Reference no: EM132756492

On 1 July 2018, Red Ltd acquired 60% of Blue Ltd's share capital for $500,000. At acquisition date, Blue Ltd's equity consisted of:

Share Capital $620,000
Retained earnings $140,000
General reserve $30,000

At acquisition date, all the identifiable assets and liabilities of Blue Ltd were recorded at amounts equal to fair value, except for a quantity of inventory whose fair value was $20,000 higher than its carrying amount.

Additional information relating to the year ended 30 June 2019:

1. Blue Ltd recorded an after tax profit of $25,000.
2. The re-valued inventory was sold to an external party.
3. Blue Ltd declared a dividend of $28,000. The dividends are from post-acquisiti earnings and revenue is recognised on declaration.
4. During the year Blue Ltd sold inventory to Red Ltd for $16,000, recording a profit before tax of $5,000. By 30 June 2019, 25% of the inventory remained unsold by Red Ltd.
5. The tax rate is 30%.

Required:

Problem 1. Prepare the acquisition analysis as at date of acquisition using the partial goodwill method.

Problem 2. Prepare the journal entries required for consolidation purposes at 30 June 2019.