Advanced Financial Accounting (M) PRACTICE QUESTIONS

Question 1 (Multiple Choice)

Dave holds an investment in Jones Limited that gives him a significant influence over the company. Dave’s daughter, Sophie, also has a significant influence over another entity, Campbell Limited. What is the relationship between Jones Limited and Campbell Limited?

 

  1. Jones Limited has a significant influence over Campbell Limited.
  2. Jones Limited and Campbell Limited are not related parties.
  3. Jones Limited is a related party of Campbell Limited.
  4. Jones Limited has control over Campbell Limited.

 

 

Question 2 (Multiple Choice)

Which of the following transactions are not related party transactions for an entity?

 

  1. An employee purchased the entity’s products on normal trading terms. II. A subsidiary of the entity supplied raw materials to the entity.
  • The entity lent money to one of its directors.
  1. The entity made an agreement with a trade union about increase in employee’s wages.

 

  1. I and II only.
  2. II and III only.
  3. III and IV only.
  4. I and IV only.

 

 

 Question 3 (Fill in multiple blanks)

On 1 July 2016, Budget Ltd acquired all the issued shares of Cabot Ltd for $200,000. At this date, the equity of Cabot Ltd consisted of share capital of $150,000 and retained earnings of $60,000. All the identifiable assets and liabilities of Cabot Ltd were recorded at amounts equal to fair value except for the land whose fair value was $30,000 less than the carrying amount. The land was still on hand at 30 June 2017. The company tax rate is 30%. The financial statements of Cabot Ltd at 30 June 2017 contained the following information:

  Budget Ltd Cabot Ltd Adjustments Group
Dr Cr
Cash 70 000 30 600      
Land 130 000 87 400      
Inventory 43 500 32 000      
Shares in Cabot Ltd 200 000 0      
Plant 210 000 127 000      
Accum depreciation (130 000) (22 000)      
Other assets 10 000      
           
  533 500 255 000      
           
Profit before tax 100 000 55 000      
Income tax expense (25 000) (15 000)      
Net Profit 75 000 40 000      
Retained earnings 1/7/2016 193 500 60 000      
Dividend paid (60 000) (10 000)      
Retained earnings 30/06/2017 208 500 90 000      
Share capital 250 000 150 000      
Business combination valuation reserve      
Accounts payable 25 000 5 000      
Other liabilities 50 000 10 000      
  533 500 255 000      
           

 

Required:

 

  1. What is the amount of goodwill or gain on bargain purchase arising from the acquisition?

11000

200000-(150000+60000-21000)= 11000

  1. What is the amount of consolidated total assets for the year ended 30 June 2017? 578500

533500+255000 -200000 -21000 + 11000=578500

  1. What is the amount of consolidated retained earnings for the year ended 30 June 2017? 238500 208500+90000-10000+10000 -60000=238500

 

Question 4 (Numerical Answer)

On 1 March 2017, Brook Ltd acquired all the assets and liabilities of Moriarty Ltd for $230,000 cash.

The cost of undertaking a due diligence was $3,000, paid on 1 April 2017. The due diligence process revealed that Moriaty Ltd was being sued by a former client seeking compensation of $21,000. The lawyers estimated that Moriaty Ltd faced a 25% chance of losing the lawsuit.

At that date, Moriarty Ltd’s recorded assets and liabilities were as follows:

Assets & Liabilities of Moriarty Ltd Book Value Fair Value
Accounts Receivable 20,000 18,000
Inventory 42,000 40,000
Plant and Equipment (net of depreciation) 106,000 110,000
Land 100,000 133,500
Accounts Payable (6,000) (6,000)
Short-Term Borrowings (12,000) (12,000)
Bank Loan (50,000) (50,000)

 

The company tax rate is 30%.

 

What is the amount of goodwill or gain on bargain purchase arising from the business combination? 1750 230000 –(18000+40000+110000+133500-6000-12000-50000-21000×25%)

 

Question 5 (Numerical Answer)

The constitution of Big Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency.

