Accounting Assignment: Financial Accounting for Business Combinations

Question

Task: Accounting Assignment Part A (Problem Solving Questions)
Question 1: Strongarm Ltd has the following tax balances as at 30 June 2018:

The balances were calculated when the tax rate was 30%. On 30 September 2018, the government announced a change to the company tax rate to 26%, effective immediately. What is the journal entry to adjust the carry-forward balances of the deferred tax asset and deferred tax liability?

Question 2
Swamp Ltd purchased 70 per cent of the issued capital for consideration of $7 000 000 and in the process gained control over Grassland Ltd on 1 July 2015. The fair value of the net assets of Grassland Ltd at purchase was represented by:

At acquisition date all the identifiable assets and liabilities of Grassland Ltd were recorded at amounts equal to fair value.

At 1 July 2015, the fair value of the non-controlling interest was $3 000 000 and Swamp Ltd adopts the full goodwill method.

At 30 June 2016, the equity of Maroon Ltd consisted of:

During the 2015–16 year Maroon Ltd recorded a profit of $120 000. Required: Prepare acquisition analysis

Question 3
On 1 July 2016, Soff Ltd purchased a 20 per cent shareholding in Willaott Ltd for a cash consideration of $480 000. On the date of acquisition, the shareholders’ equity of Willaott Ltd is shown below:

Share capital $1 900 000
Retained earnings $ 500 000
Total shareholder’s equity $2 400 000

Additional information:
For the year ending 30 June 2017 Willaott 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, Willaott Ltd records an after-tax loss of $50 000. On 30 June 2018, Willaott Ltd revalued an item of equipment upwards and as a result the asset revaluation surplus is increased by $80 000 (assume a 30% tax rate).

Required: Prepare the journal entries required for the year ending 30 June 2017 and 30 June 2018 in the books of Soff Ltd for the above transactions using Equity

Accounting
Question 4
Normanhurst Ltd is a wholly owned subsidiary of Beecroft Ltd. The transactions for the period ending 30 June 2020 are shown below: Transactions:

1. During the accounting period, Normanhurst Ltd paid management fees of $26 000 to Beecroft Ltd.
2. Normanhurst declared dividend of $11 000 but not paid yet.
3. Beecroft Ltd sold inventory to Normanhurst Ltd for $80 000 during the period. This inventory had originally cost Beecroft Ltd $50 000. Normanhurst Ltd sold ¾ of this inventory during the period to parties external to the group for $90 000. The remaining ¼ is still held by Normanhurst Ltd at the end of the period. The tax rate is assumed to be 30%.

Part B Consolidated Financial Statements
Please read through the 2019 Annual Report of JB Hi-Fi which is in the Final Assessment Folder and answer the following questions:
a. In the Annual Report, please identify Investment in Subsidiary account and comment if there are changes in the balances of year 2018 and 2019. Why or Why not?
b. How many subsidiaries does JB Hi-Fi Group has? What are they?
c. Does JB Hi-Fi has Non-controlling Interest? Justify your answer.
d. What are the principles of consolidation of the company?

Answer

PART A (Problem Solving Question)
Answer 1
The requisite journal entry to adjust the carry-forward balances of the deferred tax asset and deferred tax liability for Strongarm Ltd is shown below within this accounting assignment.

Answer 2
Market value of net identifiable assets of Grassland Ltd as on July 1, 2015 = $5,220,000 + $740,000 = $5,960,000

Consideration transferred to acquire Grassland Ltd on July 1, 2015 = $7,000,000

(+) Fair value of non-controlling interest as on July 1, 2015 = $3,000,000
(-) Net identifiable assets of Grassland Ltd as on July 1, 2015 = $5,960,000
Goodwill acquired by Swamp Ltd= $7,000,000 + $3,000,000 - $5,960,000 = $4,040,000

Answer 3
Net fair value of identifiable assets = $2,400,000
Since only 20% of the ownership in Willaott Ltd is acquired, hence net fair value of this = (20/100)*$2,400,000 = $480,000 The amount of cash consideration paid for acquisition is also $480,000. As a result, in the given acquisition, the amount of goodwill acquired would be 0.

For the year ending June 30, 2017, the dividend paid by Willaott is $60,000. However, since the ownership of Soff Ltd is only 20%, hence amount of dividend received = (20/100)*$60,000 = $12,000.

The relevant journal entry to record the receipt of $12,000 dividend from associate Willaott Ltd is shown below.

Another journal entry for 2017 would be required to record the 20% share in the after tax income of $280,000 from associated Willaott Ltd. This is shown below.

For the year ending June 30, 2018, the following journal entries would be recorded.

Answer 4
The relevant journal entries for the various transactions are highlighted as follows.

1) The appropriate journal entry is indicated as follows.

2) The appropriate journal entry is indicated as follows.

3) The gross profit from the inventory still at hand for Normanhurst needs to be eliminated. This is computed below.

Gross profit from transfer of inventory to Normanhurst Ltd = ($80,000 - $50,000) = $30,000

Since at the end of the period , 25% of the inventory is still at hand for Normanhurst, hence gross profit from inventory still at hand = (25/100)*$30,000 = $7,500

The appropriate journal entry is indicated as follows.

PART B: Consolidated Financial Statements
a) The investment in subsidiary account has been indicated under Note 23 of the notes to financial statements. As per this, there has no change in the balances in 2018 and 2019. Both the balances stood at $911.7 million. The relevant screenshot in this regards is indicated as follows.

b) Based on the information provided in the annual report, the company has 17 subsidiaries. A list of these is presented below.

c) JB-HI- Fi does not have non-controlling interest. This is evident from the fact that for all the subsidiaries the ownership is 100% as is evident from the relevant extract provided in part (b).

d) The principle of consolidation has been outlined under Note 22 which deals with subsidiaries. It indicates that from the date the control of subsidiaries is transferred to the parent group, the result of the subsidiary would be fully consolidated in the group results. To determine control, three conditions have been outlined. Any unrealised losses, unrealised gains on transaction between group companies, intercompany transactions are eliminated. With regards to non-controlling interest, the results are shown separately in the financial statements. The relevant extract from the annual report is presented below.