concerned with the FV at acquisiton, what is the value and depreciating that value.
per year

Which equates to the fair value at acquisition

CONSOLIDATED WORKSHEET

$000 $000 Eliminations/Adjustments

Account W Ltd A Ltd Debit Credit Consolidation
Sales revenue 3,200 1,900 5,100
Cost of sales:
Inventory 1 July 20X2 126 178 304
Purchases 1,456 760 2,216
less Inventory 30 June 20X3 154 210 364
1,428 728 2,156
Gross profit 1,772 1,172 2,944
Dividend revenue 220 0 220
Management fee revenue 100 0 100
320 0 320
Depreciation expense 234 195 d 6.7 436
Management fee expense 0 100 100
Goodwill impairment 0 0 e 32.0 32
Other expenses (including income tax) 820 166 2.0 d 984
1,054 461 1,552
Operating profit 1,038 711 1,712

Retained profits 1 July 20X2 460 580 c 360.0 680

Dividends paid 800 220 1,020

Retained profits 30 June 20X3 698 1,071 1,372

Share capital 1,000 950 c 950.0 1,000
General reserve 280 340 c 230.0 390
Business combination reserve c 160.0 42.0 a 0
118.0 b
Term borrowings 520 460 980
Accounts payable 370 324 694
Deferred tax liability d 2.0 18.0 a 16
2,868 3,145 4,452

Property, plant and equipment 850 2,520 a 60.0 10.0 a 3,420

Less Accumulated depreciation (125) (260) a 10.0 6.7 d (382)
Inventory 154 210 364
Cash 49 375 424
Accounts receivable 240 300 540
Investment in Ash Ltd 1,700 0 1,700.0 c 0
Goodwill on acquisition 0 0 b 118.0 118
Less Accumulated impairment losses 32.0 e (32)
2,868 3,145 1,928.7 1,928.7 4,452

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CONSOLIDATED WORKSHEET

$000 $000 Eliminations/Adjustments

Account W Ltd A Ltd Debit Credit Consolidation
Sales revenue 3,200 1,900
Cost of sales:
Inventory 1 July 20X2 126 178
Purchases 1,456 760
less Inventory 30 June 20X3 154 210
1,428 728
Gross profit 1,772 1,172
Dividend revenue 220 0
Management fee revenue 100 0
320 0
Depreciation expense 234 195
Management fee expense 0 100
Goodwill impairment 0 0
Other expenses 820 166
1,054 461
Operating profit 1,038 711

Retained profits 1 July 20X2 460 580

Dividends paid 800 220

Retained profits 30 June 20X3 698 1,071

Share capital 1,000 950
General reserve 280 340
Revaluation reserve / surplus
Term borrowings 520 460
Accounts payable 370 324
Deferred tax liability
2,868 3,145

Property, plant and equipment 850 2,520

Less Accumulated depreciation (125) (260)
Inventory 154 210
Cash 49 375
Accounts receivable 240 300
Investment in Ash Ltd 1,700 0
Goodwill on acquisition 0 0
Less Accumulated impairment
2,868 3,145

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