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Appendix 1:
Apple Ltd acquired 100% of the issued shares of Orange Ltd, for $290,000 paid in cash. At the date of
acquisition, 1 July 2018, the reported shareholder’s equity of Orange Ltd was:
Ordinary shares $180,000
Retained earnings $120,000
$300,000
The Apple Group adopted the cost model to measure property, plant and equipment and identifiable
intangible assets. The ca
ying amounts and fair values of the recorded assets and liabilities of Orange
Ltd at 1 July 2018 were as shown below:
Ca
ying
amount
Fair value
Assets
Cash at bank $25,000 $25,000
Trade debtors $26,000 $26,000
Inventories $40,000 $45,000
Equipment $1,620,000 $1,350,000
Less Accumulated depreciation -$450,000
Land $50,000 $64,000
Less Liabilities
Cu
ent liabilities $42,000 $42,000
Defe
ed tax liability $13,000 $13,000
Net assets $1,256,000
Other information:
1) Apple bo
owed $27,000 from Orange during the financial year. Interest is $2,700 per annum of
which Apple has paid $1,200 before 30 June 2020.
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2) At the acquisition, Orange Ltd has disclosed information on its contingent liabilities of $25,000 in
the notes to its financial statement. Orange Ltd is not permitted to recognise a contingent
liability on its statement of financial position as according to AASB 137 par. 27
3) At the date of acquisition, the equipment owned by Orange Ltd was three years old and has a
emaining useful life of six years. The Group decides to depreciate the equipment over five
years. The depreciation method used in both companies is assumed is to be on straight-line
asis. The revaluation is made on consolidation.
4) The Apple Group sold all of Orange Ltd’s land to an external party for $220,000 on 30
November 2019.
5) Inventory on hand at 1 July 2018 was sold within six months of acquisition.
6) Orange Ltd developed a new product during the two years before 1 July 2018. The product is
selling profitably under its cu
ent
and name and is expected to generate profits for at least 15
years after 1 July 2018. The fair value of the
and name was reliably measured at $150,000
7) Apple Ltd sold inventory of $134,000 to Orange Ltd on 1 July 2019. The original cost of this
inventory to Apple Ltd was $112,500. Orange Ltd has 60% of this inventory on hand at 30 June
2020.
8) Apple Ltd transfe
ed its plant to Orange Ltd on 31 December 2018. The proceeds on the sale
were $750,000. At the date of the transfer the plant had a ca
ying amount to Apple Ltd of
$500,000 (cost of $1,350,000 and accumulated depreciation of $850,000) and a remaining
useful life of 4 years.
9) The annual impairment test assessed the recoverable amounts of Orange’s goodwill at $30,000
on 30 June 2019. The directors of Apple Ltd believe that the goodwill relating to the acquisition
of Orange Ltd has been impaired by a further $6,000, during the year ended 30 June 2020.
10) The company income tax rate over the relevant period was 30%
Provide all journal entries necessary to consolidate the Apple Group for the year ended 30 June 2020
ased on available information in the above question. Complete the following consolidation worksheet.
Apple Ltd Orange Ltd
Sales XXXXXXXXXX
Cost of sales
Inventory 1/7/ XXXXXXXXXX
Purchase XXXXXXXXXX
XXXXXXXXXX
Inventory 30/6/ XXXXXXXXXX
XXXXXXXXXX
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Gross profit XXXXXXXXXX
Expense
Selling and administrative 3000
Interest on debentures 7000
Depreciation - plant XXXXXXXXXX
Other expenses XXXXXXXXXX
Total expenses XXXXXXXXXX
XXXXXXXXXX
Gain on sale: land $50,000
Dividend revenue XXXXXXXXXX
Other revenues XXXXXXXXXX
XXXXXXXXXX
Income tax expense XXXXXXXXXX
Operating profit: XXXXXXXXXX
Retained profits 1/7/2019 $154,000 $180,000
XXXXXXXXXX
Dividend paid 10000
Proposed final dividend XXXXXXXXXX
XXXXXXXXXX
Retained profits 30/6/ XXXXXXXXXX
Share capital 950000 $180,000
Fair value adjustment
14% Debentures 60000
Other non-cu
ent liabilities XXXXXXXXXX
Provision for dividend XXXXXXXXXX
Other cu
ent liabilities XXXXXXXXXX
XXXXXXXXXX
Investment in Orange Ltd $290,000
Land $146, XXXXXXXXXX
Plant and machinery 560000 $1,620,000
Accumulated depreciation - Plants XXXXXXXXXX -$517,500
Brand Name
- Accumulated amortisation
Other non-cu
ent assets XXXXXXXXXX
Inventory 185000 $15,000
Prepaid expenses 60000
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Other cu
ent assets $120, XXXXXXXXXX
Goodwill (on consolidation)
$1,412,000 $1,257,000