QUESTION 1 142 marks] Hanover Limited is pastry production company located in Lucca, Hanover. The company has ownership in Manchester Limited and Clarendon Limited. Manchester Limited is involved in the manufacture of paper bags and Clarendon Limited is a retail distribution company. Hanover Limited acquired 55% of the shares in Manchester Limited on January 1, 2019 when the retained earnings balance was $60,000. The purchase consideration for Manchester Limited consisted of a deferred cash payment of $2,100,000 and a share exchange of 3 shares in Hanover Limited for every 5 shares acquired in Manchester Limited. The deferred cash payment was to be made on 1 January 2022 and the relevant cost of capital is 9%. The market price for a Hanover Limited share at the date of acquisition was $3.80. The transactions related to the acquisition of Manchester Limited have not yet been recorded in the books of Hanover Limited. On 1 April 2021 Hanover Limited acquired 600,000 shares in Clarendon Limited for cash at a price of $3 per share. At the date of acquisition, the retained earnings of Clarendon totaled $245,000. Statement of Financial Position as at 31 December 2021 Hanover Limited Manchester Limited Clarendon Limited $000 5000 5000 5000 5000 5000 Non-Current Assets(NBV) Property 9,800 3,800 2,300 Machinery 2,400 940 700 Motor Vehicles 1750, 1,090 400 13,950 5,830 3,400 Investments Clarendon Limited 1800 Current Assets Inventory 1275 250 145 Accounts receivable 980 340 100 Bank 160 4.215 45 635 30 275 18.165 6.465 3.675 EQUITY & LIABILITES $1 Ordinary shares Retained earnings Non-Current Liabilities 4% Debentures Current Liabilities Trade Payables Taxation 10,790 3,000 2.000 1,500 700 450 4,700 1,590 900 950 700 220 225 475 105 1,175 1.175. 325 18.165 6.465 3.675 QUESTION 1 (continued) Additional Information: 1. 2. 3. 4. 5. 6. 7. At the date of the acquisition the directors of Hanover Limited obtained an assessment of the fair market value of property owned by Manchester Limited. The assessors valued the property at $3,400,000, however no adjustments were made. At December 31 2021, goodwill was impaired by $1,200,000. During the year Manchester Limited sold goods to Hanover Limited for $660,000 after charging a mark-up of 60%. At 31 December 2021 only 70% of the goods were sold. On July 1, 2021, Hanover Limited transferred machinery to Manchester Limited at a price of $200,000, the machinery was new and cost Hanover Limited $170,000. Manchester Limited depreciated the motor vehicle at 25% of the cost to them (on a monthly basis). Non-Controlling Interest in Hanover Limited should be valued at $3.40 per share at acquisition date. At year end the investment in Clarendon Limited is determined to be impaired by 20% of cost price. Manchester Limited paid $150,000 to clear its account payable to Hanover Limited, Hanover Limited did not receive the payment until February 2,2022. Required: 1. Prepare the Consolidated Balance Sheet for the Hanover Limited Group as at 31 December 2021. (38 marks) 2. Explain briefly the benefits of consolidated accounts to the users of financial statements. (4 marks)