1. On 1 July 2001 Carl Ltd acquired 75% of the shares of Peter Ltd when the shareholder's equity of Peter Ltd was:

Share Capital $150 000

General Reserve $ 4 000

Retained Earnings $ 4 000

The financial statements for the two companies at 30 June 2003 appear below:

	Carl Ltd	Peter Ltd
	$	$
Sales	425 875	201 000
Cost of Sales
Inventory 1 July 2002	28 000	19 000
Purchases	198 000	86 000
	226 000	105 000
Inventory 30 June 2003	32 000	22 000
	194 000	83 000
Gross Profit	231 875	118 000
Dividend received from Peter	7 125	-
Dividend received from Carl	-	1 000
	239 000	119 000
Marketing Expenses	41 000	26 000
Administration Expenses	64 500	32 000
Finance Expenses	9 000	4 000
Total Operating Expenses	114 500	62 000
Operating Profit Before Tax	124 500	57 000
Income Tax Expense	59 500	22 000
Operating Profit After Tax	65 000	35 000
Retained earnings 1 July 2002	24 000	19 000
	89 000	54 000
Interim Dividend	8 000	9 500
Proposed Dividend	45 000	22 500
	53 000	32 000
Retained earnings 20 June 2003	36 000	22 000
Share Capital	300 000	150 000
General Reserve	38 000	19 500
10% debentures (due 2006)	50 000	-
Dividend Payable	45 000	22 500
Current tax liability	59 500	24 000
Other current liabilities	30 100	19 400
	558 600	257 400
Shares in Peter Ltd	120 500	-
10% debentures in Carl Ltd	-	10 000
Other non-current assets	306 000	175 000
Inventory	32 000	22 000
Other current assets	100 100	50 400
	558 600	257 400

Additional Information

1. Partial goodwill method is applied.
2. Intragroup sales for the year were:

Carl Ltd to Peter Ltd $20 000

Peter Ltd to Carl Ltd $30 000

3. The opening inventory of Carl Ltd includes an unrealized profit of $3000 on inventory sold by Peter Ltd. All of this inventory was sold by the end of the year.
4. During the current year, Peter Ltd purchased inventory from Carl Ltd at a profit of $7000. Half of this inventory has been sold outside the group by the end of the year. At the end of the year, Carl Ltd also holds inventory purchased from Peter Ltd at a profit of $2000.
5. An item of a plant owned by Carl (cost of 40,000 and accumulated depreciation of 24,000) had been sold to Peter Ltd for 18,000 on 30 June 2002. Carl had depreciated this asset at 20% per annum straight-line on the original cost. Assuming no change in the total economic life of the plant and equipment, Peter Ltd has applied 25% depreciation rate (straight-line) from the date of transfer of the asset.
6. Peter Ltd purchased 10% debentures in Carl Ltd on 1 July 2002.
7. The directors have applied the impairment test for goodwill annually and determined that a write-down of $500 is required for consolidation purposes as at June 30 2003. Cumulative goodwill impairment write-downs for prior years totalled $500.
8. The tax rate is 30%.
9. The periodic inventory system is used.

Required:

1. Prepare an acquisition analysis as of the date of Carl’s acquisition of the shares in Peter Ltd (3 marks).
2. Calculate non-controlling interests as of June 30 2003 for the following items (15 marks):
   1. Operating profit after tax
   2. Opening retained earnings
   3. Interim dividend
   4. Proposed dividend
   5. Ending retained earnings
   6. Share capital
   7. General reserve

Answer rating: 100% (QA)

Answer Acquisition Analysis The acquisition analysis of Carl Ltds acquisition of 75 of the shares of Peter Ltd is calculated as follows Share Capital Carl Ltd 300000 Peter Ltd 150000 Total 450000 Gene... View the full answer