4. Consolidation with differences between carrying amount and fair value at acquisition date and intragroup transactions Miller Ltd purchased 100% of the shares of Scott Ltd on 1 July 20x2 for $50 000. At that date the equity of the two entities was as follows. Miller Ltd Scott Ltd Asset revaluation surplus $25 000 $4 000 Retained earnings 14 500 2 800 Share capital 50 000 40 000 At 1 July 20x2, all the identiable assets and liabilities of Scott Ltd were recorded at fair value except for the following. Carrying Fair value amount Inventories $3 000 $3 500 Plant and equipment (cost $80 000) 60 000 61 000 All of the inventories were sold by December 20x2. The plant and equipment had a further 5year life. Any valuation adjustments are made on consolidation. Financial information for Miller Ltd and Scott Ltd for the period ended 30 June 20X4 is shown below: Miller Ltd Scott Ltd Sales revenue $78 000 $40 000 Dividend revenue 4 400 1 600 Total income 82 400 41 600 Cost of sales 60 000 30 000 Other expenses 10 800 5 000 Total expenses 70 800 35 000 Gross profit 11 600 6 600 Gain on sale of furniture 0 500 Profit before income tax 11 600 7 100 Income tax expense 3 000 2 200 Profit for the period 8 600 4 900 Retained earnings (1/7/X3) 14 500 2 800 X4 100 7 700 Interim dividend paid 4 000 2 000 Final dividend declared 8 000 2 400 12 000 4 400 Retained earnings (30/6/X4) 11 100 3 300 Additional infomation (a) Miller Ltd records dividend receivable as revenue when dividends are declared. (b) The beginning inventories of Scott Ltd at 1 July 20X3 included goods which cost Scott Ltd $2000. Scott Ltd purchased these inventories from Miller Ltd at cost plus 33% mark up in previous year. The inventory was sold on 1 May 20x41 (0) Intragroup sales totalled $10 000 for the period ended 30 June 20X4. Sales from Miller Ltd to Scott Ltd, at cost plus 10% mark-up, amounted to $5600, and Scott sold it out to an external party. The ending inventories of Miller Ltd included goods which cost Miller Ltd $4400. Miller Ltd purchased these inventories from Scott Ltd at cost plus 10% mark-up. (d) On 31 December 20X3, Scott Ltd sold Miller Ltd office furniture for $3000. This furniture originally cost Scott Ltd $3000 and was written down to $2500 just before the intragroup sale. Miller Ltd depreciates furniture at the rate of 10% p.a. on cost. (e) The asset revaluation surplus relates to land. The following movements occurred in this account: Miller Ltd Scott Ltd 1 July 20X2 to 30 June 20X3 $3 000 $(500) 1 July 20X3 to 30 June 20X4 2000 500 (f) The tax rate is 30%. Required i) Prepare the acquisition analysis at 1 July 20X2. ii) Prepare the business combination valuation entries and pre-acquisition entries at 1 July 20X2. iii) Prepare the business combination valuation entries and pre-acquisition entries at 30 June 20X4. iv) Prepare the consolidation worksheet journal entries to eliminate the effects of intragroup transactions at 30 June 20X3. v) Prepare the consolidation worksheet journal entries to eliminate the effects of intragroup transactions at 30 June 20X4