Dipkar Ltd acquired 30% of the issued ordinary shares of Lamrim Ltd for $130,000 on 1 July
Question:
Dipkar Ltd acquired 30% of the issued ordinary shares of Lamrim Ltd for $130,000 on 1 July 2020. The equity of Lamrim Ltd at that date was as follows.
$ | |
Ordinary shares | 250,000 |
Retained earnings | 130,000 |
At acquisition date, all identifiable assets and liabilities of Lamrim Ltd were recorded at fair value, except for inventory, which had a fair value that was $10,000 greater than its cost. This inventory was all sold by 30 June 2021.
At 30 June 2021, Dipkar Ltd had inventories on hand which had been purchased from Lamrim Ltd for $20,000. Lamrim Ltd had recognised a profit before tax of $5,000 on these sales.
At 30 June 2021, Lamrim Ltd had inventories on hand which had been purchased from Dipkar Ltd for $22,000. Dipkar Ltd had recognised a profit before tax of $8,000 on these sales.
For the year ended 30 June 2021, the income and changes in equity of Lamrim Ltd are as follows:
$ | |
Profit before income tax | 220,000 |
Income tax expense | (40,000) |
Profit after income tax | 180,000 |
Retained earnings at 1 July 2020 | 65,000 |
245,000 | |
Dividends paid | (20,000) |
Dividends declared | (16,000) |
Retained earnings at 30 June 2021 | 209,000 |
Additional information:
- All dividends are paid/declared out of the current year profit.
- Dipkar Ltd recognises dividends as revenue when they are declared by the investee.
- The tax rate is 30%.
Required:
- Prepare an acquisition analysis in relation to the acquisition made by Dipkar Ltd.
- Calculate Dipkar Ltd’s share of Lamrim Ltd’s post-acquisition profit for the year ended 30 June 2021.
- Prepare the equity journal entries.