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QUESTION 2 (10 marks) Lanark Ltd is stationary retail business in the Melbourne market. Recently, Lanark Ltd expand the market to office equipment market and

QUESTION 2 (10 marks)

Lanark Ltd is stationary retail business in the Melbourne market. Recently, Lanark Ltd expand the market to office equipment market and decided to take over Shibuca Ltd, one of medium size business specialize in renting office equipment.

The acquisition consisted in Lanark Ltd acquiring the 100% of Shibuca Ltd shares for a consideration of $600,000 on 1 July 2021.

At that date of the statement of financial position of Shibuca Ltd is as follows:

Statement of financial position 1 July 2021

Cash

15,000

Loans

300,000

Account receivables

45,000

Account payables

20,000

Inventory

90,000

Buildings

405,000

Share Capital

300,000

Plant

150,000

Retained Earnings

85,000

Moreover, you have this additional information on the company:

  • Shibuca Ltd has internally generated its brand name Shibuca whose fair value is estimated being $50,000;
  • All the assets and liabilities of Shibuca Ltd are fairly valued at the date of the acquisition.

REQUIRED

  1. Explain whether there are non-controlling interests on Shibuca Ltd.

  1. Identify if any goodwill arises from the acquisition and calculate (if any) its amount.

  1. Considering that no intra-group transactions occurred between Lanark Ltd and Shibuca Ltd in the financial year, provide the journal entries for the elimination of the investment in the subsidiary to prepare the consolidated financial statement on 30 June 2022.

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