Abc Assignment Help

Acquisition analysis: Financial Statements of Lead Beaters Ltd

Consolidated financial statements, rationale for adjustments

Lead beaters Ltd acquired all the issued shares (cum div.) of Possum Ltd on 1 July 2014. At this

date the shareholders’ equity of Possum Ltd was:


Share capital – 100 000 shares
General reserve
Asset revaluation surplus
Retained earnings
$
450 000
45 000
45 000
15 000


   At 1 July 2014, the accounting records of Possum Ltd contained a dividend payable of $15 000.

This dividend was paid in August 2014. All the identifiable assets and liabilities at acquisition

date were recorded at amounts equal to their fair values except for:



Carrying amount        Fair value
Plant (cost $290 000)$220 000$227 500
Inventory160 000175 000


   The plant was considered to have a further 4-year life. It was sold on 1 January 2017 for

$118 000. The inventory was all sold by 30 June 2015. Possum Ltd did not record a contingent

liability relating to a lawsuit by a customer for faulty goods. Possum Ltd considered this liability

had a fair value of $18 000. The lawsuit was settled in May 2015 when Possum Ltd was required

to pay damages of $20 000.


Additional information

(a) On 1 July 2015, Lead beaters Ltd sold plant to Possum Ltd at a before-tax profit of $6000.

This class of non-current asset is depreciated at 25% p.a. on cost by Lead beaters Ltd while

Possum Ltd uses a rate of 10% p.a. on cost.

(b) In June 2016 Possum Ltd sold $50 000 worth of inventory to Lead beaters Ltd at a before-tax profit of $5400. At 30 June 2017, inventory on which Possum Ltd had made a profit of $750 on sale to Lead beaters Ltd was still on hand.

(c) On 10 February 2017, Possum Ltd used the whole of the general reserve existing at 1 July

2014 to pay a bonus dividend of three shares for every ten held.

(d) Both Lead beaters Ltd and Possum Ltd use the valuation method to measure land. In June

2017, Lead beaters Ltd recorded revaluation increases of $15 000 while Possum Ltd recorded increases of $12 000.

(e) The tax rate is 30%.


Financial information provided by the companies at 30 June 2017 was as follows:


Lead beaters LtdPossum Ltd
Plant$  558 750$  318 000
Accumulated depreciation – plant(318 000)(165 000)
Land531 300397 500
Shares in Possum Ltd580 000
Inventory280 000240 000
Receivables43 50022 500
Cash37 50015 000
    Total assets$1 713 050$  828 000



Dividend payable15 0006 000
Other current liabilities52 05060 000
Loans150 00060 000
    Total liabilities$  217 050$  126 000



Share capital$1 200 000$495 000
Asset revaluation surplus225 000120 000
Retained earnings (1/7/16)22 50018 000
Revenues162 000210 000
Expenses(48 000)(80 000)
Gains/(losses) on sale of non-current assets6 0005 000
Tax expense(52 500)(60 000)
Dividend declared(15 000)(6 000)
    Total equity$1 500 000$  702 000


Required

Prepare the consolidated financial statements for Lead Beaters Ltd at 30 June 2017. 

Answer

Acquisition analysis

Introduction

This report reflects the key understanding and analysis of the consolidated financial statement of post-acquisition of company. This report divulges the consolidation analysis and consolidation journal entries, working sheet and rational related to acquisition. In addition to this, acquisition analysis have been made to prepare the consolidated financial statement for Lead Beaters Ltd at 30 June 2017. The acquisition of Lead Beaters Ltd with the Lead Beaters have been done to assess the post-acquisition of pre-acquisition financial statement of Lead Beaters Company. 

Prepare the consolidated financial statements for Lead Beaters Ltd at 30 June 2017 by using the acquisition analysis

In order to prepare the consolidated financial statement of Lead Beaters Limited at 30th June 2017 following analysis have been given (Robinson, et al. 2015). 

This analysis shows the transactions and issues of share capital by Lead Company to the shareholders of Possum Limited. In addition to this, other further transactions such as goodwill record pre and post profit of Possum Limited have been computed to evaluate the reserve and profit (Erel, Jang, & Weisbach, 2015).

CALCULATION OF COST OF INVESTMENT IN POSSUM LTD
Share acquired595000
Dividend reduce15000
Net cost580000

Computation of the profit in Possum Limited 

CALCULATION OF PROFIT OF POSSUM
PROFIT $      99,250.00 
RE $      18,000.00 
REVALUATION $      75,000.00 


Computation of the pre and post profit in Possum Limited 


Computation of the share capital

SHARE CALCULATION
PARTICULARShareamount
Share as on 1 July 2014100000450000
Bonus share3000045000
Total share130000495000

Computation of the Goodwill or capital gain due to acquisition 

Therefore, it could be inferred that Possum Company has $ 6850 apart from its assets and liabilities recorded in its books of account. 


