Case study: (50 marks) -PART A

On 1 July 2021, Tom Ltd acquired all the shares of Hanks Ltd on an ex-div. basis. Tom Ltd paid $850,000 cash and issued 120,000 shares which had a fair value of $5.00 on acquisition date. On this date, Hanks Ltd included the following balances:

Share capital	$200,000
General reserve	14,000
Retained earnings	45,000
Dividend Payable ex div basis	10,000
Goodwill	9,000

At acquisition date, all the identifiable assets and liabilities of Hanks Ltd were recorded at

amounts equal to fair value except for:

	Carrying amount	Fair value	Useful life at acquisition date
Land	1,400,000	2,200,000	Not applicable
Machinery (cost $800,000)	700,000	850,000	5 years
Inventories	15,000	25,000	100% sold externally during the year ended 30/6/2022

Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed. Dividends were paid and declared by Hanks Ltd during the current financial year. See worksheet for these details.

(Continued on next page)

Additional information

1. On 1 July 2022, Tom Ltd includes opening inventory worth $85 000, sold from Hanks Ltd in June 2022 (prior year). The inventory had previously cost Tom Ltd $81 000. This inventory was 100% sold to external parties by 30 June 2023.
2. On 1 January 2023, Hanks Ltd sold an item of plant with a carrying amount of $19 000 to Tom Ltd for $26 000. Tom Ltd treated this item as inventory. The item was still on hand at the end of the year.
3. On 1 March 2023, Tom Ltd acquired $58 000 inventory from Hanks Ltd. This inventory originally cost $45 000. 10% of this inventory has been sold to external parties for $168,000.
4. On June 2022 Tom Ltd gave Hanks Ltd a loan of $890 000. Hanks Ltd has not made any repayments on the loan. Interest is charged at 18%per annum on the loan and the last interest payment was made on 31 March 2023. Both companies have recorded accruals at year end.

The corporate tax rate is 30%.

Round all amounts to 2 decimal places.

Required:

1. Prepare the acquisition analysis as at 1 July 2021 for the Tom Ltd Group. (6 marks)
2. Prepare the consolidation worksheet for the Tom Ltd Group as at 30 June2023, using the attached template. (25 marks)
3. Prepare consolidated Balance sheet using account format, for the Tom Ltd Group as at 30 June 2023. Please ensure all sub-headings and sub-totals are included. (10 marks)
4. Explain the tax effect you have used to increase the machinery to fair value. In your answer, explain the reason why the group will pay more tax in the future, due to this revaluation. Reference your answer to the appropriate accounting standards (9 marks)