Accounting Assignment | Custom Assignment Help

ABC Ltd made a takeover bid for all the issued voting shares of XYZ Ltd offering three ABC Ltd shares for every two XYZ Ltd shares. The offer from ABC Ltd was accepted by 90% of the shareholders of XYZ Ltd. The date control was obtained by ABC Ltd was deemed to be 1 January 20X7. The following information is available.

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(a) Shareholders’ equity of XYZ Ltd at balance date on 31 December 20X6:


Share capital (200,000) shares                                                           200

General reserve                                                                                      300

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Retained earnings                                                                                 150


(b) Market value of each entity’s shares at 1 January 20X7

ABC Ltd                                                                                                 $3.20

XYZ Ltd                                                                                                 $4.00

(c) In XYZ Ltd’s accounting records, land was stated at $200,000 below its cost to the group. This is to be accounted for as a consolidation adjustment. Statements of comprehensive income and statements of financial position of ABC Ltd and XYZ Ltd for the year ended 31 December 20X8 are as follows:

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Statements of Comprehensive Income

                                                                             ABC Ltd                   XYZ Ltd

$000                      $000

Sales                                                                          5000                      2000

Cost of sales                                                            2570                      1025

Gross profit                                                               2430                        975

Dividend revenue                                                      252                            –

2682                        975

Expenses                                                                  2057                        300

Operating profit before tax                                        625                     675

Income tax expense                                                  280                     260

Operating profit after tax                                           345                      415

                                                                             ABC Ltd            XYZ Ltd

$000                  $000

Retained earnings at 1.1.X8                                     294                    200

Profit for the year                                                        345                    415

Interim dividend paid                                               (100)                 (150)

Final dividend declared                                          (160)                 (200)

Retained earnings at 31.12.X8                               379                    265

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Statements of Financial Position

                                                                             ABC Ltd            XYZ Ltd

$000                  $000


Current assets

Other current assets                                        385                    395

Total current assets                                                  385                    395

Non-current assets

Property, plant and equipment                       550                    750

Investments                                                       864                         –

Total non-current assets                                        1414                    750

Total assets                                                              1799                  1145


Current liabilities

Trade and other payables                                  60                    180

Provision for final dividend                                       160                    200

Total current liabilities                                               220                    380

Total liabilities                                                             220                    380

Net assets                                                                 1579                    765

Shareholder’s equity

Share capital                                                             1200                    200

General reserve                                                              –                    300

Retained earnings                                                     379                    265

Total equity                                                               1579                    765

Additional information

(a)   ABC Ltd records dividend revenue in the accounting period when the cash is received.

(b)   The final dividend declared by XYZ Ltd for the 20X7 year was $130,000 and it was paid on 1 March 20X8.

(c)   Impairment losses for goodwill arising on acquisition had not been recognised in any of the previous years’ consolidated financial statements. The directors of ABC Ltd are of the opinion an impairment loss of $10 000 will be recognised in relation to its investment in XYZ Ltd in the consolidated financial statements for the year ended 31 December 20X8.

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(d)   Inter-company sales for 20X8

        Cost          Sales Price

From ABC and XYZ                             $300 000             $500 000

From XYZ to ABC                                $200 000             $350 000

(e)   In relation to the inventory sales in (d) above, inventory held by ABC Ltd and purchased from XYZ Ltd is as follows:

        Cost          Sales Price

i.         As at 1 Jan 2008                              $50 000             $120 000

ii.         As at 31 Dec 2008                           $75 000             $150 000

(f)     The rate of company income tax is 30%.

(g)   Assume the directors of ABC Ltd have adopted the full goodwill method.


(a)  For the accounting records of ABC Ltd show the general journal entries to record:

i.         the acquisition of the shares in XYZ Ltd on 1 January 20X7.

ii.         the dividend received from XYZ in 20X8 but proposed by XYZ Ltd in 20X7; and

iii.         the interim dividend received from XYZ Ltd in 20X8.

(3 marks)

(b)  Prepare the consolidated financial statements at 31 December 20X8.

Show all consolidation journal entries and a worksheet and all workings for the calculation of NCI.

The consolidated financial statements should be presented in the same manner your textbook presents them.

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(20 marks)

(c)  Explain the partial and full goodwill methods.  In your discussion list the advantages and disadvantages of using each method.  (2 marks)

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