Week 1 Finance

Acquisition analysis at 1 July 2008

Fair value of INA = $150 000 (share capital) + 30 000 (plant maintenance reserve + 87 500 (retained earnings)

+ $12 000 (1-30%) (BCVR Inventory)

+ $15 000(1-30%) (BCVR Manufacturing Plant)

- $35 000 (1 – 30%) (BCVR - Damages)

= $261 900

Cost of combination = $260 000

Gain on purchase = $ 1 900

Consolidation journal entries at 1 July 2008

1. Business Combination Valuation Adjustment entries

Inventory Dr 12 000

BCVR Cr 8 400

Deferred Tax Liability Cr 3 600

Accumulated Depreciation - Plant Dr 55 000

Manufacturing Plant Cr 40 000

BCVR Cr 10 500

Deferred tax liability Cr 4 500

BCVR Dr 24 500

Deferred Tax Asset Dr 10 500

Damages Liability Cr 35 000

2. Pre-acquisition entry

Retained Earnings (1/7/08) * Dr 87 500

Share Capital Dr 150 000

Plant Maintenance Reserve Dr 30 000

BCVR Dr 5 600

Shares in Turin Ltd Cr 260 000

Gain on Purchase Cr 1 900

Consolidation journal entries at 30 June 2009

1. Business Combination Valuation Adjustment entries

Cost of Sales Dr 12 000

Transfer from BCVR Cr 8 400

Income Tax Expense Cr 3 600

Accumulated Depreciation - Plant Dr 55 000

Manufacturing Plant Cr 40 000

BCVR Cr 10 500

Deferred tax liability Cr 4 500

Depreciation expense Dr 2 500

Accumulated Depreciation Cr 2 500

Deferred tax liability Dr 750

Income tax expense Cr 750

BCVR Dr 14 000

Deferred Tax Asset Dr 6 000

Damages Liability Cr 20 000

Transfer from BCVR Dr 10 500

Income Tax Expense Dr 4 500

Damages Expense Cr 15 000

Consolidation journal entries at 30 June 2009

2. Pre-acquisition entry

Retained Earnings (1/7/08) * Dr 87 500

Share Capital Dr 150 000

General Reserve Dr 30 000

BCVR Dr 5 600

Shares in...