Question 6 Accounting for Consolidation

The accountant of Park Ltd needs to prepare consolidated financial statements for Park Ltdat the end of financial year. Following information was available on 30 June 2020:

1)Park Ltd acquired 100 per cent interest in Sun Ltd for $1,450,000 on 1 July 2014. All assets and liabilities were fairly valued on the acquisition date. At the date of acquisition, the equity of Sun Ltd included:

Share capital

$670,000

Reserve

$190,000

Retained earnings

$320,000

The balance of the Investment account was $990,000 as shown in the Statement of Financial Position of Park Ltd on 30 June 2020.

2)The directors of Park Ltd believed that goodwill acquired was impaired by 10 per cent for the year ended 30 June 2020.

3)On 17 February 2020, Sun Ltd paid $68,000 in management fees to Park Ltd.

4)On 3 March, Park Ltd sold inventory to Sun Ltd at a value of $740,000.

5)The above inventory had a cost of $670,000 for Park Ltd to produce. All inventories remained unsold in Sun Ltd on 30 June 2019. Park Ltd and Sun Ltd adopt the perpetual inventory system for inventory accounting. The income tax rate is 30%.

Required: (Narrations are required in this question)

a)Determine the amount of goodwill acquired.

b)Prepare relevant consolidation journal entries on 30 June 2019.

On consolidation, we need to eliminate parent entity's investment against pre- acquisition equity. This is only required in the first year following acquisition.