Big Ltd went into liquidation on 20 June 2018. At this date, the equity of Big Ltd consisted of :

 

400 000 preference shares issued for $1 paid to 50c  $200 000

1 000 000 ordinary shares issued for $1 paid to 80c   $800 000

 

After realising the assets and paying all creditors, the liquidator had $300 000 cash available to distribute to the shareholders. What is the amount of actual refund to be made by the preference shareholders? 0

 

 

Question 6 (Numerical Answer)

Small Ltd went into liquidation on 20 June 2019. At this date, the summarised statement of financial position of Small Ltd was as follows:

 

Assets   Liabilities  
Land $100 000 Payables $30 000
Inventory $15 000    
Cash $10 000 Equity  
    Share capital 47 500 shares issued at a price of $2 $95 000
  $125 000   $125 000

 

All assets realised amounted to $75 000. Costs of liquidation were $15,000.

 

What is the amount of the ultimate deficiency to be borne by contributories?55000

 

Question 7 (Fill in multiple blanks)

 

On July 1 2015, Adelaide Ltd acquired 80% of the share capital of National Ltd for $500,000. The fair value of the non-controlling interest at 1 July 2015 was $97,000. At the date of acquisition, the total for shareholders’ equity in National Ltd was made up as follows:

 

Share capital 300,000
Retained earnings 100,000
General Reserve 50,000
Asset Revaluation Surplus 30,000
  480,000

 

At the date of acquisition, all the identifiable assets and liabilities of National Ltd were recorded at amounts equal to fair value. The following information is relevant to preparing the consolidated financial statements for the year ended 30 June 2016:

 

  • During the year ended 30 June 2016, National Ltd recorded a profit of $70,000 (net of tax).
  • On 1 July 2015, National Ltd sold a motor vehicle to Adelaide Ltd for $25,000. This had a carrying amount to National Ltd of $20,000. Both entities depreciate motor vehicles at a rate of 20% p.a. on cost.
  • On 1 November 2015, National Ltd sold inventory costing $5,000 to Adelaide Ltd at a transfer price of $13,000. One quarter of this inventory was still unsold at 30 June 2016. This inventory was sold during July 2016.
  • In December 2015, National Ltd paid a $20,000 dividend.
  • Assume that the tax rate is 30%.

Required:

  • Adelaide group uses the full goodwill method. What is the amount of goodwill attributable to the noncontrolling interest?1000
  • What is the amount of the non-controlling interest in National Ltd as at 30 June 2016? 106160
  • Assume the profit of National Ltd for the year ended 30 June 2017 was $100,000. What is the noncontrolling interest in net profit after tax for the year ended 30 June 2017? 20420

 

(a)

Share capital 300 000
Retained earnings 100 000
General Reserve 50 000
Asset Revaluation Surplus 30 000
FVINA 480 000
Consideration 500 000
FV of NCI 97 000
Sum of consideration and FV of NCI 597 000
Total goodwill 117 000

 

Goodwill attributable to Nature Ltd = $500 000 – (480 000 x 0.80) = $116 000

Goodwill attributable to NCI = $117 000 – 116 000 = $1 000                                                                                                                                                                                                                                                                                                 

(b)

Share Capital $300 000 x 20% $60 000
Retained earnings   29 160*
General Reserve 50 000 x 20% 10 000
BCVR 1 000 1 000
Asset revaluation Surplus 30 000 x 20% 6 000
Total NCI   $106 160

*NCI in closing retained earnings

= 20% of: closing retained earnings of subsidiary minus unrealized after tax profits made by the subsidiary

closing retained earnings = opening retained earnings 100 000 + profit 70 000 –  dividend 20 000 =  150 000

 

= 20% of: $150 000 – ($5 000- $1 500) + (1 000-300) – (2 000-600) = 20% of $145 800

 

= $29 160

 

(c)

 

NCI profit – 30 June 2017

= 20% of: $100 000 + ($1 000-$300)  + ($2 000-$600)

 

= 20% of: $102 100

 

=$20 420

 

Question 8 (Essay question)

Stranded Ltd is an Australian company that purchases inventory from Hammers plc, which is an English company. The following information is relevant to a recent acquisition of inventory for £300 000.

 

Date                  Event       Exchange rate

22-6-2017         Inventory delivered            A$1 = £0.42

30-6-2017   End of reporting period            A$1 = £0.43

31-7-2017    Cash payment of £300 000 to Hammers plc                               A$1 = £0.39

 

Required

In accordance with AASB 121, prepare all of the journal entries of Stranded Ltd that relate to the foreign currency purchase of inventory.

