UNSW Business School

School of Accounting, Auditing & Taxation

ACCT2542 Topic 3 PASS Class Questions

This week’s topic: Consolidations Part A – Principles of consolidation

Question 1 - Accounting by an acquirer

On 1 July 2023, ABC Ltd acquired the following assets and liabilities from XYZ Ltd.

Carrying amount Fair value

Land $ 600,000 $ 700,000
Plant (cost $800,000) 560,000 580,000
Inventories 160,000 170,000
Cash 30,000 30,000
Accounts payable (40, 000) (40, 000)
Loans (160,000) (160,000)

In exchange for these assets and liabilities, ABC Ltd issued 200,000 shares that had been issued
for $2.20 per share but at 1 July 2023 had a fair value of $4.50 per share.

Required
1. Prepare the journal entries in the records of ABC Ltd to account for the acquisition of the
assets and liabilities of XYZ Ltd.
2. Prepare the journal entries assuming that the fair value of ABC Ltd shares was $4 per
share.

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 Topic 3 – PASS Class Questions UNSW Business School

Question 2
On 1 July 2022, Kites Ltd acquired all the issued shares of Kyoo Ltd for $174,800.

At this date the equity of Kyoo Ltd consisted of share capital of $80,000 and retained earnings
of $68,800.

All the identifiable assets and liabilities of Kyoo Ltd were recorded at amounts equal to fair
value except for:

The patent was considered to have an indefinite life.

It was estimated that the plant had a further life of 10 years, and was depreciated on a straight-
line basis.

All the inventories were sold by 30 June 2023.

In May 2023, Kyoo Ltd transferred $20,000 from the retained earnings on hand at 1 July 2022
to a general reserve.

In June 2023, Kyoo Ltd conducted an impairment test on the patent and on the goodwill
acquired. As a result, the goodwill was considered to be impaired by $1,200.

The tax rate is 30%.

Required
1. Prepare the acquisition analysis at 1 July 2022.
2. Prepare the consolidation worksheet entries for Kites Ltd’s group at 1 July 2022.
3. Prepare the consolidation worksheet entries for Kites Ltd’s group at 30 June 2023.

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