QUESTION 5

On 1 July 2019, Dublin Ltd acquired 25% of the shares in Cork Ltd for $750,000 cash, which gave Dublin Ltd significant influence over Cork Ltd. At the acquisition date, the carrying amounts of the identifiable assets and liabilities of Cork Ltd were same as the fair values.

The following inter-entity transactions occurred between Dublin Ltd and Cork Ltd:

a. On 1 January 2020, Cork Ltd sold a machine costing $104, 000 to Dublin Ltd for $122, 000. Dublin Ltd applied a depreciation rate of 10% per annum on cost to the vehicle.

b. On 1 July 2019, Dublin Ltd sold inventories to Cork Ltd for $35 000. The original cost was $10,000. Cork Ltd sold 20% of this inventory externally by 30 June 2020.

c. On 1 June 2019, Cork Ltd sold inventories to Dublin Ltd at a profit of $5,000 before tax. On 30 June 2019, this inventory remained unsold. Dublin Ltd sold this entire inventory to external parties for $7,000 on 28 May 2020.

In the financial year ended 30 June 2020, Cork Ltd,

recorded a profit of $70,000 after tax

recognised a revaluation increment for of $30,000 after tax for Land in the Asset Revaluation Reserve account

Paid a dividend of $10,000 In September 2019

Declared a dividend of $17,000 in May 2020

Dublin Ltd applies AASB 128/IAS 28 in accounting for its investment in Cork Ltd. Dublin Ltd does not prepare consolidated financial statements. The tax rate is 30%.

Required: a reconciliation of profit after tax for the above inter-entity transactions. Show all your workings. (10 marks)

2. Prepare the journal entries in the records of Dublin Ltd in relation to its investment in Cork Ltd. for the year ended 30 June 2020. Journal narrations are not required. (10 marks)

QUESTION 2

On July 2020, Rabbit Ltd acquired all the issued shares (cum thy.) of Peter Ltd for 450,000.

At this date, all assets and liabilities were carried at amounts equal to their fair value except for inventory.

Peter Ltd had recorded inventory 5,000 however, the fair value was estimated to be $8,000.

70% of this Inventory was sold by 30 June 2021.

An extract of Peter Ltd, financial statements are as follows:

Peter Ltd Balance sheet (extract) as at 1 July 2020

Required,

Dividend Receivable 20,000

Inventory 5,000

Plant and equipment 60,000

Accumulated Depreciation $10,000

Goodwill 6,000

Dividend Payable(to be paid August 2020) 50,000

Share capital 300,000

Retained earnings 150,000

REQUIREMENT:

1. PREPARE ACQUISITION ANALYSIS 1ST JULY 2020 (8 MARKS)
2. PREPARE CONSOLIDATED WORKSHEET ENTRIES 30 JUNE 2021 (16 MARKS)