Reference no: EM132983171

Question - John Ltd acquired its 70% interest in Stan Ltd on 1 July 2018 for $700 000, when all assets of Stan Ltd were fairly valued, except for an equipment that had a fair value $6.000 greater than its carrying out. The cost of the equipment was $30 000 and it had accumulated depreciation of $12000. The equipment had original estimated useful life of 5 years, Capitals of Stan Lid were

Share Capital $550 000

Retained earnings $300 000

The management of John Lid measures any non-controlling interest (INC) in Stian Lid at fair value. Assume that there are no intra group transactions or deferred tax consequences from 1 July 2018 to 30 June 2018. Tax rate is 30% reporting date is 30 Juno John Ltd has investment in other entities.

(i) Prepare an acquisition analysis at 1 July 2018, to determine goodwill or gain on bargain purchase at acquisition.

(ii) Prepare all consolidation/elimination journals at 30 June 2019. (Narrations are required).

(iii) John Ltd owns 50% of Orange Grove Ltd's ordinary shares. The remaining 50% of Orange Grove lid's ordinary shares are owned by Wilson Ltd. John Ltd and Wilson Lid have three seats on the board, with no party having the casting vote. However, John Ltd appoints the managing director. Profits are split 50-50 after the provision of the managing director's salary. John Ltd is the only holder of 110 options in Orange Grove Ltd, which are exercisable at any time at a 8% discount to the fair value of the ordinary shares at the exercise date. Should John Ltd consolidate Orange Grove Lid? Be sure to justify your decision with an explanation of why or why not?