Galway Ltd acquired all the issued shares of Dublin Ltd for $240 000 cash on 1 July 2019.

The following information is available at this acquisition date:

The equity of Dublin Ltd is provided below:

Share capital - $95 000

Retained earnings - $80 000

General reserve - $25 000

All the identifiable assets and liabilities of Dublin Ltd were recorded at fair value in the statement of financial position. The company income tax rate is 30%.

The following transactions and events occurred during the year ended 30 June 2020:

1. Goodwill: Goodwill related to the acquisition of Dublin Ltd was impaired by $5 000.

2.Dublin Ltd sold inventories to Galway Ltd for $25 000, which had originally cost Dublin Ltd $22 000. At 30 June 2020, 75% of these inventories were sold externally.

3. On 1 July 2018, Galway Ltd sold one piece of its existing equipment to Dublin Ltd for $120 000. Galway Ltd purchased the equipment for $160 000 on 1 July 2016 and depreciated it over the original useful life of 10 years at zero residual value. Dublin Ltd plans to depreciate the equipment over its remaining useful life at zero residual value.

4. Dividends: Dublin Ltd paid $18 000 interim dividends in September 2019, and Galway Ltd declared $26 000 dividends in May 2020 (to be paid in October 2020).

5.Galway Ltd charged Dublin Ltd $90 000 for service fees.At 30 June 2020, 90% of this amount was paid by Dublin Ltd.

Required:

Analyse the completed worksheet attached for the Galway Group. Using the information provided in the worksheet, prepare an evaluation report, detailing each omission and error. For each error:

1. List the accounts and amounts, which are incorrect for each consolidation adjustment.

2. Explain WHY the entry is incorrect. Include formulas where possible in your explanation.

3. Provide the correct entry that should have been in the worksheet and explain each account and amount for this entry.

4. Explain the overall effect each error or omission will have (in amount) on the Group financial statements if it is not corrected.

Galway Dublin Ref Adjustments Ref Ltd (S) Ltd (S) Dr ($) Cr ($) Sales revenue 180 000 131 000 2 25 000 Cost of sales (88 000) (58 000) 22 000 2 Gross profit 92 000 73 000 Dividend revenue 24 000 4 18 000 26 000 Service fee revenue 90 000 5 90 000 Proceeds from sale 148 000 3 120 000 of equipment Depreciation (12 000) (8 000) 1 000 3 Impairment loss - 1c 5 000 Goodwill Carrying amount of (40 000) 118 000 3 equipment sold Service fee expense 90 000) 90 000 5 Other expenses (32 000) (15 000) Profit before tax 162 000 68 000 Less: Income tax (48 600) (20 400) 3 300 2 100 2 expense Profit for the year 113 400 47 600 Retained earnings 72 000 80 000 1b 80 000 (1/7/19) Dividend paid (18 000) 18 000 4 Dividend declared (26,000) 26 000 4 Retained earnings 159 400 109 600 (30/6/20) Share capital 165 000 35 000 1b 95 000 General reserve 30 000 25 000 1b 25 000 BCVR 1b 45 000 45,000 1a Shareholders' 354 400 229 600 equity Liabilities Accounts payable 37 000 3 000 Other Payables 24 600 9 000 Dividend payable 26 000 4 26 000 Deferred Tax 50 000 11 000 Liability Total liabilities 137 600 23 000 Total liabilities & 492 000 252 600 EquityAssets Galway Dublin Ref Dr ($) Cr ($) Ref Ltd ($) Ltd ($) Cash 25 000 22 600 Accounts receivable 12 000 8 000 Dividend receivable 52 000 26 000 4 Other receivables 9 000 12 000 Inventories 45 000 22 000 3 000 2 Investment in Dublin 240 000 240 000 1b Ltd Land 52 000 84 000 Equipment 60 000 78 000 2 000 3 Acc'd depreciation (38 000) (26 000) 3 1 000 Buildings 55 000 62 000 Acc'd depreciation (20 000) (15 000) Goodwill 5 000 1a 45 000 Less: Acc'd imp't loss 5 000 1c - Goodwill Deferred tax asset -- 2 2 100 300 3 Total assets 492 000 252 600