On 1 July 2017, London Ltd acquired all of the shares of Whale Ltd, on a cum-div. basis, for

$2,700,000. At this date, the equity and liability sections of Whale Ltd.'s statement of financial position showed the following balances:

Share capital

$ 1,150,000

General reserve

400,000

Retained earnings

920,000

Revaluation surplus

100,000

Dividend payable

25,000

At 1 July 2017, Whale Ltd.'s assets included $46,000 of recorded goodwill. The dividend payable at acquisition date was subsequently paid in August 2017.

At acquisition date, all the identifiable assets and liabilities of Whale Ltd were recorded at amounts equal to fair value except for the following:

Fair value Carrying amount

Land $450 000 $520 000

Inventory 49 000 55 000

Plant (cost $400 000) 320 000 360 000

The inventory on hand in Whale Ltd at 1 July 2017 was sold in November 2017. The plant was estimated to have a further 5-year life with zero residual value. On 1 January 2019, the plant was sold to Bruno Ltd for $230,000. On 30 June 2018, goodwill was impaired by $4 500. The company applies the partial goodwill method. Tax rate is 30%.

During the period 1 July 2017 to 30 June 2019, the following intragroup transactions have occurred between London Ltd and Whale Ltd:

(T1) On 1 October 2018, London Ltd provided a $500,000 loan to Whale Ltd. The interest rate on this loan is 10% p.a., and interest is paid each year on 30 March. At 30 June 2019, no principal repayments have been made on the loan.

(T2) In April 2018, London Ltd sold inventory to Whale Ltd for $1,300. The inventory had previously cost London Ltd $800. By 30 June 2018, 80% of this inventory had been sold to Scarf Ltd for $1,500. The remainder of the inventory was sold to Fluffy Jacket Ltd in August 2018 for $1,600.

(T3) On 3 June 2019, Whale Ltd sold inventory to London Ltd for $42,000. The transfer price included a mark-up of 20% on cost. At 30 June 2019, one-half of this inventory was still on hand.

(T4) On 1 March 2019, Whale Ltd sold equipment to London Ltd for $55 000, this asset having a carrying amount at the time of sale of $46,000. Whale Ltd had treated the asset as a depreciable non-current asset, being depreciated at 15% on cost, whereas London Ltd records the equipment as inventory. London Ltd sold this asset to Beanie Ltd on 15 June 2019 for $61,500.

(T5) On 1 January 2018, London Ltd sold machinery to Whale Ltd for $66,000. The machinery had a written down value at the time of sale of $45,000. For this type of machinery, both entities charge depreciation at a rate of 20% p.a. straight-line.

Required:

Q1 Show the acquisition analysis on 1 July 2017, i.e. Step 1 of the consolidation process.

Q2 Prepare the BCVR entries on 30 June 2019, i.e., Step 2 of the consolidation process. If BCVR entries are not necessary for a certain BCVR asset, please indicate it clearly and explain why BCVR entries are not necessary (You need to discuss more than simply saying "as it was sold in the previous year").

Q3 Prepare the pre-acquisition entries on 30 June 2019, i.e., Step 3 of the consolidation process.

Q4 Prepare the intragroup transaction adjustment entries on 30 June 2019, i.e., Step 4 of the consolidation process.

Q5 Now assume that the parent acquired 75% (rather than 100%) of the shares of the subsidiary and paid $2,000,000 (rather than $2,700,000). Solve the following two questions under this new assumption.

a.Provide the acquisition analysis on 1 July 2017, i.e., Step 1 of the consolidation process.

b.Suppose that the BCVR land is still on hand of the subsidiary on 30 June 2020. The following NCI journal entries are made for the calculation of the NCI share of equity on 30 June 2020. The amounts for each account are not provided for the sake of simplicity.

Share capitalDrXXX

General reserveDrXXX

Revaluation surplusDrXXX

RE (op)DrXXX

OPATDrXXX

BCVRDrXXX

NCICrXXX

Now, if the BCVR land is sold during the fiscal year ended on 30 June 2020 (rather than still on hand), what changes will need to be made to the NCI journal entries shown above? Explain the changes and provide reasons for them.

(4 + 13 + 7 + 19 + 18 = 61 marks)

Provide your solutions from here.