On 1 January 20x1, P Ltd paid $400,000 to acquire 100% of S Ltd, when S Ltds share capital was $100,000 and retained earnings was $100,000.

On 1 January 20x1, P Ltd had freehold land carried in its books as Property, Plant, and Equipment (PPE) at a cost of $100,000 but that had a fair value of $200,000. On this date, S Ltd also had freehold land carried in its books as PPE at a cost of $100,000 but that had a fair value of $250,000. The companies and groups accounting policies are to carry PPE at cost. On 1 January 20x1, P Ltd and S Ltd each had a contingent liability relating to a lawsuit for which there is a 30% probability of paying damages of $100,000 and a 70% probability of no payment.

(a) Assume the land was not sold and the contingent liability was not settled during 20x1. What is the amount of (i) land and (ii) provision for litigation loss in the consolidated financial statements for year ended 31 December 20x1, assuming P Ltds and S Ltds land had a fair value of $400,000 and $300,000, respectively, as at 31 December 20x1?

(b) Now assume that in 20x1, both P Ltd and S Ltd sold their freehold land to external parties for $350,000 each, and both settled their contingent liability out-of-court by paying $40,000 each. Prepare the consolidation journal entries pertaining to the freehold land and the contingent liability for the 20x1 consolidation.