 

 

22.6.17                Inventory              Dr                      714 286

Trade creditors        Cr                                              714 286

 

 

30.6.17                Trade creditors              Dr                           16 612

Foreign exchange gain        Cr                                                 16 612

 

 

31.7.17              Foreign exchange loss              Dr                                 71 556

Trade creditors        Cr                                                71 556

 

 

Trade creditors                                                Dr                                            769 230

Cash                                           Cr           769 230

 

 

 

Question 9 (Essay question)

 

On 1 July 2015, Export Ltd acquired all the issued shares of Mobile Ltd. Export Ltd is an Australian company whose functional and presentation currency is Australian dollars. Mobile Ltd is an overseas subsidiary which operates in China and whose functional currency is the Chinese Yuan (¥).On 1 July 2015, the shareholder’s equity of Mobile Ltd consisted of:

 

Share Capital ¥200,000
Retained Earnings 150,000
General Reserve 35,000
  ¥385,000

 

 

The trial balance of Mobile Ltd as at 30 June 2016 was:

 

  Yuan ¥
Sales Revenue 170,000
Cost of Goods Sold (50,000)
Gross Profit 120,000
Other Expenses (30,000)
Net Profit 90,000
Retained earnings (o/b) 150,000
Retained earnings (c/b) 240,000
General Reserve 35,000
Share capital 200,000
  475,000
Current Assets 525,000
PPE (net of Acc. Depreciation) 320,000
Total Assets 845,000
Debentures 250,000
Current liabilities 120,000
 Net Assets 475,000

 

Additional information:

  • Relevant exchange rates for the year were:
    • 1 July, 2015                                                                  ¥1 = 0.1   $Aus  o 30 June, 2016                                                       ¥1 = 0.4   $Aus
    • Average for the period 1 July, 2015 – 30 June, 2016 ¥1 = 0.25 $Aus

 

  • Mobile Ltd’s revenues and expenses were incurred evenly over the financial year.

 

Required:

 

  • What is the amount of net profit translated in Australian dollars at 30 June 2016? 25 = 22 500
  • What is the amount of total equity translated in Australian dollars at 30 June 2016? 475000×0.4 = 190 000
  • What is the amount of changes in the Foreign Currency Translation Reserve during the year ended 30 June 2016?

(150000+35000+200000)x(0.4-0.1) + 90000x(0.4-0.25) = 115500+13500=129000

Question 10 (Essay question)

At 1 July 2014, Frank Ltd acquired a 30% investment in an associate, City Ltd. At the date of the acquisition of the shares, the net assets of City Ltd were $262,000 and stated at fair value in the balance sheet. The following information relates to the investment in the associate, City Ltd:

  • The investment cost $100,000
  • Frank Ltd prepares consolidated financial statements and uses the cost method to account for its investment in City Ltd in its own financial statements.
  • During the year ended 30 June 2015, City Ltd sold inventory to Frank Ltd at a profit before tax of $5,000. At 30 June 2015, 80% of the inventory was still on hand. All of the inventory had been sold by Frank Ltd by 30 June 2016.
  • At 1 July 2014, Frank Ltd sold City Ltd machinery at a profit before tax of $15,000. The machinery is depreciated on a straight-line basis over a useful life of five years (residual $0).
  • During the year ended 30 June 2016, City Ltd provided management consulting services to Frank Ltd for $11,000.
  • Assume that the tax rate is 30%.

 

The following are extracts from the financial statements of City Ltd for the year ended 30 June 2016 with comparative information for 2015.

  2016 2015
Statement of profit or loss and other Comprehensive Income $ $
Profit (loss)  for the period 80,000 10,000
Other comprehensive Income    
Revaluation gain net of tax 27,000 5,000
Comprehensive income (loss) 107,000 15,000
Statement of changes in owners’ equity    
Opening retained earnings 110,000 100,000
Dividends paid 20,000
Statement of financial position    
Closing Retained earnings 170,000 110,000
Share capital 150,000 150,000
Asset Revaluation Reserve 32,000 5,000
General Reserve 12,000 12,000
Equity at 30 June $364,000 $277,000

Required:

  • Calculate any goodwill or gain on bargain purchase arising from the acquisition. Please show the workings of your calculation.

 

  • Prepare all journal entries necessary to account for Frank Ltd’s investment in City Ltd in the consolidation worksheet for the year ended 30 June 2016.

