Alice Ltd acquired all the issued shares of Springs Ltd for $521 760 cash on 1 July 2019. At this date, the information below was provided: Springs Ltd's equity comprised of Share Capital, Retained earnings and General Reserve with the following account balances:

Share Capital $161 700 Retained Earnings 151 200 General Reserve 72 000

Springs Ltd had recorded Goodwill of $5 760 (see Goodwill account in Consolidation Worksheet in Answer Booklet). Al the identifiable assets and liabilities of Springs Ltd were recorded at fair value equal to their carrying amounts except Buildings that were considered to have a further 5-year useful life.

Carrying amount ($) Fair value ($) Buildings (Cost $352 800) 175 200 199 200

Other information included: 1) Goodwill: Goodwill relating to the acquisition of Springs Ltd was impaired by $8 640 during the year ended 30 June 2020.2) Inventories: On 1 April 2020, Springs Ltd sold some inventories to Alice Ltd for $226 800. These inventories had originally cost Springs Ltd $189 000. At 30 June 2020, 50% of these inventories had been sold by Alice Ltd externally. Both companies used the perpetual method to account for inventory transactions. 3) Plant: On 1 July 2019, Alice Ltd sold an item of plant to Springs Ltd for $126 000. At this time, the carrying amount of the plant was $96 000. Springs Ltd depreciated the plant at 20% per annum on cost. 4) Dividends: Dividends of $16 320 were paid in May 2020. 5) The company income tax rate is 30%.

Part A

Problem Solving Practical(40 Marks) a) Prepare the acquisition analysis at 1 July 2019. Show all workings.(4 marks) b) Prepare the consolidation worksheet entries at 1 July 2019. Journal narrations are required. Prepare your journal format based on the template below.(6 marks)

Date Details Debit ($) Credit ($)

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c) Complete the consolidation worksheet for the group at 30 June 2020. Prepare your consolidation worksheet using the template provided below.(24 marks)

d) Prepare Consolidated Statement of Financial Performance for the group at 30 June 2020.(6 marks)

Alice Ltd Group

Consolidation Worksheet at 30 June 2020

Alice Ltd

Springs Ltd

Ref Adjustments Ref Group ($) Dr ($) Cr ($) Sales revenue 1 843 200 950 400Cost of sales (1 464 960) (795 840)Gross profit 378 240 154 560Proceeds from sale of Plant 126 000 -Dividend revenue 16 320 -Interest revenue - 5 760Depreciation - BuildingDepreciation - Plant (53 760) (31 200)Carrying amount of Plant sold (100 800) -Impairment loss - Goodwill - -Interest expense (32 640) (12 480)Profit before tax 333 360 116 640Income tax expense (72 240) (31 200)

Profit after tax 261 120 85 440Retained earnings (1/7/19) 269 760 151 200Dividend paid (24 960) (16 320)Dividend declared (50 400) -Retained earnings (30/6/20) 455 520 220 320Share capital 288 000 161 760General reserve 96 000 72 000BCVR - -

Shareholders' equity 839 520 454 080LiabilitiesAccounts payable 220 800 48 960

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Dividend payable 50 400 -Long-term loan 782 880 60 960Deferred tax liabilities 32 640 -Total liabilities 1 086 720 109 920Total Liabilities & Equity 1 926 240 564 000AssetsCash 75 840 36 000Accounts receivable 25 920 12 480Inventories 255 360 158 400Deferred tax assets - -Land 400 800 89 760Plant 306 240 162 240Acc'd Dep'n - Plant(84 480) (75 840)Buildings 540 000 352 800Acc'd Dep'n - Buildings (115 200) (177 600)Goodwill - 5 760Acc'd Imp losses Goodwill - -Investment in Springs Ltd 521 760 -Total assets 1 926 240 564 000

Problem Solving Discussion(40 Marks)

Using the case scenario above and your responses to Part (1):

a) In Transaction No. 2 Inventories, assuming Alice Ltd sold the remaining inventory in the year ended 30 June 2021. Discuss the tax effects of this transaction on the group for the years ended 30 June 2020 and 30 June 2021.(15 Marks)

b) In Transaction No. 2 Inventories, assuming Alice Ltd sold all the inventories bought from Springs Ltd on 1 April 2020 by 30 June 2020. Discuss the tax effects of this transaction on the group for the years ended 30 June 2020 and 30 June 2021.(5 Marks)

c) In Transaction No. 2 Inventories, assuming Alice Ltd classifies the inventory as a noncurrent asset and depreciates this asset on a straight-line basis for five years. Discuss the tax effects on the group for the years ended 30 June 2020 and 30 June 2021.