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Question 3: Topic 3 and 4 - Consolidated financial statements, method, acquisition, business combination valuation and intra-group transactions (35 marks) Blue Ltd purchased 100% of the shares of Red Lid on 1 July 2020 for $50 000. At that date the equity of the two entities was as follows: Blue Ltd Red Ltd Asset revaluation surplus 25,000 4,000 Retained earnings 14,500 2,800 Share capital 50,000 40,000 At 1 July 2020, all the identifiable assets and liabilities of Red Ltd were recorded at fair value except for the following: Carrying amount Fair value Inventory 3,000 3,500 Plant and equipment (cost $80,000) 60,000 61,000Additional information: A. Blue Ltd records dividend receivable as revenue when dividends are declared. B. The beginning inventory of Red Ltd at 1 July 2021 included goods which cost Red Ltd $1,000. Red Ltd purchased this inventory from Blue Ltd at a mark-up of one third on cost. The inventory was sold to external entities during the year ended 30 June 2022 C. Inventory sold from Blue Ltd to Red Ltd, at a mark-up of 10% on cost, amounted to $2,800. These items were sold to external entities during the year ended 30 June 2022. D. The ending inventory of Blue Ltd included goods which cost Blue Led $2,200. Blue Led purchased these inventory from Red Ltd at a mark-up of 10% on cost. E. On 31 December 2021, Red Ltd sold Blue Led office furniture for $1,500. This furniture originally cost Red Ltd $1,500 and was written down to $1,250 just before the intragroup sale. Blue Ltd depreciates furniture at the rate of 10% per year on cost. F. Red Ltd paid $20,000 during the period ended 30 June 2022 and $40,000 during the period ended 30 June 2021 as management fees for services provided by Blue Ltd. G. On 1 January 2022, Red Ltd issues 2,000 debentures at the nominal value of $20 with an interest rate of 8% p.a., payable half-yearly on 30 June and 31 December each year. Debentures are to be redeemed after 3 years. Blue Ltd takes 100% of the debentures issued. H. The income tax rate is 30%. I. The asset revaluation surplus relates to land. The following movements occurred in this account: Blue Ltd Red Ltd 1 July 2020 to 30 June 2021 1,500 (250) 1 July 2021 to 30 June 2022 1,000 250Required: 1. Determine the gain on bargain purchase or goodwill as at acquisition date. (3 marks) 2. Prepare the consolidation journal entries immediately after acquisition on 1 July 2020. (5 marks) 3. Prepare the consolidation journal entries as at 30 June 2022. (14 marks) 4. Prepare the consolidation worksheet for the preparation of the consolidated financial statements as at 30 June 2022. (7 marks) 5. Prepare the Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2022. (6 marks)All of the inventory was sold by December 2020. The plant and equipment had a further 5-year useful life. Any valuation adjustments are made on consolidation. Financial information for Blue Lid and Red Ltd for the period ended 30 June 2022 is shown below: Blue Ltd Red Ltd Sales revenue 39,000 50,000 Cost of sales 30,000 15,000 Gross Profit 9,000 35,000 Dividend revenue 2,200 800 Other income 20,000 1,600 Gain on sale of furniture 250 Total income 31,200 37,650 Other expenses 7.000 22.500 Profit before income tax 24,200 15,150 Income tax expense 1,500 1,100 Profit for the period 22,700 14,050 Retained earnings (1/7/21) 7,250 1,400 Retained earnings (1/7/21) + profit 29,950 15,450 Interim dividend paid (2,000) (1,000) Final dividend declared (4,000) (1,200). Total dividends (6,000) (2,200) Retained earnings (30/6/22) 23,950 13,250 O 9 DOX ENG 4:09 PM 7/05/2021