QUESTION 3 (36 MARKS) The following are the balance sheets of Ukraine Limited, Poland Limited and Russia Limited, as at the 31 December 2019. The three companies are major players in the automotive industry. Max Limited acquired 75% of the shares in Poland Limited on January 1 2018 when the reserve balances were as follows: General reserves: $24,000 and retained earnings $60 000. The acquisition of Poland Limited consisted of a deferred cash payment of $300,000 and a share exchange of 2 shares in Ukraine Limited for every 5 shares acquired in Poland Limited. The market price for a Ukraine Limited share at that date was $4.50. The transaction has not been recorded on the books. The deferred cash payment was payable on 1 January 2022 and the relevant cost of capital is 12% On 1 July 2019 Ukraine Limited acquired 30,000 shares in Russia Limited for cash at a price of $2.70 per share. For the year ended 31 December 2019 Russia Limited reported a profit of $64,000 (assume profit accrued evenly during the year). This transaction was recorded on the books. Balance Sheet as at 31 December 2019 Ukraine Ltd Poland Ltd S Russia Ltd S Non-Current Assets Land 1,200,000 300,000 170,000 Equipment 660,000 Less Depreciation 24,000 636,000 Motor Vehicles 250,000 100,000 10,000 200 000 70,000 90,000 6.000 64,000 120,000 Less Depreciation 50.000 200,000 2,036 000 40.000 160.000 30.000 90,000 550 000 324,000 Investments Russia Ltd 81,000 Current Assets Inventory 145,000 Accounts receivable 120,000 25,000 40,000 45,000 8,000 Prepayments 12,000 7,000 2,000 Bank & cash 90,000 448,000 40,000 112.000 13.000 68,000 2.484.000 662 000 392.00 EQUITY & LIABILITES $1 Ordinary shares Reserves 900,000 200,000 100,000 General reserves 170,000 30,000 34,000 Retained earnings 120,000 24,000 36,000 Non-Current Liabilities 4% Debentures 976,000 362,000 200,000 Current Liabilities Trade Payables 145,000 8,000 Taxation 173,000 38.000 15,000 7,000 318,000 2.484,000 46,000 662.000 22.000 392.00