QUESTION 1 CONSOLIDATION (30 Marks)

1. On 30 June 2020 River Ltd acquired 70% shares in Tributary Ltd for $90,000. The statements of financial position of both companies at that date (but prior to acquisition) were as follows:

	River Ltd ($)	Tributary Ltd ($)
Cash	125,000	1,000
Accounts receivable	30,000	25,000
Inventories	50,000	18,000
Property, plant and equipment	275,000	155,500
Goodwill	20,000	0
Financial assets	60,000	22,500
	560,000	222,000
Accounts payable	65,000	80,000
Loan payable	0	40,000
Share capital - $1 share	400,000	82,000
Retained earnings	95,000	20,000
	560,000	222,000

The notes to Tributary Ltds financial statements reported a contingent liability relating to a loan guarantee. Although a present obligation existed, Tributary Ltd did not recognise a liability because of the difficulty of measuring the ultimate amount to be paid.

River Ltd assessed the fair values of the recorded identifiable assets of Tributary Ltd as:

Cash	$1,000
Accounts receivable	21,000
Inventories	16,000
Property, plant and equipment	180,000
Financial assets	$25,000

Tributary Ltd had also been undertaking research into new manufacturing equipment and had expensed a total of $15,000 research costs. River Ltd assessed that the fair value of the in-process research was $6,000. All liabilities were recorded at fair value and the contingent liability was assessed to have a fair value of $2,500. The tax rate is 28%.

Required:

1. Prepare the journal entry in the books of River Ltd to record the acquisition. (2 marks)

Answer: Acquisition journal entry

2. Calculate the fair value of net identifiable assets acquired, non-controlling interests, and the goodwill/gain on bargain purchase in this acquisition. (5 marks)

Answer: Net identifiable assets, non-controlling interest and goodwill/bargain purchase gain
Net identifiable assets acquired	=
	=
Non-controlling interest	=
Goodwill		=
		=
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