Undervalued and unrecorded assets, unrecorded liabilities, pre‐acquisition reserves transfers   LO4, 5 On 1 August 2016, Erik Ltd acquired 10% of the shares in Finn Ltd for $8000. Erik Ltd used the fair value method to measure this investment with movements in fair value being recognised in profit or loss. At 1 July 2018, the fair value of this investment was $15 400. The original investment in Finn Ltd was due to the fact that Finn Ltd was undertaking research into particular microbiological elements that could influence the profitability of Erik Ltd. With the continuing success of this research, Erik Ltd decided to acquire the remaining shares (cum div.) in Finn Ltd. On 1 July 2018, Erik Ltd made an offer to buy the remaining shares in Finn Ltd for $151 000 cash. This offer was accepted by the shareholders of Finn Ltd. On 1 July 2018, immediately after the business combination, the statements of financial position of Erik Ltd and Finn Ltd were as follows. Erik Ltd Finn Ltd Share capital $130 000 $ 90 000 General reserve 56 500 12 000 Retained earnings 93 500 36 000 Total equity $280 000 $138 000 Dividend payable 25 000 12 600 Other liabilities 75 000 25 000 Total liabilities $100 000 $ 37 600 Total equity and liabilities $380 000 $175 600 Cash 11 000 20 600 Receivables 25 200 20 000 Other assets 10 000 8 000 Shares in Finn Ltd 153 800 0 Inventories 55 000 42 000 Plant and equipment 210 000 107 000 Accumulated depreciation — plant and equipment (85 000) (22 000) Total assets $380 000 $175 600 On analysing the financial statements of Finn Ltd, Erik Ltd determined that all the assets and liabilities recorded by Finn Ltd were shown at amounts equal to their fair values except for the following. Carrying amount Fair value Plant and equipment (cost $46 000) $35 000 $43 000 Inventories 42 000 46 000 The plant and equipment is expected to have a further 4‐year useful life and is depreciated on a straight‐line basis. The inventories were all sold by 30 June 2019. Finn Ltd had expensed all the outlays on research and development. Erik Ltd considered that an asset was created and placed a fair value of $12 000 on this asset at 1 July 2018. The research and development is amortised evenly over a 10‐year period. Finn Ltd also had reported a contingent liability at 30 June 2018 in relation to claims by customers for damaged goods. Erik Ltd placed a fair value of $3000 on these claims at 1 July 2018. The claims by customers were settled in May 2019 for $2800. The tax rate is 30%. Required 1. Prepare the consolidated financial statements for Erik Ltd’s group at 1 July 2018. 2. Prepare the consolidation worksheet entries for Erik Ltd’s group at 30 June 2019.