In the following question, the information regarding the transfer from general reserve to retained earnings should say transfer frompre-acquisitiongeneral reserve to pre-acquisition retained earnings.

On 1 July 20X1, Parent Ltd acquired 100% of the share capital of Subsidiary Ltd on a cum. div. basis for cash consideration of $750000.

On 1 July 20X1, Subsidiary Ltd's assets and liabilities included a dividend payable of $5900. The dividend was paid on 3 August 20X1.

On 1 July 20X1, the equity of Subsidiary Ltd consisted of:

Share capital

$660000

Retained earnings $46500

General reserve $30200

All identifiable assets and liabilities of Subsidiary Ltd were recorded at amounts equal to fair value at 1 July 20X1, except as follows:

CM FV

Inventory $5700 $7800

Equipment $42000 $54000

On 1 July 20X1, Subsidiary Ltd's balance sheet included $4500 goodwill.This goodwill was written off as a result of an impairment test conducted in June 20X4.

All the inventories acquired in the acquisition were sold by 30 June 20X2.

The equipment had an original cost of $92000 and accumulated depreciation of $50000. The equipment is expected to have a further useful life of 4 years and no residual value. The straight-line method of depreciation is used for all depreciable non-current assets.The equipment was sold on 30 June 20X4 for $8800.

Subsidiary Ltd. expensed all its outlays on research and development.Parent Ltd considered that an asset had been created by these expenditures with a fair value of $7800.This asset was to be amortized on a straight line basis over an expected useful life of 4 years with zero residual value.

Subsidiary Ltd disclosed a contingent liability at 30 June 20X1 in relation to claims by customers for damaged goods.Parent Ltd placed a fair value of $4300 on these claims.The claims were settled by customers in May 20X2 for $3600.

During the year ended on 30 June 20X3, Subsidiary Ltd transferred $9060 from general reserve to pre-acquisition retained earnings.

During the year ended on 30 June 20X4, Subsidiary Ltd issued a bonus share dividend of $2900 from pre-acquisition retained earnings.

Assume at tax rate of 30%.

REQUIRED:

(i) Prepare the acquisition analysis at 1 July 20X1.

(ii) Prepare the business combination valuation entries in the consolidation journal at 1 July 20X1.

Business Combination Valuation Entries for Inventory

Business Combination Valuation Entries for Equipment

Business Combination Valuation Entries for Research & Development asset

Business Combination Valuation Entries for Customer claims liability

Business Combination Valuation Entries for Goodwill

(iii) Prepare the pre-acquisition entries in the consolidation journal at 1 July 20X1.

(iv) Prepare the business combination valuation entries in the consolidation journal at 30 June 20X4.

Business Combination Valuation Entries for Inventory

Business Combination Valuation Entries for Equipment

Business Combination Valuation Entries for Research & Development asset

Business Combination Valuation Entries for Research & Development asset

Business Combination Valuation Entries for Goodwill

(v) Prepare the pre-acquisition entries in the consolidation journal at 30 June 20X4.