On 1 July 2019, Gilberts Ltd acquired all the issued shares (cum div.) of Potoroo Ltd for $50

000. At this date the equity of Potoroo Ltd consisted of:

At this date, Potoroo Ltd had recorded a dividend payable of $7500 which was paid in August 2019. All the identifiable assets and liabilities of Potoroo Ltd were recorded at amounts equal to fair values except for inventory for which the fair value was $1000 greater than carrying amount. Only 10% of the inventory on hand at 1 July 2019 remained unsold by 30 June 2020. The tax rate is 30%.

During the 2019-20 period, the following transactions occurred.

(a)Gilberts Ltd sold inventory to Potoroo Ltd for $30 000 at a profit before tax of $6000. At 30 June 2020, inventory which was sold to Potoroo Ltd for $12 500 at a profit before tax of $2500 was still on hand in the records of Potoroo Ltd.

(b)On 1 January 2020, Gilberts Ltd sold machinery to Potoroo Ltd at a gain of $5000. The machinery was considered to have a further 5-year life.

(c)During the period Potoroo Ltd rented a warehouse from Gilberts Ltd, paying $1250 in rent to Gilberts Ltd.

(d)During the period Gilberts Ltd recorded gains from revaluation of land, which is measured using the fair value method. These gains increased the asset revaluation surplus by $2000 to give a balance of

$14 000 at 30 June 2020.

(e)In June 2020, an impairment test was conducted on Potoroo Ltd and resulted in the recognition of impairment losses on goodwill of $8000 (recognised in other expenses)

The following financial information was provided by the companies at 30 June 2020:

Gilberts Ltd Potoroo Ltd

Sales revenue $ 62500 $ 59000

Dividend revenue 2500 -

Other income 2500 5000

Gains on sale of non-current assets 2500 5000

Total income 70000 69000

Cost of sales (52500) (45000)

Other expenses (7500) (2500)

Total expenses (60000) (47500)

Profit before income tax 10000 21500

Income tax expenses (3375) (4875)

Profit for the year 6625 16625

Retained earnings (1/7/19) 15000 7500

21625 24125

Dividend paid (6250) (2500)

Retained earnings (30/6/20) 15375 21625

Required

(a)Calculate acquisition analysis

(b)Prepare consolidation journal entries

(c)Prepare consolidation worksheet

(d)Prepare the consolidated statement of profit or loss and other comprehensive income and the consolidated statement of changes in equity for Gilberts Ltd at 30 June 2020.

(e)Discuss the concept of realisation using the intragroup transactions in this question to illustrate

your answer.