Reference no: EM132994557

Dipkar Ltd acquired 30% of the issued ordinary shares of Lamrim Ltd for $130,000 on 1 July 2020. The equity of Lamrim Ltd at that date was as follows.

$
Ordinary shares 250,000
Retained earnings 130,000

• At acquisition date, all identifiable assets and liabilities of Lamrim Ltd were recorded at fair value, except for inventory, which had a fair value that was $10,000 greater than its cost. This inventory was all sold by 30 June 2021.
• At 30 June 2021, Dipkar Ltd had inventories on hand which had been purchased from Lamrim Ltd for $20,000. Lamrim Ltd had recognised a profit before tax of $5,000 on these sales.
• At 30 June 2021, Lamrim Ltd had inventories on hand which had been purchased from Dipkar Ltd for $22,000. Dipkar Ltd had recognised a profit before tax of $8,000 on these sales.

For the year ended 30 June 2021, the income and changes in equity of Lamrim Ltd are as follows:

$
Profit before income tax 220,000
Income tax expense (40,000)
Profit after income tax 180,000
Retained earnings at 1 July 2020 65,000
                                           245,000
Dividends paid  (20,000)
Dividends declared (16,000)
Retained earnings at 30 June 2021 209,000

Additional information:

• All dividends are paid/declared out of the current year profit.
• Dipkar Ltd recognises dividends as revenue when they are declared by the investee.
• The tax rate is 30%.

Required:

Problem 1: Prepare an acquisition analysis in relation to the acquisition made by Dipkar Ltd. (3 marks)

Problem 2: Calculate Dipkar Ltd's share of Lamrim Ltd's post-acquisition profit for the year ended 30 June 2021. (5 marks)

Problem 3: Prepare the equity journal entries to account for Dipkar Ltd's investment in Lamrim Ltd for the year ended 30 June 2021, assuming that Dipkar Ltd prepares consolidated financial statements.