Undervalued assets, pre‐acquisition reserves transfers   LO3, 4, 6, 7 Ethan Ltd acquired all the issued shares (ex div.) of Darren Ltd on 1 July 2018 for $110 000. At this date Darren Ltd recorded a dividend payable of $10 000 and equity of the following. Share capital $54 000 Retained earnings 36 000 Asset revaluation surplus 18 000 All the identifiable assets and liabilities of Darren Ltd were recorded at amounts equal to their fair values at acquisition date except for the following. Carrying amount Fair value Inventories $14 000 $16 000 Machinery (cost $100 000) 92 500 94 000 Of the inventories, 90% was sold by 30 June 2019. The remainder was sold by 30 June 2020. The machinery was considered to have a further 5‐year life and it is depreciated on a straight‐line basis. Both Darren Ltd and Ethan Ltd use the revaluation model for land. At 1 July 2018, the balance of Ethan Ltd’s asset revaluation surplus was $13 500. In May 2019, Darren Ltd transferred $3000 from the retained earnings at 1 July 2018 to a general reserve. The tax rate is 30%. The following information was provided by the two companies at 30 June 2019. Ethan Ltd Darren Ltd Profit before tax 120 000 12 500 Income tax expense (56 000) (4 200) Profit for the year 64 000 8 300 Retained earnings (1/7/18) 80 000 36 000 144 000 44 300 Transfer to general reserve (0) (3 000) Retained earnings (30/6/19) $ 144 000 $ 41 300 Share capital 360 000 54 000 Retained earnings 144 000 41 300 General reserve 10 000 3 000 Asset revaluation surplus 18 500 20 000 Liabilities 42 500 13 000 $ 575 000 $131 300 Land $ 160 000 $ 20 000 Plant and machinery 360 000 125 600 Accumulated depreciation — plant and machinery (110 000) (33 000) Inventories 55 000 18 700 Shares in Darren Ltd 110 000 0 $ 575 000 $131 300 Required 1. Prepare the acquisition analysis at 1 July 2018. 2. Prepare the consolidation worksheet entries for Ethan Ltd’s group at 30 June 2019. 3. Prepare the consolidated financial statements for Ethan Ltd’s group at 30 June 2019.