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At 1 July 2014, Pavo Ltd acquired 60% of the shares of Octans Ltd for $153,000 on a cum div. basis.
Pavo
Ltd had acquired 40% of the shares of Octans Ltd two years earlier for
$80 000. This investment, classified as a financial asset, was
recorded as a fair value on 1 July 2014 of $ 102 .000. The changes in
fair value had all been taken to other comprehensive income. At 1 July
2014, the equity of Octans Ltd consisted of:
Share capital $ 160,000
Retained earnings $ 40,000
At this date , the identifiable
assets and liabilities of Octans ltd were recorded at fair value except for:
Carrying
amount. Fair value
Inventory $ 40,000. $. 44,000
Plant(cost
$120,000). $100,000 $105 .000
At 1 July 2014, Octans ltd assets and liabilities included a
dividend
payable of $5000, and goodwill of $6000 ( net of $4000 accumulated
impairment losses). An analysis of the unrecorded intangibles
Octans
ltd revealed that the company had unrecorded internally generated
brands, considered to have a fair v alue of $ 50,000. Further,
Octans ltd had exjaensed research outlays of $80,000 that were
considered to have a fair value of $ 20 000. In its financial statement
statements at 30 une 2014, Octans ltd ad reported a contingent
liability relating to a potential claim by customers for unsatisfactory
products, the fair value of the claim being $ 10,000.
The tax rate is 30%.
Required
Prepare the acquisition analysis at 1 July 2014,
and the consolidation worksheet entries for preparation of consolidated financial statements of Pav o ltd at that date.
