Prepare an analysis of the situation

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Reference no: EM133328169

Case: The information below relates to Highflyer Ltd and Lowflyer Ltd.

On 30 June 2021, Highflyer Ltd acquired all of the issued shares of Lowflyer Ltd for $345,000. At the acquisition date the equity of Lowflyer Ltd consisted of:

Share capital	$135,000
Reserves	115,000
Retained earnings	80,000

At the date of acquisition this equity reflected the fair values of all the identifiable assets and liabilities of Lowflyer Ltd with the exception of Inventory which had a fair value $3,000 greater than its carrying amount. The corporate tax rate is 32%.

Question: 1 Prepare an analysis of the situation and also prepare the 30 June 2021 consolidation journal entries (with narrations) that are relevant to the above transactions and events for the books/records of the parent company.

Question: 2 On 30 June 2021, the drafted individual financial statements of both companies are given as below. Based on the adjustment entries you have provided, complete the consolidation worksheet for 30 June 2021 provided below.

	Highflyer Ltd	Lowflyer Ltd	Adjustments			Group
	Highflyer Ltd	Lowflyer Ltd	DR	Ref	CR	Group
Sales revenue	750,000	210,000
Cost of goods sold	225,000	60,000
Gross profit	525,000	150,000
Other expenses	50,000	25,000
Profit before tax	475,000	125,000
Income tax expenses	150,000	40,000
Net profit after tax	325,000	85,000
Opening retained earnings	195,000	80,000
Closing retained earnings	520,000	165,000
Share capital	310,000	135,000
Reserves	95,250	115,000
Business Combination Valuation Reserve	-	-
Payables	205,000	110,000
Deferred tax liabilities	125,250	5,000
	1,255,500	530,000
Cash	399,500	227,500
Inventory	82,500	35,000
Deferred tax assets	13,500	10,000
Land	335,000	257,500
Investments (including investment in Lowflyer Ltd.)	425,000	-
Goodwill (carrying amount)	-	-
	1,255,500	530,000

Reference no: EM133328169

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