Madari Ltd purchased 100% of the shares of Concerto Ltd on 1 July 2020 for $70,000. On the date of acquisition, the equity of the two entities was as follows: Madari Ltd($) Concerto Ltd ($) General Reserve 25,000 5,500 Retained Earnin
Madari Ltd purchased 100% of the shares of Concerto Ltd on 1 July 2020 for $70,000. On the date of acquisition, the equity of the two entities was as follows:
Madari Ltd($) Concerto Ltd ($)
General Reserve 25,000 5,500
Share Capital 60,000 38,000
At 1 July 2020, all of the identifiable assets and liabilities of Concerto Ltd were recorded at fair value except for the following:
Carrying Amount ($) Fair Value ($)
Inventory 3,000 4,500
Plant and Equipment 60,000 65,000
The plant and equipment had a further 5-year useful life. Any valuation adjustments are made on consolidation. All of the inventories were sold by December 2020. The assets of Concerto Ltd included
Additional information
a). On 1 January 2022, Madari Ltd advanced $50,000 to Concerto Ltd. The interest rate on the advance is 6% p.a payable monthly.
b). Madari Ltd records dividend receivable as revenue when dividends are declared.
c). The beginning inventories of Concerto Ltd at 1 July 2021 included goods that cost Concerto Ltd $1,000. Concerto Ltd purchased these inventories from Madari Ltd for $1,330.
d). Intragroup sales totaled $5,000 for the period ended 30 June 2022. Sales from Madari Ltd to Concerto Ltd, at cost plus 10% mark-up, amounted to $2,800. The ending inventories of Madari Ltd included goods that cost Madari Ltd $2,200. Madari Ltd purchased these inventories from Concerto Ltd at cost plus 10% mark-up.
e). On 31 December 2021, Concerto Ltd sold an item of equipment to Madari Ltd for $15,000. This equipment originally cost Concerto Ltd $15,000 but at the time of the intragroup sale it had a carrying amount of $12,600. Madari Ltd
f). The sales revenue account for Madari Ltd includes $3,000 earned from professional services provided to Concerto Ltd in the year ended 30 June 2022.
g). The income tax rate is 30%.
Required
- Prepare the acquisition analysis at 1 July 2020.
- Prepare the business combination valuation entries and pre-acquisition entries at 30 June 2021.
- Prepare the business combination valuation entries and pre-acquisition entries at 30 June 2022.
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