On 1 July 2023 Kang Ltd issued ordinary shares to acquire a 30% interest in Aroo Ltd. On this date, these issued shares had a fair value of $320 000. The directors of Kang Ltd believe that they have significant influence over the financial and operating policy decisions of Aroo Ltd. The share capital, reserves and retained earnings of Aroo Ltd at the acquisition date and at 30 June 2024 were as follows. 1 July 2023 30 June 2024 Share capital $450 000 $450 000 Asset revaluation surplus - 140 000 General reserve - 35 000 Retained earnings 200 000 180 000 $650 000 $805 000 At 1 July 2023, all the identifiable assets and liabilities of Aroo Ltd were recorded at fair value. The following is applicable to Aroo Ltd for the year to 30 June 2024. Profit (after income tax expense of $11 000): $86 000. Increase in reserves: General (transferred from retained earnings): $25 000. Asset revaluation (revaluation of freehold land and buildings at 30 June 2024): $140 000. Dividends paid to shareholders: $30 000. The tax rate is 30%. Kang Ltd does not prepare consolidated financial statements. Required Undertake an acquisition analysis to calculate goodwill. Prepare the journal entries in the records of Kang Ltd for the year ended 30 June 2024 in relation to its investment in the associate, Aroo Ltd.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On 1 July 2023 Kang Ltd issued ordinary shares to acquire a 30% interest in Aroo Ltd. On this date, these issued shares had a fair value of $320 000. The directors of Kang Ltd believe that they have significant influence over the financial and operating policy decisions of Aroo Ltd. The share capital, reserves and retained earnings of Aroo Ltd at the acquisition date and at 30 June 2024 were as follows. 1 July 2023 30 June 2024 Share capital $450 000 $450 000 Asset revaluation surplus - 140 000 General reserve - 35 000 Retained earnings 200 000 180 000 $650 000 $805 000 At 1 July 2023, all the identifiable assets and liabilities of Aroo Ltd were recorded at fair value. The following is applicable to Aroo Ltd for the year to 30 June 2024. Profit (after income tax expense of $11 000): $86 000. Increase in reserves: General (transferred from retained earnings): $25 000. Asset revaluation (revaluation of freehold land and buildings at 30 June 2024): $140 000. Dividends paid to shareholders: $30 000. The tax rate is 30%. Kang Ltd does not prepare consolidated financial statements. Required Undertake an acquisition analysis to calculate goodwill. Prepare the journal entries in the records of Kang Ltd for the year ended 30 June 2024 in relation to its investment in the associate, Aroo Ltd.

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