On1 July 201? Salah Ltd acquired 100% of the share capital [cumdiv. } of Robertson Ltd for $440, 000. At that date the relevant balances In the records of Robertson Ltd were: 8 Share capital 300,000 General reserve 15,000 Retained earnings T0,000 Divider'd payable 6,000 At the date of acquisition all assets and liabilities of Robertson Ltd were recorded in the accounting records at amounts equal to their fair values with the exception of the following assets: Carrying amount Fair value 3 $ Inventory 11,000 16,000 Equipment 39,000 55,000 Land 50,000 60,000 All inventory on hand at acquisition date was sold by 30 June 2018. Robertson Ltd revalued the lard to fair value immediately after the acquisition in its accounting records. The cost of the equipment was $52,000 ar'd had a further five [5} year life as at the date of acquisition. Robertson Ltd disclosed a contingent liability in relation to a court case, which could potentially result in the con'pany paying damages to a contractor. Salah Ltd calculated the fair value of this liability to be $14, 000 at acquisition date. On 1 April 2020 Salah Ltd reassessed the fair value of the liability to be $6, 000 as the chances of winning them case had improved, no amount has been paid. A ddr'ticnal mfcnnaticn: a} During the year ending 30 June 2019, Robertson Ltd sold inventory to Salah Ltd for $18, 000. The cost of inventory to Robertson Ltd was $11,000. 70% of the inventory was sold by Salah Ltd to external parties by 30 June 2019. The balance of the inventory was sold to external entities in Noventier 2019 for $9,000. b} During the year ending 30 June 2020, Robertson Ltd purchased inventory from alah Ltd for $21, 000, with Salah Ltd recording a before-tax prot of $8, 000. By 30 June 2020, Robertson sold a quarter of this Inventory to external entities. The original cost oi the equipment to Robertson Ltd was $52,000 and had a car'rying amount at the time of sale of $31,000. The equipment is depreciated at 20% pa. straightline. d} All transfers from retained earnings to the general reserve by W Ltd ar'd Robertson Ltd were from postacquisition earnings. e} On gem of the business contination valuation reserve, a transfer is made to retained earnings on consolidation. 1} The tax rate is 30%. The financial statements of the two companies at 30 June 2020 are as follows: Salah Robertson $ $ Revenues 840 000 520 000 Expenses (630 000) (400 000) Net profit before tax 210 000 120 000 Income tax expense (72 000) (43 000) Net profit after tax 138 000 77 000 Retained earnings 1 July 2019 190 000 140 000 328 000 217 000 Dividend declared (65 000) (22 000) Transfer to general reserve (18 000) (14 000) Retained earnings 30 June 2020 245 000 181 000 Share capital 610 000 300 000 General reserve 51 000 62 000 Asset revaluation reserve 12 000 7 000 Accounts payable 43 000 15 000 Advance from Salah Ltd 75 000 Other liabilities 36 000 31 000 TOTAL EQUITY AND LIABILITIES 997 000 671 000 Cash 180 000 160 000 Accounts receivable 32 000 58 000 Prepayment 26 000 29 000 Inventory 99 000 100 000 Advance to Robertson Ltd 75 000 Investment in Robertson Ltd 434 000 Non-current assets 151 000 324 000 TOTAL ASSETS 997 000 671 000
