(1) Prepare the acquisition analysis at 1 July 2011 and all consolidation worksheet entries necessary for the preparation of the consolidated financial statement for Amy Ltd and its subsidiary

(2) Prepare the consolidation statement of profit or loss and other comprehensive income at 30 June 2016. Journal entries required

On 1 July 2011, Amy Ltd acquired all the issued ordinary shares (cum div.) and gained control of Zara Ltd for a consideration of $528,000. At that date the shareholders equity of Zara Ltd was:

Share Capital $310,000

General Reserve 38,000

Retained Earnings 68,000

At acquisition date, all the identifiable assets and liabilities of Zara Ltd were recorded at amounts equal to fair value except for:

Carrying Fair

Amount Value

Goodwill 40,000 82,000

Inventory $100,000 $120,000

Land 80,000 120,000

Machinery (cost $30,000) 23,000 25,000

Plant & Equipment (cost $460,000) 280,000 286,000

Trademark (cost $225,000) 150,000 180,000

In addition at the date of acquisition, Zara Ltd had a provision for dividend of $20,000 and other provisions of $254,000. The dividend liability was paid on 1 September 2011. It also had a contingent liability of $13,000 that Amy Ltd considered to have a fair value of $11,000. This liability was settled in July 2015.

The machinery, which was estimated to have a further ten year life at acquisition date, was sold on 1 January 2016. The plant and equipment had a further six year life at acquisition date and was expected to be used evenly over that time. The trademark had a further ten year life. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation.

During the year ended 30 June 2012, all inventories on hand at acquisition date were sold, and the land was sold on 1 June 2016. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed.

Goodwill was tested annually for impairment. For the year ended 30 June 2015, an impairment loss on goodwill of $2,500 was recorded.

On 30 June 2015, Zara Ltd transferred $10,000 from the general reserve (pre-acquisition) to retained earnings.

Additional information:

On 4 May 2015, Amy Ltd sold some land to Zara Ltd. The land had originally cost Amy Ltd $40,000, but was sold to Zara Ltd for $46,000. To help Zara Ltd pay for the land, Amy Ltd gave Zara Ltd an interest-free loan of $18,000. Zara Ltd has as yet made any repayments on the loan.

On 1 July 2015, Zara Ltd has on hand inventory worth $23,000, being transferred from Amy Ltd in May 2015. The inventory had previously cost Amy Ltd $15,000. All this inventory was sold in the following four months.

On 1 January 2016, Amy Ltd sold furniture to Zara Ltd for $12,000. This had originally cost Amy Ltd $26,000 and had a carrying amount at the time of sale of $14,000. Both entities charge depreciation at a rate of 10% p.a.

On 3 February 2016, interim dividend was paid by Zara Ltd from profits before acquisition date. The final dividend was from current year profits. Shareholder approval is not required in relation to dividends.

On 1 April 2016, Zara Ltd transferred an item of plant with a carrying amount of $21,000 to Amy Ltd for $29,000. Amy Ltd treated this item as inventory. The item was still on hand at the end of the year. Zara Ltd applied a 20% depreciation rate to this plant.

On 4 May 2016, Zara Ltd acquired $19,000 inventory from Amy Ltd. This inventory originally cost Amy Ltd $13,000. The profit in inventory at hand at 30 June 2016 was $2,000.

During the year ending 30 June 2016, Zara Ltd sold inventory costing $24,000 to Amy Ltd for $36,000. One quarter of this was sold to external parties for $13,500.

The tax rate is 30%.

On 30 June 2016 the trial balances of Amy Ltd and Zara Ltd were as follows:

Amy Ltd Zara Ltd

Cost of sales $282,000 $256,000

Other expenses 66,000 60,000

Income tax expense 43,000 39,000

Interim dividend paid 21,000 9,000

Final dividend declared 22,000 10,000

Cash 10,000 87,000

Dividend receivable 10,000 -

Other receivables 88,000 42,000

Inventory 120,000 110,000

Deferred tax assets 27,000 -

Machinery 68,000 60,000

Plant & equipment 540,000 490,000

Land 108,000 46,000

Furniture 20,000 25,000

Shares in Zara Ltd 508,000 -

Trademark - 325,000

Goodwill 62,000 40,000

Loan to Zara Ltd 18,000 -

2,013,000 1,599,000

Sales 400,000 364,000

Other income 62,000 56,000

Share capital 728,000 310,000

General reserve 70,000 100,000

Retained earnings (1/7/15) 409,000 190,000

Final dividend payable 22,000 10,000

Current tax liabilities 7,000 5,000

Other provisions 80,000 40,000

Loan from Amy Ltd - 18,000

Accumulated depreciation P & E 216,000 320,000

Accumulated depreciation Machinery 13,000 33,000

Accumulated depreciation Furniture 6,000 33,000

Accumulated amortisation trademark - 120,000

2,013,000 1,599,000