QUESTION 1: On 1 July 2021, Parent Ltd acquired all the share capital of Subsidiary Ltd for $218,500.

At this date, Subsidiary Ltd.’s equity comprised:

Carrying amount

Share capital – 100 000

shares $100 000

General reserve 50 000

Retained earnings 36 000

All identifiable assets and liabilities of Subsidiary Ltd were recorded at fair value as at 1 July 2021 except for the following

: Carrying amount Fair value

Inventory $ 27 000 $ 35 000

Land 75 000 90 000

Equipment (cost $100,000) 50 000 60 000

Additional information and intra group transactions

a. The equipment is expected to have a further 10-year useful life.

b. The pre-acquisition inventory was sold by 30 June 2022. Assume a perpetual inventory system.

c. On 30 June 2022, the directors of Subsidiary Ltd transferred $25,000 from their general reserve to retained earnings.

d. The tax rate is 30%.

e. The financial and tax year is 30 June.

Intra group transactions

There are four possible variations for intra group sales of inventory

. Assume each of the following transactions is independent of the others and all internal sales between Parent and Subsidiary took place in FY2022:

1. Subsidiary sold inventory to Parent for $15 000. The inventory had cost Subsidiary $10 000. The inventory is still held by Parent at 30 June 2022.

2. Subsidiary sold inventory to Parent for $15 000. The inventory had cost Subsidiary $10 000. During the year, Parent sold $10 000 of the inventory for $20 000. The remaining inventory is still held by Parent at 30 June 2022.

3. Subsidiary sold inventory to Parent for $15 000. The inventory had cost Subsidiary $10 000. The inventory was sold by Parent for $25 000 prior to 30 June 2022.

4. Subsidiary sold inventory to Parent for $15 000. The inventory had cost Subsidiary $10 000. The inventory was sold by Parent for $25 000 on 1 July 2022.

REQUIRED:

3. Prepare the consolidation entries for Parent Ltd and Subsidiary Ltd at 1 July 2021 and 30 June 2022 clearly labelling each step in the following order. No consolidation worksheets are required.

a. acquisition analysis,

b. business combination valuation entries,

c. pre-acquisition entries,

d. intra group elimination entries.