Accounting

ADVANCED FINANCIAL ACCOUNTING 260

ASSIGNMENT 1, 2013

On 1 July 2011, Snake Ltd acquired all the shares of Rat Ltd on an ex-div basis. Acquisition related expenses were $5 000. On this date, the equity and liabilities of Rat Ltd included the following balances:

Share Capital $200 000

General Reserve 75 000

Retained Earnings 45 000

Dividend payable 10 000

Provisions 206 500

At acquisition date, all the identifiable assets and liabilities of Rat Ltd were recorded at amounts equal to fair value except for:

Carrying Fair

Amount Value

Inventory $70 000 $80 000

Land 50 000 70 000

Plant (cost $300 000) 182 000 190 000

Machinery (cost $18 000) 15 000 16 000

Trademark 100 000 110 000

Equipment (cost $80 000) $50 000 $53 000

Fittings (cost $15 000) 10 000 10 000

At 1 July 2011 Rat Ltd had recorded goodwill of $25 000.

At 1 July 2011, Rat Ltd had not recorded a liability relating to a guarantee that was considered to have a fair value of $10 000. An amount of $7 500 was paid by Rat Ltd in June 2013 in part payment of this liability. The balance of this liability was still considered to be $2 500 at 30 June 2013.

Rat Ltd registered a patent on 28 June 2011 but had not yet recognized it as an asset. Snake believed the fair value of the patent was $30 000. The patent is legally enforceable for a period of ten years. On 1st January 2013, Rat Ltd sold the patent for $17 000.

Immediately after acquisition of its shares by Snake Ltd, Rat Ltd revalued the equipment to fair value. The equipment was expected to have a further five year useful life.

During the year ended 30 June 2012, all inventory on hand at acquisition date was sold, and the land was sold on 1 June 2013. The plant had a further five year life at acquisition date and was expected to be used on a straight line basis over that time. The trademark was considered to have an indefinite life....