Acquisition analysis:
At 1st June 2014:
Consideration transferred
110,000
Net fair value of identifiable net assets
Share capital
54,000
Retained earnings
36,000
Asset revaluation surplus
18,000
Fair value adjustments:
Machinery
1,050
Inventory
1,400
Total fair value identifiable net assets
110,450
Gain on bargain purchase
450
a. The worksheet entries at 1st July 2014 are:
Depreciation expense
300
Accumulated depreciation
300
Deferred tax liability
90
Income tax expense
90
Cost of sales
1,800
Income tax expense
540
Transfer from business combination valuation reserve
1,260
Inventory
200
Deferred tax liability
60
Business combination valuation reserve
140
b. Pre-acquisition entries:
1. At 1st July 2014:
Retained earnings (1/7/14) 36,000
Share capital 54,000
Asset Revaluation surplus 18,000
Business combination valuation reserve 2,450
Gain on bargain purchase 450
Shares in Darren Ltd 110,000
The entry at 30 June 2015 is affected by:
Sale of inventory
Transfer to general reserve
2.
Retained earnings (1/7/14) 36,000
Share capital 54,000
Asset Revaluation surplus 18,000
Business combination valuation reserve 2,450
Gain on bargain purchase 450
Shares in Darren Ltd 110,000
3. Transfer from Business combination valuation reserve 1,260
Business combination valuation reserve 1,260
General reserve 3,600
Transfer to general reserve 3,600
Ethan
Ltd
Darren
Ltd
Adjustments
Group
Dr
Cr
Profit before tax
120 000
12 500
1
1
1,800
300
450
2
130,850
Income tax expense
(56 000)
(4 200)
90
540
1
1
59,570
Profit
64 000
8 300
71,280
Retained earnings (1/7/14)
80 000
36 000
2
36,000
80,000...