Foreign Tax Question -- Cox Business Accountants

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Date Posted: Friday, November 16, 09:36:55am
Author: Concerned Investor
Subject: Foreign Tax Question

I acquired 90% of a US company on 1 July 2006 for A$180,000. The net assets of the US Company on that date were represented as follows:
US$ Share capital 100,000, Retained earnings 40,000.

All the identifiable net assets of the US company were recorded at their fair values except for an item of machinery, which had a carrying value of US$30,000 (cost of US$40,000) and a fair value of US$35,000. The machine had a remaining useful life of four years at the date of acquisition.

For your information:
> The US tax rate is 35%
> On 1 March 2007, The US company sold inventory to my Australian company. The cost of the inventory was US$5,000 and it was sold to my Australian company for US$7,500. Half of this inventory was still on hand at 30 June 2007.
> There have been no other movements in equity balances.
> On translation of the financial statements of the US company into Australian dollars at 30 June 2007, the balance in the foreign currency translation reserve was A$197.
> Relevant exchange rates were as follows:
July 2006 1.00=0.771
March 2007 1.00=0.761
June 2007 1.00=0.7830
June 2007 1.00=0.79
Average 2006/2007 1.00=0.78

How do i
(a) Calculate the goodwill in relation to my investment in the US company
(b) Prepare the consolidation journal entries (including those that relate to minority interests) in relation to my investment in the US company at 30 June 2007.

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