Undervalued and unrecorded assets, unrecorded liabilities, pre‐acquisition reserves transfers   LO3, 5, 7 Griffin Ltd is a major Australian manufacturer of women’s clothing. One of its major competitors was Frank Ltd whose business was established by a French family over 30 years ago. It had won numerous awards for its designs and has established a number of brands that have been successful, especially with teenagers. In order to expand its business as well as to increase its market power, Griffin Ltd acquired on 1 July 2016 all the issued shares (cum div.) of Frank Ltd for $330 000. At this date, the equity of Frank Ltd was as follows. Share capital $200 000 General reserve 20 000 Retained earnings 50 000 All the identifiable assets and liabilities of Frank Ltd were recorded at amounts equal to their fair values except for the following. Carrying amount Fair value Plant (cost $220 000) $180 000 $186 000 Land 190 000 210 000 Inventories 20 000 28 000 The plant’s expected remaining useful life was 5 years with benefits being expected evenly over that period. The plant was sold on 1 January 2019 for $187 000. The land was sold in February 2018 for $250 000. Of the inventories, 90% was sold by 30 June 2017 and the rest by 30 June 2018. At 1 July 2016, Frank Ltd had recorded a dividend payable of $10 000 that was paid in September 2016. Frank Ltd also had some unrecorded assets, in particular the brands relating to the clothing sold in the teenage market. Griffin Ltd valued these brands at $12 000 and assessed them to have an indefinite life. In the notes to its financial statements at 30 June 2016, Frank Ltd disclosed a contingent liability relating to a guarantee it had made to one of its related companies. Griffin Ltd assessed the fair value of the guarantee payable as being $10 000. In August 2018, Frank Ltd was required to pay $2500 in relation to the guarantee. All transfers to the general reserve made by Frank Ltd have been from retained earnings earned prior to 1 July 2016. The tax rate is 30%. The financial information provided by the two companies at 30 June 2019 is as follows. Griffin Ltd Frank Ltd Revenues $ 190 000 $110 000 Expenses (80 000) (76 000) 110 000 34 000 Gains on sale of non‐current assets 5 000 4 000 Profit before tax 115 000 38 000 Income tax expense (40 000) (6 000) Profit for the year 75 000 32 000 Other comprehensive income: Gains on revaluation of plant 12 000 0 Comprehensive income for the year $ 87 000 $ 32 000 Profit for the year $ 75 000 $ 32 000 Retained earnings (1/7/18) 80 000 88 000 155 000 120 000 Dividend paid (34 000) 0 Transfer to general reserve 0 (15 000) (34 000) (15 000) Retained earnings (30/6/19) $ 121 000 $105 000 Share capital $ 280 000 $200 000 General reserve 20 000 48 000 Asset revaluation surplus 24 000 0 Retained earnings 121 000 105 000 Total equity 445 000 353 000 Provisions 15 000 12 000 Payables 40 000 8 000 Total liabilities 55 000 20 000 Total equity and liabilities $ 500 000 $373 000 Griffin Ltd Frank Ltd Cash $ 12 000 $ 30 000 Accounts receivable 28 000 12 000 Inventories 30 000 51 000 Plant 230 000 320 000 Accumulated depreciation — plant (120 000) (40 000) Shares in Frank Ltd 320 000 0 Total assets $ 500 000 $373 000 Required 1. Prepare the acquisition analysis at 1 July 2016. 2. Prepare the consolidation worksheet entries for Griffin Ltd’s group at 30 June 2019. 3. Prepare the consolidated financial statements for Griffin Ltd’s group at 30 June 2019.