Part B Business combinations and Consolidation: wholly owned entities

X Ltd acquired all the issued shares (ex dividend) of Y Ltd on 1 July 2017 for $24,600. At this date the equity of Y Ltd consisted of the following.

Share Capital	$13,000
General Reserve	5,000
Retained Earnings	4,050

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

	Carrying amount	Fair value
Plant (cost $23,000	$20,000	$21,000
Land	10,000	12,000
Inventories	3,000	3,800

The plant was considered to have a further 5-year life. The plant was sold for $15,500 on 1 January 2019. The land was sold on 1 February 2018 for $15,000. The inventories were all sold by 30 June 2018. Also, at acquisition date Y Ltd had recorded a dividend payable of $700 and goodwill (net of accumulated impairment losses of $1,300) of $500. Y Ltd had not recorded some internally generated brands that X Ltd considered to have a fair value of $1,200. The brand was considered to have an indefinite life. Also not recorded by Y Ltd was a contingent liability relating to a current court case in which Y Ltd was involved and a supplier was seeking compensation. X Ltd placed a fair value of $1,500 on this liability. This court case was settled in May 2019 at which time Y Ltd was required to pay damages of $1,600.

In February 2018, Y Ltd transferred $2,000 from the general reserve on hand at 1 July 2017 to retained earnings. A further $1,500 was transferred in February 2019.

Both companies have an equity account entitled Other components of equity that recognise certain gains and losses from financial assets. At 1 July 2018, the balances of these accounts were $3,000 for X Ltd and $1,500 for Y Ltd.

The financial statements of the two companies at 30 June 2019 contained the following information.

	X Limited	Y limited
Revenues	13,000	6,400
Expenses	(7,000)	(4,200)
Trading profit	6,000	2,200
Gains (losses) on sale of non-current assets	3,000	800
Profit before tax	9,000	3,000
Income tax expense	(2,000)	(500)
Profit for the period	7,000	2,500
Retained Earnings (1/7/18)	33,300	5,500
Transfer from General reserve	3,000	1,500
	43,300	9,500
Dividend paid	(2,000)	0
Retained earnings (30/6/19)	41,300	9,500
Share capital	15,000	13,000
General reserve	1,000	2,000
Other component of Equity	2,500	1,800
Total Equity	59,800	26,300
Accounts payable	4,000	1,000
Deferred tax liability	1,800	1,000
Other non-current liabilities	24,800	23,000
Total liabilities	30,600	25,000
Total Equity and liabilities	90,400	51,300
Plant	43,000	38,800
Accumulated Depreciation- Plant	(18,200)	(22,000)
Land	15,000	20,000
Brands	8,000	0
Shares in Y limited	24,600	0
Financial Assets	11,000	10,500
Cash	1,000	500
Inventories	4,000	3,000
Goodwill	2,000	1,800
Accumulated Impairment Losses	0	(1,300)
Total Assets	90,400	51,300

Required

1. Prepare the acquisition analysis at 1 July 2017. (5 marks)

2. Prepare the consolidation worksheet entries for X Ltds group at 30 June 2019.

(12 marks)

3. Prepare the consolidated worksheet for X Ltds group at 30 June 2019.