I provide just explain each step of Q2

Exercise 28.12

Undervalued assets, pre-acquisition reserves transfers

Maroubra Ltd acquired all the issued shares of Lameroo Ltd on 1 January 2023 for $50 000. At this date the equity of Lameroo Ltd consisted of the following.

Share capital	$	30000
General reserve		7 000
Retained earnings		5 000

All the identifiable assets and liabilities of Lameroo Ltd were recorded at amounts equal to their fair values at 1 January 2023 except for the following.

	Carrying amount				Fair value
Inventories	$	5000			$	7000
Plant (cost $20000)		10000				14000

Of the inventories on hand at 1 January 2023, 90% was sold by 30 June 2023. The remainder was sold by 30 June 2024. The plant was considered to have a further 2-year useful life with benefits to be received equally in each of those years. The tax rate is 30%.

Required

1. Prepare the acquisition analysis at 1 January 2023.

2. Prepare the consolidation worksheet entries for Maroubra Ltds group at 30 June 2023.

3. Prepare the consolidation worksheet entries for Maroubra Ltds group at 30 June 2024.

4. Prepare the consolidation worksheet entries for Maroubra Ltds group at 30 June 2025.

(LO3, LO4 and LO5)

1. Acquisition analysis at 1 January 2023:

Fair value of identifiable assets

and liabilities of Lameroo Ltd = ($30 000 + $7 000 + $5 000) (equity)

+ ($7 000 $5 000) x (1 30%) (BCVR inventories)

+ ($14 000 $10 000) x (1 30%) (BCVR plant)

= $46 200

Consideration transferred = $50 000

Goodwill = $3 800

2. Consolidation worksheet entries at 30 June 2023:

Business combination valuation entries:

The entries are affected by the following events that took place during the period from acquisition to 30 June 2023:

• the sale of 90% of the inventories during the current period ended 30 June 2023
• the depreciation of the plant during the current period ended 30 June 2023.

The BCVR entry for the inventory unsold during the current period will be the same as the BCVR entry for inventory at acquisition date, but only for the 10%.

- The entry relating to the 10% of the inventories still on hand at 30 June 2023 is as follows.

Inventories Dr 200

Deferred tax liability Cr 60

Business combination valuation reserve Cr 140

- The entry relating to the 90% of the inventories that has been sold by 30 June 2023 is as follows.

Cost of sales Dr 1 800

Income tax expense Cr 540

Transfer from BCVR Cr 1 260

Accumulated depreciation - plant Dr 10 000

Plant Cr 6 000

Deferred tax liability Cr 1 200

Business combination valuation reserve Cr 2 800

Depreciation expense Dr 1 000

Accumulated depreciation - plant Cr 1 000

(1/2 x $2000 p.a.)

Deferred tax liability Dr 300

Income tax expense Cr 300

(30% x $1000)

Goodwill Dr 3 800

Business combination valuation reserve Cr 3 800

Pre-acquisition entries:

The first pre-acquisition entry is the same as the one at 1 January 2023. The other pre-acquisition entry needs to reverse:

• the current period transfer from business combination valuation reserve due to the sale of 90% of the inventories.

Retained earnings (1/1/23) Dr 5 000

Share capital Dr 30 000

General reserve Dr 7 000

Business combination valuation reserve Dr 8 000

Shares in Lameroo Ltd Cr 50 000

Transfer from BCVR Dr 1 260

Business combination valuation reserve Cr 1 260