Accord Ltd has acquired all the issued shares of Decor Ltd for $300 on the 1 July, 2017. The balance sheets of both companies immediately after acquisition are as follows:

Accord Ltd Decor Ltd

Share capital $400 Share capital $200

RE 100 RE 50

Reserves 100 Reserves 50

600 300

Shares in Decors Ltd 300 --

Cash 300 Cash 300

600 300

REQUIRED:

1. Explain why the pre-acquisition entry is necessary in the preparing the consolidated financial statements? Using the example above, explain the journal entry line by line.
2. What events change the pre-acquisition entry after acquisition date?
3. 3. If Decor Ltd transferred $8 from pre-acquisition RE to reserves during the year ended 30 June, 2018 how would the entry need to change? Explain in detail, line by line, the journal entry/entries required.

All that must be done is answer question 3 by showing the appropriate journal entries that must be performed