Blinky Ltd acquired its shares in Bill Ltd at 1 January 2020 for $40,000 on acum div.basis. At that date, Bill Ltd recorded share capital of $20 000. Bill Ltd had declared prior to the acquisition a dividend of $3,500 that was paid in March 2020.

Financial information for Blinky Ltd and its 100% owned subsidiary, Bill Ltd, for the year ended 31 December 2020 is provided below:

Blinky Ltd Bill Ltd

Sales revenue $50,000 $47,200

Dividend revenue 2,000 0

Gain on sale of

property, plant

and equipment 2,000 4,000

Other income 2,000 4,000

Total income 56,000 55,200

Cost of sales 42,000 36,000

Other expenses 6,000 2,000

Total expenses 48,000 38,000

Profit before 8000 17200

income tax

Income tax expense 2,700 3,900

Profit for the period 5,300 13,300

Retained earnings

(1/1/20) 12,000 6,000

17,300 19,300

Dividend declared 5,000 2,000

Retained earnings

(31/12/20) 12,300 17,300

Additional information:

a.The income tax rate is 30%.

b.At 1 January 2020, all identifiable assets and liabilities of Bill Ltd were recorded at fair value except for inventories, for which the carrying amount was $950 less than fair value. Some of these inventories have been a little slow to sell, and 10% are still on hand at 31 December 2020. Inventories on hand in Bill Ltd at 31 December 2020 also includes items acquired from Blinky Ltd during the period ended 31 December 2020. These were sold for $8,000 at cost plus 25% by Blinky Ltd.

c.40% of the goodwill on acquisition of Bill Ltd by Blinky Ltd was written off as the result of an impairment test on 31 December 2020.

d.During March 2020, Blinky Ltd provided some management services to Bill Ltd at a fee of $500 paid by 31 December 2020.

e.On 1 July 2020, Bill Ltd sold machinery to Blinky Ltd at a gain of $6,000. This machinery had a carrying amount to Bill Ltd of $40,000, and was considered by Blinky Ltd to have a 4-year life.

f.By 31 December 2020, the financial assets acquired by Blinky Ltd and Bill Ltd from external entities increased in value by $3,000 and $2,200 respectively with gains and losses being recognised in other comprehensive income.

g.On 1 January 2020, Blinky Ltd sold an item they classified as plant to Bill Ltd who classified it as inventory. The sales price was $500 which included a profit to Blinky Ltd of $200. Bill Ltd sold this to another entity on 31 March 2020 for $700.

Required:

1.Determine the gain on bargain purchase or goodwill as at acquisition date.(3 marks)

2.Prepare the consolidation journal entries for Blinky Ltd immediately after acquisition on 1 January 2020.(5 marks)

3.Prepare the consolidation journal entries for Blinky Ltd as at 31 December 2020.

(14 marks)

4.Prepare the consolidation worksheet for the preparation of the consolidated financial statements by Blinky Ltd as at 31 December 2020.(7 marks)

5.Prepare the Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2020.(6 marks)