Reference no: EM133272797

On 1 July 2020, Cloudy Ltd acquired all of the shares of Sunhill Ltd, on a cum-div. basis, for $5,850,000. At this date, the financial statements of Sunhill Ltd showed the following balances:

Share capital - 500 000 shares General reserve

Retained earnings Revaluation surplus

Dividend payable

$ 2,500,000 850,000

1,450,000 280,000 85,000

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

Inventory

Land

Plant (cost $900 000)

Carrying amount

$265,000 950,000 540,000

Fair value

$325,000 1,220,000 680,000

The dividend payable at acquisition date was subsequently paid in August 2020. The inventory on hand in Sunhill Ltd at 1 July 2020 was sold in August 2020. In May 2022, the land was sold to Sunnyside Ltd for $1,450,000. The plant was estimated to have a further five-year life with no residual value. Goodwill was impaired by $40,000 at 30 June 2021. The tax rate is 30%.

1. Prepare the acquisition analysis at 1 July 2020.

2. Prepare the consolidation journal entries at 1 July 2020. All workings and narrations must be provided.