Reference no: EM133003855

On 1 July 2019, P Ltd acquired all the shares of S Ltd, on a cum-div. basis, for $1,100,000. At this date, the equity of S Ltd consisted of:

Share capital - 700 000 shares $ 1,050,000

Retained earnings 650,000

S Ltd also reported a dividend payable of $100,000 and a recorded goodwill of $150,000 at the acquisition date. The dividend payable was subsequently paid in September 2019.

At the acquisition date, all the identifiable assets and liabilities of S Ltd were recorded at amounts equal to fair value except for the following:

                                        Carrying amount                     Fair value

Inventory                           100,000                          80,000

Plant (cost $1,000 000)            800 000                     700,000

• Of the inventory on hand in S Ltd at 1 July 2019, 60 percent was sold in December 2019 and the remainder was sold in August 2020.
• The remaining useful life of the plant at the date of acquisition was 5 years. The plant on hand at the acquisition date was sold on 1 January 2021 for $500,000.
• The company applies the partial goodwill method. The income tax rate is 30%.

During the period 1 July 2019 to 30 June 2021, the following intragroup transactions have occurred between P Ltd and S Ltd:

(T1) On 1 January 2020, P Ltd acquired furniture for $200,000 from S Ltd. The furniture had originally cost S Ltd $200,000 and had a carrying amount at the time of sale of $160,000. The sale was made on credit. At 30 June 2020, $120,000 was outstanding. At 30 June 2021, $40,000 was still not paid and outstanding. Both entities apply depreciation on a straight-line basis. At 1 January 2020, the furniture had a further five years of useful life, with zero residual value.

(T2) On 1 March 2020, Son Ltd sold inventory costing $120,000 to Parent Ltd for $100,000. On 1 October 2020, Parent Ltd sold half of these inventory items back to Son Ltd for $60,000. Of the remaining inventory kept by Parent Ltd, half was sold in March 2021 to Dingo Ltd at a profit of $10,000.

Required:

Problem a) Prepare the acquisition analysis at 1 July 2019.

Problem b) Prepare the consolidation worksheet entries at 30 June 2021.

1. BCVR entries,

2. Pre-acquisition entries, and

3. Intragroup transaction adjustment entries (T1 to T2).