 

 

(a)     Cost of the investment 100 000 – 262 000 x 30% = 100 000 – 78 600 (FVINA)

= 21 400 (goodwill)

 

 

(b)

DR RE(1/7/2015)                                    360

CR Investment in associate                                                        360

10000 – 15000×70% + 15000/5 x70% – 5000×80%x70% = -1200×30% = -360

DR Investment in associate                  1,500

CR       ARR                      1,500

5000 x 30% = 1500

 

DR Investment in associate                                                                        25,470

CR Investors’ share of profit or loss  25,470

Investor’s share of profit: 30% of 80,000 + 2,800 + 3,000*0.7  = 30% of 84,900 = 25,470

 

DR Dividend Revenue                                                                                 6,000

CR Investment in associate                                                      6,000

 

DR Investment in associate                  8,100

CR Investors’ share of OCI of associate – ARR                               8,100

27000 x 30% = 8100

 

Question 11 (Essay question)

 

On 1 July 2014, David Ltd acquired all the share capital of Jones Ltd for $375 000 when the equity of Jones Ltd consisted of:

Share capital 200,000
Retained earnings 80,000
General reserve 25,000
  305,000

The recorded amounts of the identifiable assets and liabilities of Jones Ltd at acquisition date were equal to their fair values except for inventory whose fair value was $120,000 and had a book value of $80,000. At 1 July 2014, Jones Ltd was involved in a court case with an entity that was claiming damages from it. Jones Ltd had not raised a liability in relation to any expected damages. David Ltd measured the fair value of the liability for damages at $30,000.

Additional Information:

  • The inventory in Jones Ltd that existed at acquisition date was sold to parties outside the group during the year ended 30 June 2015. The contingent liability at acquisition date was not settled at 30 June 2016.
  • On 1 January 2015, David Ltd sold some plant to Jones Ltd for $30,000. At that date, the plant had a carrying amount of $20,000 in the records of David Ltd. David Ltd depreciates plant at 20%p.a. on cost, whereas Jones charges depreciation at the rate of 10% p.a. on cost.
  • On 1 April 2016, Jones Ltd issued 100 8% debentures of $1,000 at nominal value. David Ltd acquired 30 of these. Interest is payable half-yearly on 30 September and 31 March.
  • On 1 June 2016, David Ltd provided accounting services to Jones Ltd for $3,000 and received the payment on 20 June 2016.
  • On 1 May 2015, David Ltd sold inventory to Jones Ltd for $16,000. This inventory previously cost David Ltd $12,000. Half of this inventory was sold to an external party for $5,000 on 31 May 2015.

On 1 September 2015, the remaining inventory was sold by Jones Ltd to an external party.

  • The tax rate is 30%.

 

Required:

  • Determine the amount of goodwill or gain or bargain purchase involved in the acquisition. Show all calculations.

 

  • Prepare the consolidation worksheet entries as at 30 June 2016. Show all calculations.

a)

Share capital 200,000
Retained earnings 80,000
General Reserve 25,000
BV of net assets 305,000
inventory (120,000-80,000)*0.7 28,000
contingent liability –(30,000*0.7) -21,000
FVINA 312,000
Consideration 375,000  
goodwill 63,000

 

b) Business Combination Valuation entries

1)

DR DTA                                                         9,000

DR BCVR                                                       21,000

   
                                    CR Provision for legal claims

 

2)

DR Goodwill                                                  63,000

               30,000
                                    CR BCVR

 

Pre-acquisition elimination entries

3)

DR Share capital                                             200,000

DR RE(1/7/2015)80,000+28,000                   108,000

DR General Reserve                                       25,000

DR BCVR                                                       42,000

  63,000
                        CR Investment in Jones Ltd

Intra-Group Transaction adjusting entries

4)

DR RE(1/7/2015)                                           7,000

DR DTA                                                         3,000

  375,000
                                    CR Plant

 

5)

  10,000
DR Accumulated Depreciation – Plant                      1,500
                                    CR RE(1/7/2015) 500
                                    CR Depreciation expense 1,000

 

 

6)

DR ITE                                                                       300

DR RE (1/7/2015)                                                      150

   
                                    CR DTA

 

7)

DR Debentures (liability)                               30,000

  450
                                    CR Debentures in Jones Ltd (asset)

 

 

8)

DR Interest revenue                                        600

  30,000
                                    CR Interest expense

 

 

9)

DR Interest payable                                        600

  600
                                    CR Interest receivable

 

 

10)

DR Accounting services revenue                   3,000

               600
                                    CR Accounting services expense

 

 

11)

DR RE(1/7/2015)                                                    1,400

DR ITE                                                                      600

  3,000
                                    CRCOGS   2,000

 

Question 12 (Essay question)

 

Garth Ltd is a major Australian manufacturer of women’s clothing. One of its major competitors was Brooks Ltd whose business was established by a French family over 30 years ago. It had won numerous awards for its designs and has established a number of brands that have been successful, especially with teenagers.

