MASTER OF ACCOUNTING

(Professional)

ACCG8126 CORPORATE ACCOUNTING

Assessed Coursework 2
Due date: 11 September (5pm) submitted on ilearn

Marks and percentages: This assessed coursework will be marked out of 20 marks and
contributes towards 5% to your assessment.

Submitted document format: pdf file to be uploaded

On 1 July 2017 Salah Ltd acquired 100% of the share capital (cum div.) of Robertson Ltd for
$440,000. At that date, the relevant balances in the records of Robertson Ltd were:
$
Share capital 300,000
General reserve 15,000
Retained earnings 70,000
Dividend payable 6,000
At the date of acquisition all assets and liabilities of Robertson Ltd were recorded in the
accounting records at amounts equal to their fair values with the exception of the following
assets:
Carrying amount Fair value
$ $
Inventory 11,000 16,000
Equipment 39,000 55,000
Land 50,000 60,000

All inventory on hand at acquisition date was sold by 30 June 2018. Robertson Ltd revalued
the land to fair value immediately after the acquisition in its accounting records. The cost of
the equipment was $52,000 and had a further five (5) year life as at the date of acquisition.

Robertson Ltd disclosed a contingent liability in relation to a court case, which could
potentially result in the company paying damages to a contractor. Salah Ltd calculated the
fair value of this liability to be $14,000 at acquisition date. On 1 April 2020 Salah Ltd
reassessed the fair value of the liability to be $6,000 as the chances of winning the case had
improved, no amount has been paid.

Additional information:
a) During the year ending 30 June 2019, Robertson Ltd sold inventory to Salah Ltd for
$18,000. The cost of inventory to Robertson Ltd was $11,000. 70% of this inventory was
sold by Salah Ltd to external parties by 30 June 2019. The balance of the inventory was
sold to external entities in November 2019 for $9,000.

b) During the year ending 30 June 2020, Robertson Ltd purchased inventory from Salah Ltd
for $21,000, with Salah Ltd recording a before-tax profit of $8,000. By 30 June 2020,
Robertson sold a quarter of this inventory to external entities.
c) On 1 January 2019, Robertson Ltd sold an item of equipment to Salah Ltd for $40,000.
The original cost of the equipment to Robertson Ltd was $52,000 and had a carrying
amount at the time of sale of $31,000. The equipment is depreciated at 20% p.a.
straight-line.
d) All transfers from retained earnings to the general reserve by Salah Ltd and Robertson
Ltd were from post-acquisition earnings.
e) On realisation of the business combination valuation reserve, a transfer is made to
retained earnings on consolidation.

ACCG8126 s1 2020 Assessed coursework 2 Page 2

f) The tax rate is 30%.

ACCG8126 s1 2020 Assessed coursework 2 Page 3

The financial statements of the two companies at 30 June 2020 are as follows:

Salah Robertson
$ $
Revenues 840 000 520 000
Expenses (630 000) (400 000)
Net profit before tax 210 000 120 000
Income tax expense (72 000) (43 000)
Net profit after tax 138 000 77 000
Retained earnings 1 July 2019 190 000 140 000
328 000 217 000
Dividend declared (65 000) (22 000)
Transfer to general reserve (18 000) (14 000)
Retained earnings 30 June 2020 245 000 181 000
Share capital 610 000 300 000
General reserve 51 000 62 000
Asset revaluation reserve 12 000 7 000
Accounts payable 43 000 15 000
Advance from Salah Ltd – 75 000
Other liabilities 36 000 31 000
TOTAL EQUITY AND LIABILITIES 997 000 671 000

Cash 180 000 160 000

Accounts receivable 32 000 58 000
Prepayment 26 000 29 000
Inventory 99 000 100 000
Advance to Robertson Ltd 75 000 –
Investment in Robertson Ltd 434 000 –
Non-current assets 151 000 324 000
TOTAL ASSETS 997 000 671 000

Required:
Prepare the consolidation journal entries for the Salah Ltd group for the year ended 30 June
2020. (20 marks)

ACCG8126 s1 2020 Assessed coursework 2 Page 4

Acquisition Analysis
At 01 July 2017:
Net fair value of assets and liabilties of Robertson Ltd
= $ 300,000 + 15,000 + 70,000 (equity)
+ 5,000 x 0.7 (Inventory)
+ 16,000 x 0.7 (Equipment)
+ 10,000 x 0.7 (Land)
- 14,000 x 0.7 (Contingent Liability)
= $ 396,900
Consideration transferred = $ 434,000
Goodwill = $ 37,100

BCVR Journal Entries

Account DR CR
Goodwill 37,100
BCVR 37,100

Accumulated Depreciation 19,000

Equipment 3,000
Deferred tax liability 4,800
BCVR 11,200

Depreciation expense 3,200

Retained earnings 6,400
Accumulated depreciation 9,600

Land 10,000
Deferred tax liability 3,000
BCVR 7,000

Deferred tax liability 4,200

Income tax expense 1,367
Retained Earning 2,700

Income tax expense 4,200

Transferred from BCVR 9,800
Legal claim 6,000
Gain 8,000

No entry for inventory

Pre-Acquisition Journal Entries

ACCG8126 s1 2020 Assessed coursework 2 Page 5

 Account DR CR
Share capital 300,000
General reserve 15,000
Retained earning 70,000
BCVR 55,000
Investment in Robertson Ltd 440,000

Retained earnings 3,500

BCVR 3,500
Inventory (5,000*0.7)

BCVR 9,800
Transfer from BCVR 9,800
Lawsuit (14,000*0.7)

Retained earnings 7,000

Land 7,000
Land (10,000*0.7)

Intra-group Journal Entries

Account DR CR
Dividend Declared
Dividend payable 22,000
Dividend declared 22,000

Dividend revenue 22,000

Dividend receivable 22,000

Opening inventory (Robertson-Salah)

Retained earnings 3,430
Income tax expense 1,470
Cost of sales 4,900

Ending inventory (Salah- Robertson)

Sales 21,000
Cost of sales 15,000
Inventory 6,000

Deferred tax assets 1,800

Income tax expense 1,800
Non-current assets (Robertson-Salah)
Retained earning 6,300

ACCG8126 s1 2020 Assessed coursework 2 Page 6

 Deferred tax assets 2,700
Equipment 12,000
Accumulated depreciation 21,000

Accumulated depreciation 2,700

Retained earnings 900
Depreciation expense 1,800

Retained earnings 270

Income tax expense 540
Deferred tax assets 810

Inter-company balances
Advance from Salah 75,000
Advance to Robertsons 75,000

ACCG8126 s1 2020 Assessed coursework 2 Page 7