On 1 July 2019, Adelaide Ltd acquired 75% of the issued shares of Canberra Ltd for $720,000.
Question:
On 1 July 2019, Adelaide Ltd acquired 75% of the issued shares of Canberra Ltd for $720,000. At this date, the equity of Canberra Ltd consisted of share capital of $400,000 and retained earnings of $210,000. All the identifiable assets and liabilities of Canberra Ltd were recorded at amounts equal to fair value except for the following.
Carrying Amount | Fair value | |
Machine (cost $50,000) | 20,000 | 24,000 |
Plant (cost $400,000) | 200,000 | 280,000 |
Inventories | 50,000 | 66,000 |
Canberra Ltd also had an internally generated patent not recognised at 1 July 2019. Adelaide Ltd assessed the fair value of that patent at $80,000. The tax rate is 30%.
Required
- Prepare the acquisition analysis at 1 July 2019 assuming that Adelaide Ltd used the full goodwill method and the fair value of the non‐controlling interest at 1 July 2019 was $220,000. (15 marks)
- Calculate the Control premium for the parent. (5 marks)
Canadian Income Taxation planning and decision making
ISBN: 9781259094330
17th edition 2014-2015 version
Authors: Joan Kitunen, William Buckwold