Additional information:

a) At the date of acquisition, Solo Ltd has created several magazine mastheads. The terms and conditions of the mastheads indicate they can be transferred to another party. The costs relating to the development of these mastheads had been written off by Solo Ltd as expenses when incurred. Cubic Ltd can reliably measure the fair value of the unrecognized mastheads at the date of acquisition at $300 000.

 

b) Cubic Ltd has adopted an accounting policy for the Cubic Ltd extended group whereby all intangible assets with a finite life are to be amortized on a straight-line basis over their useful lives. Cubic Ltd expects the mastheads will provide future economic benefits for a period of 20 years.

 

c) During the year ended 31 December 2020 Solo Ltd earned a profit before tax of $900 000, incurred an income tax expense of $300 000, and paid a dividend of $100 000 on 30 September 2020.

 

d) On 1 July 2020 Solo Ltd sold Cubic Ltd a printing machine at an agreed value of $420 000. This equipment had a carrying amount of $120 000 to Solo Ltd at the date of its transfer. The remaining useful life of the machine at the date of transfer is estimated to be 3 years.

 

e) Cubic Ltd uses the cost method to account for its investment in Solo Ltd in its separate financial statements as there is no quoted market price for Solo Ltd. shares.

 

f) Cubic Ltd has not recognized any impairment losses in relation to its investment in Solo Ltd in its separate financial statements or its consolidated financial statements for the year ended 31 December 2020.

 

g) The company tax rate is 30%.

 

Required:

 

i) Calculate the amount of goodwill on the acquisition of Cubic Ltd's interest in Solo Ltd and related journal entries under cost method.

 

ii) Prepare the equity accounting consolidation adjusting entries required in Cubic Ltd's consolidated financial statements for the year ended 31 December 2020.

 

iii) Estimate the carrying value of Cubic Ltd's investment in Solo Ltd the year ended 31 December 2020.

Transcribed Image Text:

Cubic Ltd is a listed parent company with interests in television stations, cinemas and newspapers. On 1 January 2020, Cubic Ltd acquired 40% of the voting shares of Solo Pty Ltd, a publisher of women magazines, for $1 620 000 cash. The acquisition gave Cubic Ltd. significant influence over Solo Ltd. The recorded net assets and contingent liabilities of Solo Ltd as at the date of acquisition were represented by the following equity items: Share capital Retained earnings General reserve 1,000,000 600,000 200,000 1,800,000 Cubic Ltd is a listed parent company with interests in television stations, cinemas and newspapers. On 1 January 2020, Cubic Ltd acquired 40% of the voting shares of Solo Pty Ltd, a publisher of women magazines, for $1 620 000 cash. The acquisition gave Cubic Ltd. significant influence over Solo Ltd. The recorded net assets and contingent liabilities of Solo Ltd as at the date of acquisition were represented by the following equity items: Share capital Retained earnings General reserve 1,000,000 600,000 200,000 1,800,000

Answer rating: 100% (QA)

i Calculation of Goodwill on Acquisition and Journal Entry under Cost Method To calculate the amount of goodwill on acquisition we need to determine t... View the full answer