Question 1
On 1 July 2011, Geraldton Ltd acquired 80% of the share capital of Pilbara Ltd for $132 400. On that date, the statement of financial position of Pilbara Ltd consisted of:
Share Capital $125 000 General Reserve 5 GOO Revaluation Reserve 7 500 Retained Earnings 5 000 Liabilities 90 000 $232 500 Cash 30 000 Inventories 35 000 Land 32 500 Plant and equipment 150 000 Accumulated Depreciation (65 000) Patent 50 000 $232 500
All the identifiable assets and liabilities of Pilbara Ltd were recorded at fair value except for:
Carrying amount Fair value Inventories $ 35 COO $ 40 000 Land 32 500 42 500 Plant and equipment (cost $100 000) 35 000 45 000
The plant and equipment had a further 5-year life and is depreciated on a straight line basis. The differences between carrying amounts and fair value on acquisition date are adjusted on consolidation. Geraldton Ltd uses the partial consideration method.
During the year ended 30/6/2012, all inventories on hand at 1/7/2011 were sold. The income tax rate is assumed to be 30%. Also in the current year, Pilbara Ltd sold inventory to Geraldton Ltd for $4000 (cost $2500). One-third of this inventory was on hand at the end of the year.
There were no changes during the year in any element of Pilbara Ltd's equity except for retained earnings.