Founded in $1940,$ Gotham Ltd is an Australian$-$owned company that specialises in providing

monitored security solutions for businesses, homes, and individuals. With shares listed on the

ASX trading at $$1\mathrm{.}15$ on $1$ July $2022,$ the company has a strong commitment to research and

development in order to enhance its products and meet the evolving security needs of customers.

Operating $24$ hours a day, $365$ days a year, Gotham's monitoring centres vigilantly watch over

thousands of alarm events, responding to situations ranging from burglary attempts to fire alarms.

Under the leadership of a new CEO, the company has implemented a strategy of investing in

smart and innovative products to drive profitability. Recently, Gotham acquired Penguin Ltd to

broaden its product portfolio and further expand its business. With an incremental borrowing rate

of $8\%$ and a corporate tax rate of $30\%,$ Gotham Ltd continues to prioritise safety and security for

its users.

Page $2$ Kaplan Business School Assessment $3$ Outline

Draft a business letter in reply and make sure you reference any relevant sources relating to your

advice, for example, AASBs, Corporations Act, and relevant sources. See the email below.

Re: Accounting Issues for year ended $30$ June $2024$

From: Wayne Grayson $($WGrayson@GothamLtd.com.au$)$

Sent: $12$ August $2024$

To: Adam Pennyworth $($APennyworth@GreyFox.com.au$)$

Dear Adam,

I am contacting your for help as our Chief Accountant is currently on long service leave. I need to

understand the accounting implications of our recent takeover of Penguin Ltd so that I can

present the consolidated financial statements to the Board of directors and address any

additional questions they may have regarding the accounts for the year ending $30$ June $2024.$

Being inexperienced in accounting, please explain the principles and concepts in simple

language.

As you are aware, we purchased $100\%$ of the shares of Penguin Ltd on $1$ July $2022$ on a cumdividend basis. The terms of the acquisition were that shareholders of Penguin Ltd would receive

$$3\mathrm{.}75$ cash per Penguin share along with $2$ shares in Gotham Ltd for each Penguin Ltd share.

Prior to the takeover, Penguin Ltd had declared a final dividend of $$0\mathrm{.}05$ cash per share which

was paid on $1$ September $2022.$ The acquisition of Penguin Ltd aligns with our strategic goals of

expanding our AI$-$powered security systems and growing our business.

The Statement of Financial Position of Penguin Ltd as a $1$ July $2022$ included the following

information:

Our Chief Accountant has confirmed that Penguin Ltd$$s balance sheet accurately reflects the fair

value of all assets, except for $$37,000$ worth of inventories and equipment valued at $$52,000,$

which exceeds its carrying amount of $$19,000.$ This equipment which originally cost $$95,000$ is

depreciated on a straight line basis over a $5$ year period after acquisition. Additionally, it was

found that the company had disclosed by way of note a $10$ year patent for its wireless Freedom

camera, with a fair value of $$180,000.$ Penguin Ltd also disclosed a contingent liability related to

a cybersecurity incident in a note, with potential payout estimated at $$4,000$ according to the

company$$s lawyers. The case has yet to be settled.

Cash $$15,000$

Accounts receivable $($net$)31,000$

Inventories $22,000$

Property, plant and equipment $($net$)215,000$

Goodwill $7,000$

$$290,000$

Accounts payable $$4,500$

Wages payable $2,000$

Dividend payable $3,500$

Borrowings $28,000$

Share capital $-$ $$1$ share $70,000$

Retained earnings $182,000$

$$290,000$

Our Accounts Clerk prepared an acquisition analysis and determined that the goodwill amount is

$$10,500($calculated as $$262,500$ cash less the subsidiary$$s equity acquired of $$252,000)$ to be

reported in the accounts. Can you check that this is right and help me with the acquisition

analysis? The directors are pleased with the recognition of our established reputation and

customer loyalty through the goodwill. Our loyal customers quickly purchased all existing

inventories of Penguin Ltd following the acquisition generating huge profits. What journal entries

do I need to prepare the consolidated financial statements for the year ended $30$ June $2024?$

Please show all workings and explain each journal entry, as I may need to respond to questions

from the Board of Directors. just calculated fair value and goodwill as per above given instruction