 

In order to expand its business as well as to increase its market power, Garth Ltd acquired on 1 July 2019 all the issued shares (cum div.) of Brooks Ltd for $330 000. At this date, the equity of Brooks Ltd was as follows.

 

All the identifiable assets and liabilities of Brooks Ltd were recorded at amounts equal to their fair values except for the following.

 

The plant’s expected remaining useful life was 5 years with benefits being expected evenly over that period. The plant was sold on 1 January 2022 for $187 000. The land was sold in February 2021 for $250 000. Of the inventories, 90% was sold by 30 June 2020 and the rest by 30 June 2021. At 1 July 2019, Brooks Ltd had recorded a dividend payable of $10 000 that was paid in September 2019. Brooks Ltd also had some unrecorded assets, in particular the brands relating to the clothing sold in the teenage market. Garth Ltd valued these brands at $12 000 and assessed them to have an indefinite life. In the notes to its financial statements at 30 June 2019, Brooks Ltd disclosed a contingent liability relating to a guarantee it had made to one of its related companies. Garth Ltd assessed the fair value of the guarantee payable as being $10 000. In August 2021, Brooks Ltd was required to pay $2500 in relation to the guarantee.

 

All transfers to the general reserve made by Brooks Ltd have been from retained earnings earned prior to 1 July 2019. The tax rate is 30%.

 

The financial information provided by the two companies at 30 June 2022 is as follows.

 

 

Revenues $ 190  000  $110  000
Expenses  (80  000 )  (76  000 )

110  000                                                            34  000

Gains on sale of non‐current assets                                                                  5  000                                                                                                                                                             4  000

Profit before tax  115  000   38  000
Income tax expense  (40  000 )   (6  000 )
Profit for the year   75  000  32  000
Other comprehensive income:      
Gains on revaluation of plant   12  000           0

Comprehensive income for the year $ 87  000

     
Profit for the year $ 75  000  $ 32  000
Dividend paid   (34  000 )           0
Transfer to general reserve   0  (15  000 )

(34  000 )                                                          (15  000)

Retained earnings (30/6/22)                                                                            $ 121  000                                                                              $105  000

Share capital $ 280  000  $200  000
General reserve  20  000  48  000
Asset revaluation surplus  24  000           0
Retained earnings  121  000  105  000
Total equity

Provisions

 445  000

15  000

 353  000

12  000

Payables  40  000      8  000

Total liabilities       55  000                                                          20  000

Total equity and liabilities                                                                            $ 500  000                                                                              $373  000

Cash $ 12  000  $ 30  000
Accounts receivable  28  000  12  000
Inventories  30  000  51  000
Plant  230  000  320  000
Accumulated depreciation — plant  (120  000 )  (40  000 )
Shares in Brooks Ltd  320  000           0

Required:

 

  • Prepare the acquisition analysis at 1 July 2019.

 

  • Prepare the consolidation worksheet entries for Garth Ltd’s group at 30 June 2022. (a) Acquisition analysis at 1 July 2019:

 

Net fair value of identifiable assets

and liabilities of Brooks Ltd            =   $200 000 + $20 000 + $50 000 (equity)

+    ($186 000 – 180 000) (1 – 30%) (BCVR – plant)

+    ($210 000 – $190 000) (1 – 30%) (BCVR – land)

+    ($28 000 – $20 000) (1 – 30%) (BCVR – inventories)                                                                     +

$12 000 (1 – 30%) (BCVR – brands)

–    $10 000 (1 – 30%) (BCVR – guarantee liability)

 

 

= $295 200
Net consideration transferred = $330 000 – $10 000 (dividend)
 

 

= $320 000
Goodwill = $320 000 – $295 200
  = $24 800

 

(b) Consolidation worksheet entries at 30 June 2022:

(1) Business combination valuation entries:

 

The BCVR entries are affected by the following events that took place during the period from acquisition to 30 June 2022:

  • the depreciation of the plant during the previous periods and current period
  • the sale of plant during the current period
  • the settlement of the claim during the current period.