CALCULATION OF GOODWILL OR CAPITAL GAIN DUE TO AQUISATION 
PARTICULARLEAD BEATERS LTD 100 % HOLDING IN POSSUM LTD.  
PARTICULARCAPITALREVENUETOTAL
ESC4500000450000
GR45000045000
REVALUATION RESERVE4500075000120000
PROFIT09925099250
RE150001800033000
CONTIGENT LIABILITY-12600-20000-32600
PROFIT FROM PLANT5250-29500-24250
PROFIT FROM INVENTORY10500  
TOTAL558150142750 
COST OF INVESTMENT565000  
GOODWILL6850  

Journal entries for acquisition of Possum Limited by Lead Beaters Limited

Accounting in the books of Possum Limited


Particular DrCr
General reserve account 
   To bonus to equity share capital  
(General reserve recorded for issue of bonus share)

$ 45000

$ 45000
Bonus account to equity share capital      
         To equity share capital   
(Adjustment entry for equity share capital )                         

45000


$45000
Profit and loss account Dr 
      To unrealised profit in stock
(Profit and loss from unrealised profit in stock) 

$750

$750
Retained earnings account 
       To proposed dividend            
(Issue of proposed dividend)
$15000

15000
Proposed dividend account  
                To bank                                

$15000


15000
Plant revaluation loss Dr          
              To plant     
(Revaluation loss charged on plant)                         
7500



$7500

Inventory revaluation loss 
            To inventory       
(Charged inventory revaluation loss)              
15000


$15000

Revaluation surplus    Dr       
To  Plant revaluation loss           
To inventory revaluation loss       
(Recording of revaluation surplus and inventory revaluation loss)
$22500

7500
$15000

Journal Entries in the books of lead beaters  

Particular DrCr
Investment in possum ltd  Dr 
Goodwill                                 Dr 
To   bank                                                                                   

(Recording of good will and payment
$ 573150
$ 6850



$580000    
Bonus account to equity share capital      
         To equity share capital  
(Issue of share capital)                          

45000


$45000

Worksheet entries

Particular DrCr
Accumulated depreciation  Dr 
To   Plant and machinery                                                                               

(Depreciation charged on plants and machinery)
$ 39375.0

$ 393750
Bonus account to equity share capital      
         To equity share capital  
(Issue of share capital)                          

45000


$45000
Revaluation surplus    Dr       
To  Plant revaluation loss           
To inventory revaluation loss       
(Recording of revaluation surplus and inventory revaluation loss)
$22500

7500
$15000


Proposed dividend account  
                To bank                                

$15000


15000
Plant revaluation loss Dr          
              To plant     
(Revaluation loss charged on plant)                         
7500



$7500


Explain the rationale of intragroup transactions

The cost of investment in possum Limited has been made on the basis of share acquired and divided issued (Kravet, McVay, & Weber, 2018).  This amount will be considered as investment amount by Lead Company. The below given table reflects the amount of investment to be made by acquirer company for acquiring of Possum Company (Saunders, Cornett,  & McGraw, 2016). The acquisition analysis is undertaken to assess the pre and post-merger of two companies. The rational of intragroup transactions is related to the consolidated entries which are the integral part of accounting close to cut off tracking and anticipating the arbitration in consolidated financial statement. The main explanation of computing the goodwill of Possum Limited was related to identifying the excess money paid by lead Company. It shows that Lead Company has paid higher capital to Possum Limited for buying its assets and liabilities. In addition to this, further entries have been made to prepare the consolidated finaincal statement of Lead Company (Schwarzbichler, Steiner, & Turnheim, 2018).


CALCULATION OF COST OF INVESTMENT IN POSSUM LTD
Share acquired$ 595000
Dividend reduce$ 15000
Net cost$ 580000

(Moilanen, 2016).

Pre and post profit in Possum Limited

After assessing all the details, it could be inferred that possum limited would be having loss of $ 22500 by sale of inventories. The below given table reflects the pre and post profit in Possum Limited (Thomas, et al. 2016).

CALCULATION OF PRE AND POST PROFIT IN POSSUM LTD 
ParticularAmount in $
GR $           45,000.00 
BONUS SHARE $           45,000.00 
NET $                          -   
RETAINED EARNING $           15,000.00 
DIVIDEND $           15,000.00 
NET $                          -   
  
  
REVALUTION SURPLUS $           45,000.00 
PLANT CAPITAL LOST $             7,500.00 
INVENTORY  REVALUTON LOSS  $           15,000.00 
NET $           22,500.00 
  
COST OF MACHINE $         290,000.00 
 CARRYING COST AS ON 2014 $         220,000.00 
DEPERCIATION $           72,500.00 
NET VALUE ON  JAN 2017 $         147,500.00 
SOLD IN 2017 $         118,000.00 
LOSS FROM SALE $           29,500.00 
  
CONTIGENT LIABILITY $           20,000.00 
STOCK RESERVE $                 750.00 

(Masadeh, et al. 2017).

Intragroup sales of inventory

Profit in ending inventory Sales Dr $ 750

 Cost of sales Cr $ 5400

To inventory sales$ 55150

 

Consolidated financial statement of Lead Beaters as on 30th June 2017

Consolidated financial statement of Lead Beaters Ltd at 30 June 2017   
Consolidated Statement of Financial Position of  Lead Beaters Ltd at 30 June 2017 after acquisition
Non-Current Asset: 
Fixed assets)$ 393750
Land $ 9288000 
Goodwill$ 6850
  
Current Asset: 
Inventory  $ 5195250
Debtors  $66000
Bank  $52500
Investment $467500
 Total assets  $ 2490300
Equity: 
Ordinary Shares$1695000
Retained Profit$452250
Long term borrowing$210000
Dividend Payable$21000
Other Current liabilities$112050
Total liabilities and equity     $2490300

(Walton, 2010).

Concision

This report has reflected that Lead Beaters has paid higher capital to Possum Company as compared to its assets and liabilities value. This excess capital is considered as Goodwill and will be shown as goodwill in the consolidated financial statement of company. However, consolidated financial statement is prepared to showcase the post-acquisition financial statement of company. In addition to this, the cost of investment in possum Limited has been made on the basis of share acquired and divided issued. Lead Company has issued share capital to the investors of Possum Company to compensate the shares which they are holding in Possum Company. 

Customer Testimonials