On 31 December 2009, Super Ltd acquired all the issued shares of Nova Ltd. On this date,
the share capital of Nova Ltd consisted of 190,000 shares paid to $1.00 per share. Other
reserves and retained earnings at this date consisted of: General Reserve $26,000 Retained
earnings 20,000 At 31 December 2009, all the identifiable assets and liabilities of Nova Ltd
were recorded at fair value except for some plant and machinery. This plant and machinery,
which cost $110,000, had a carrying amount of $93,500 and a fair value of $99,500. The
estimated remaining useful life was 10 years. Adjustments for fair values are made on
consolidation. Immediately after acquisition, a dividend of $12,000 was declared and paid out
of retained earnings. Also, 1 year after acquisition, Nova Ltd used $19,000 from the general
reserve on hand at acquisition date to partly pay the balance unpaid on the issued shares. The
trial balances of Super Ltd and Nova Ltd at 31 December 2014 were as shown below: Super
Ltd Nova Ltd Credits Share capital $500,000 $209,000 General reserve 25,000 7,000 Asset
revaluation surplus 10,000 6,000 Retained earnings (1/1/2014) 40,000 65,000 Other
components of equity 15,000 10,000 Current tax liabilities 23,000 19,000 Deferred tax
liabilities 6,240 5,200 Payables 24,000 15,000 Sales revenue 423,500 130,000 Other income
15,000 6,000 Proceeds from sale of property, plant and equipment 15,000 42,000 1,096,740
514,200 Debits Income tax expense $52,000 $7,000 Dividend declared 11,000 6,000 Plant
and machinery 450,000 344,000 Accumulated depreciation (300,000) (261,000) Motor
vehicles 284,700 152,900 Accumulated depreciation (150,000) (90,000) Receivables 26,000
8,420 Financial assets 70,000 35,000 Inventory 79,440 109,000 Bank 46,900 35,990 Deferred
tax assets 12,700 6,300 Shares in Nova Ltd 280,000 – Cost of sales 188,000 106,590 Other
expenses 28,000 5,000 Carrying amount of property, plant and equipment sold 18,000 49,000
1,096,740 514,200 19/02/2015 3 ACC322 Company Accounting Session 1, 2015 Assignment
2 Additional information: (a) During the current period, Super Ltd sold inventory to Nova
Ltd for $22,000. This had originally cost Super $18,400. Nova Ltd has, by 31 December
2014, sold half this inventory for $12,310. (b) Some of the items manufactured by Nova Ltd
are used as plant by Super Ltd. One of the plant items held by Super Ltd at 31 December
2014 was purchased from Nova Ltd on 1 July 2010 for $26,000. It had cost Nova Ltd
$19,500 to manufacture this item. Super Ltd depreciates such items at 10% per year on cost.
(c) At 1 January 2014, Nova Ltd sold a machine to Super Ltd for $42,000. This item had a
carrying amount at time of sale to Nova Ltd of $49,000. Both entities use a 8% per year on
cost depreciation rate for this item. (d) On 1 November 2013, Nova Ltd sold inventory
costing $5,000 to Super Ltd at a transfer price of $9,000. On 1 September 2014, Super Ltd
sold half these goods back to Nova Ltd, receiving $2,500 from Nova Ltd. Of the remainder
kept by Super Ltd, half was sold in October 2014 to Fade Ltd at a loss of $200 (e) The tax
rate is 30%. Required: A. Prepare the acquisition analysis and consolidation journal entries
for Super Ltd as at 31 December 2014. (18 Marks) B. Prepare the consolidation worksheet
entries for the preparation of the consolidated financial statements by Super Ltd as at 31
December 2014. (6 Marks) Part B. (4 marks – maximum 250 words)
