1.a) On 1 July 2016 Spring Ltd acquired 40% of the shares of Summer Ltd for $63,200 cash. At this date all the identifiable assets and liabilities of Summer Ltd were recorded at amounts equal to fair value. The equity of Summer Ltd consisted of:
$
Share Capital 125 000
Retained Earnings 33 000
At 1 July 2016, the identifiable assets and liabilities of Summer Ltd were recorded at fair value.
Additional information:
For the year ending 30 June 2017 Summer Ltd recorded an after-tax profit of $280 000 and paid
a dividend of $60 000 from the profit earned in the year ending 30 June 2017.
For the year ending 30 June 2018, Summer Ltd records an after-tax loss of $50 000. On 30 June
2018, Summer Ltd revalued an item of equipment upwards by $80 000 (assume a 30% tax rate).
Required: Prepare journal entries in the book of Spring Ltd using equity method for financial years ending 2017 and 2018.
1.b) Green Ltd purchased 80 per cent of the issued capital for consideration of $4 000 000 and in the process gained control over Maroon Ltd on 1 July 2015. The fair value of the net assets of Maroon Ltd at purchase was represented by:
Share capital $3 220 000
Retained earnings 740 000
Total 3 960 000
At acquisition date all the identifiable assets and liabilities of Maroon Ltd were recorded at amounts equal to fair value.
At 1 July 2015, the fair value of the non-controlling interest was $1 000 000 and Swamp Ltd adopts the full goodwill method.
Required: Prepare acquisition analysis on 1 July 2015
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