 

There are no BCVR entries for the assets that were sold prior to the beginning of the current period (i.e. land and inventories). The BCVR entries for the assets still on hand at the beginning of the current period that are not affected by any events during the current period (i.e. brands and goodwill) are the same as the entries posted at acquisition date for those assets.

 

            *Depreciation expense Dr 600  
            Gain on sale of plant Dr 3 000  
                  Income tax expense Cr   1 080
            Retained earnings (1/7/21) Dr 1 680  
                  Transfer from BCVR Cr   4 200

(Final adjustment for plant and its depreciation to the date of sale)

 

*As the plant is now sold, it is not recognised anymore in the subsidiary’s accounts, so no adjustments are needed on consolidation to the plant account or the related accumulated depreciation account. The only adjustments needed are to the current period depreciation and to the gain on sale of plant (and their related tax effect) and also to the previous periods’ depreciations which are recorded in the “Retained Earnings (1/7/21)”. Also, the BCVR recorded at acquisition date for plant is now transferred to retained earnings by using the

“Transfer from business combination valuation reserve” account.

 

            Brands Dr 12 000  
                  Deferred tax liability Cr   3 600
                  Business combination valuation reserve

 

Cr   8 400
            Transfer from BCVR Dr 7 000  
            Income tax expense Dr 3 000  
                  Gain on guarantee Cr   7 500
                  Guarantee expense Cr   2 500

 

*The credit to “Guarantee expense” is posted on consolidation to eliminate the “Guarantee Expense” that now would have been recognised in the subsidiary’s accounts. This elimination is necessary because this expense related to the guarantee is an expense for the subsidiary now, but it was already recognised on consolidation at acquisition date as part of the provision in the acquisition analysis.

 

            Goodwill Dr 24 800  
                  Business combination valuation reserve

 

 

 

 

 

(2) Pre-acquisition entries:

 

At 1 July 2019:

 

Cr   24 800
            Retained earnings (1/7/19) Dr 50 000  
            Share capital Dr 200 000  
            General reserve Dr 20 000  
            Business combination valuation reserve Dr 50 000  
                  Shares in Brooks Ltd Cr   320 000

 

At 30 June 2022:

 

The pre-acquisition entries for a period after the acquisition consist of:

  • a combined pre-acquisition entry at the beginning of the current period (i.e. the pre-acquisition entry at the acquisition date adjusted for the effects of all pre-acquisition equity changes and changes in the investment account recognised by the parent up to the beginning of the current period) and
  • entries reversing the changes in pre-acquisition equity and in the investment account in the current period as follows.
    • Changes in the pre-acquisition equity, due to transfers between pre-acquisition equity accounts, including transfers from business combination valuation reserve, other transfers between preacquisition reserves and bonus share dividends.
    • Changes in the investment account recognised by the parent, due to impairment as a result of preacquisition dividends or due to the parent paying calls on the partly paid shares of the subsidiary. In the case of calls on partly paid shares of the subsidiary, a change in pre-acquisition equity (share capital) is recognised, together with a change in the investment account.

 

The pre-acquisition entries at 30 June 2022 are affected by:

 

Their effects will adjust the first pre-acquisition entry
Their effects will be reversed in the other pre-acquisition entries
       
            Retained earnings (1/7/21) * Dr 56 600  
            Share capital Dr 200 000  
            General reserve Dr 33 000  
            Business combination valuation reserve Dr 30 400  
                  Shares in Perseus Ltd Cr   320 000
  • Sale of land in February 2021 – prior
  • Sale of inventories by 30 June 2021 – prior
  • Transfer to general reserve of $13 000 – prior

 

  • Sale of plant – current
  • Settlement of guaranteed loan – current
  • Transfer to general reserve of $15 000 – current

 

*$50 000 + $14 000 (BCVR – land) + $5 600 (BCVR – inventories) – $13 000 (general reserve)

 

Transfer from BCVR                            Dr                              4 200

Business combination valuation reserve                                    Cr                                              4 200

(Sale of plant)

Business combination valuation reserve                                           Dr               7 000

Transfer from BCVR           Cr                                               7 000

(Settlement of loan)

 

General reserve                        Dr                                 15 000

Transfer to general reserve           Cr                                             15 000