On1 July 2020, Arnold Ltd acquired 100% of the voting shares of Bernard Ltd (all 50,000 shares). As consideration, Arnold Ltd paid $7.60 in cash per share, in addition, Arnold also issued one of its own shares in exchange for each share in Bernard Ltd. On the acquisition date, Arnold Ltd's shares were trading at $5.80 per share. Arnold Ltd acquired the shares of Bernard Ltdcum dividend.At the time of the acquisition,Bernard Ltd had a dividend payable of $50,000 which had been declared but not yet paid.

On 1 July 2020, the net assets of Bernard Ltd were represented by:

Share Capital - 50,000 shares$320,000

General Reserve166,000

Retained Earnings70,000

$556,000

The due diligence process revealed that all of Bernard Ltd's assets and liabilities were stated at fair value on 1 July 2020, except the following:

(i)Land was undervalued by $50,000.

(ii)Inventory was undervalued by $10,000.

(iii)Bernard Ltd faced an ongoing lawsuit filed by a former client, seeking compensation of $200,000. It was estimated that there was a 10% chance that Bernard Ltd would lose the trial and be obliged to pay the compensation. The lawsuit had not been recorded by Bernard Ltd.

During the year ended30 June 2021, the following transaction(s) occurred:

(a)Bernard Ltd sold 20% of the undervalued inventory to an external party. The remaining 80% of the inventory remained on hand.

(b)The lawsuit remained ongoing, and the undervalued land was still on hand at the end of the year.

During the year ended30 June 2022, the following transactions occurred:

(c)Bernard Ltd sold the remaining 80% of the undervalued inventory to an external party.

(d)The lawsuit was settled for $10,000.

(e)The undervalued land still remained on hand by 30 June 2022.

There were no intra-group transactions since the date of the acquisition (apart from the payment of the dividend which was declared prior to the acquisition date). Assume that there are no other movements of pre-acquisition equity of Bernard Ltd other than those as detailed in the facts above. The corporate tax rate is 30%.

Required:

Part (A): Complete the acquisition analysis for the Arnold Ltd Group(4 marks).

Part (B): Provide the consolidation adjustment entries for the Arnold Ltd Group at1 July 2020(on the acquisition date)(16 marks).