On 1 July 2018 Hazel Ltd acquired 35% of GoRace Ltd at a cost of acquisition of
Question:
On 1 July 2018 Hazel Ltd acquired 35% of GoRace Ltd at a cost of acquisition of $1400000 cash. Hazel Ltd is a parent entity and must prepare consolidated financial statements that include equity accounting adjustments for any associates.
On the date of acquisition GoRace Ltd has identifiable net assets at fair value represented by the following equity balances:
Share capital $2000000
Retained profits $1900000
$3900000
Extracts from the accounting records of Hazel Ltd and GoRace Ltd for the year ended 30 June 2021 are as follows:
Hazel Ltd GoRace Ltd
$000 $000
Operating profit before tax 2730 2130
Less: income tax expense (870) (530)
Operating profit after tax 1860 1580
Add: Retained profits at 1/7/2020 5900 4500
Available for appropriation 7760 6080
Less: Dividends paid (1000) (800)
Retained profits at 30/6/2021 6760 5280
Revaluation surplus 1500 350
Share capital 5000 2000
Total shareholders’ equity 13260 7630
Additional information
- During the year ended 30 June 2021 GoRace Ltd sold inventory to Hazel Ltd for $45000. This inventory had originally cost GoRace Ltd $15000. All of this inventory remains unsold by Hazel Ltd at 30 June 2021.
- The balance in the investee’s revaluation surplus account relates to the revaluation of land at 30 June 2021. The entities present items in other comprehensive income, net of related tax effects.
- All dividends may be assumed to be out of profit in the current year. Dividend revenue is recognized when declared.
- The tax rate is 30%.
Requited
- In accordance with AASB 128 Accounting for Associates and Joint Ventures, determine the amount of goodwill acquired (if any) and calculate the share of the associate’s profit for Hazel Ltd Group as at 30 June 2021, using the equity method show calculations. Do not round.
