(a) Harvey Ltd holds 30% of the shares issued by Norman Ltd. The other shareholders come from mixed backgrounds, but each holds on average 10% of the issued share capital in Norman Ltd. There are seven directors of Norman Ltd. Four of these were appointed by Harvey Ltd. The other three directors were appointed by three of the other shareholders who have an interest in the management of the company. Most of the remaining shareholders live outside Australia and rarely attend board meetings of Norman Ltd unless they have other business to attend to in Australia around the same time as the board meetings are held. Required: Determine whether a parent-subsidiary relationship exists, and which entity, if any, is a parent. [5 marks) (b) Birdwood Ltd acquired 80% of the share capital of Flamingo Ltd for $600 000 on 1 January 2019. At this date, Birdwood Ltd also had a previously held interest in Flamingo Ltd (i.e. 20% of the issued shares that were acquired in the year ended 30 June 2016). The fair value of this investment on 1 January 2019 was $150 000. The Statement of Financial Position of Flamingo Ltd as at 1 January 2019 is as follows: Flamingo Ltd Statement of Financial Position as at 1 January 2019 Inventory $ 175 000 Current liabilities 153 500 Other current assets 264 000 Non-current liabilities 395 000 Plant and machinery $1 100 000 Share capital 500 000 less: accum. deprn 285 000 815 000 (50 000 shares x $10 each) Goodwill 14 500 Retained earnings 220 000 1 268 500 1 268 500 At 1 January 2019, all identifiable assets and liabilities of Flamingo Ltd were recorded at amounts equal to fair value, except as follows: Carrying amount Fair value Inventory $175 000 $166 000 Plant and machinery $815 000 $835 000 The plant and machinery is expected to have a further 10-year life. Of the inventories on hand at the acquisition date, 60% were sold by 30 June 2019 and the remaining 40% by 30 June 2020. The tax rate is 30%. Required: Show the acquisition analysis as at 1 January 2019 and prepare the pre-acquisition consolidation worksheet at 30 June 2020 (Note: this is 1.5 years after acquisition), using the Question 2(b) Consolidation Worksheet provided in the exam booklet for the preparation of the consolidated financial statements of Birdwood Ltd. Assume that goodwill is accounted for as a BCVR entry QUESTION 2 (b): CONSOLIDATION WORKSHEET| Birdwood Flamingo Ltd (5) Ltd ($) Adjustments Dr ($) Cr ($) Group Total $ Profit before tax 487 000 189 000 Income tax expense 127 000 82 000 Profit 360 000 107 000 Retained earnings (1/7/19) 442 000 255 000 Transfer from BCVR Retained earnings (30/6/20) 302 000 362 000 Business combination valuation reserve Share capital 1 000 000 500 000 Deferred tax liability Current liabilities 171 000 346 000 529 000 Non-current liabs. 305 000 2 677 000 1 338 000 Inventory 280 000 244 000 Other current assets 547 000 533 000 Deferred tax asset 21 500 750 000 Shares in Flamingo Ltd Plant & Machinery 1 800 000 850 000 Accum depreciation Goodwill (700 000) (325 000) 14 500 2 677 000 1 338 000