Stella Ltd produces mobile accessories for the Australian market. To expand its business Stella Ltd decides to acquire one of its most successful distributors, Rika Ltd.

The acquisition consisted of Stella Ltd acquiring 80% of Rika’ shares for a consideration of $400,000 on 1 July 2018.

The statement of financial position of Rika Ltd as at 1 July 2018 is:

Statement of financial position as at 1 July 2018
Assets Cash	15,000	Liabilities Loans	300,000
Accounts Receivable	45,000	Accounts Payable	20,000
Inventory	90,000	320,000
Buildings	405,000	Shareholders’ Equity Share Capital	300,000
Plant	150,000	Retained Earnings	85,000
385,000
Total	705,000	Total	705,000

Additional information:

• All the assets and liabilities of Rika Ltd, as recorded above, are fairly valued at the date of the acquisition.
• Rika, at the date of acquisition, had also an internally generated brand name valued at $30,000 and contingent liabilities, as recorded in the notes, for $50,000.

1. Explain whether Rika is a subsidiary of Stella Ltd. Justify your answer. (2 mark)

2. Determine if any goodwill or gain on bargain purchase arises from the business combination. Show all workings necessary to derive your answer. (4 marks)

QUESTION 

Provide a example of of Statement of Profits and Loss and other comprehensive income.