This question consists of 4 parts (Parts A, B, C, and D). All parts must be attempted.

On 1 July 2020, Margot Ltd acquired 75% of the voting shares of Cynthia Ltd (7,500 shares of the total 10,000 shares on issue). As consideration, Margot Ltd paid $10 in cash per share; in addition, Margot also issued four of its own shares in exchange for every share in Cynthia Ltd. On the acquisition date, Margot Ltds shares were trading at $28.50 per share.

On the acquisition date, the fair value of the remaining 25% voting shares of Cynthia Ltd representing the Non-Controlling Interest (NCI) was $335,000.

On 1 July 2020, the net assets of Cynthia Ltd were represented by:

Share Capital 10,000 shares $480,000

General Reserve 250,000

Retained Earnings 60,000

$790,000

The due diligence process revealed that all of Cynthia Ltds assets and liabilities were stated at fair value on the acquisition date, except the following:

(i) Land was undervalued by $100,000.

(ii) Machinery was overvalued by $50,000. The machinery was recorded at cost of $100,000 with accumulated depreciation of $20,000. The fair value of the machine was $30,000. Cynthia Ltd depreciates the machine over 5 years with no residual value.

(iii) Cynthia Ltd had provided warranty to customers. If claimed, the warranty would cost Cynthia Ltd $100,000. There was an estimated likelihood of 70% that the warranty would be claimed, and the fair value of the warranty was estimated to be $70,000. The warranty was not recorded by Cynthia Ltd.

During the year ended 30 June 2021, the following transactions occurred:

(a) Cynthia Ltd sold the undervalued land to an external party.

(b) The machinery was still on hand at the end of the year.

(c) The claim of warranty was settled at a cost of $70,000

(d) Cynthia Ltd recorded a profit (after tax) of $140,000.

(e) On 1 January 2021, Cynthia Ltd paid an interim dividend of $20,000.

On 30 June 2021, the financial records provided by Cynthia Ltd showed the following:

Share Capital 10,000 shares $480,000

General Reserve 250,000

Retained Earnings 180,000

$910,000

The corporate tax rate is 30%.

Required:

Part (A): Complete the acquisition analysis for the Margot Ltd Group using the Full Goodwill Method (8 marks).

Part (B): Provide the consolidation adjustment entries for the Margot Ltd Group at 1 July 2020 (i.e. the acquisition date) (17 marks).

Part (C): Provide the consolidation adjustment entries for the Margot Ltd Group at 30 June 2021 (11 marks).

Part (D): Calculate the value of Non-Controlling Interest (NCI) as at 30 June 2021 (4 marks).

Show all calculations.

Since no consolidation worksheet is provided, when making adjustments to the relevant accounts, you can assume that each account that you need to adjust exists in the worksheet.

Formatting requirements: In all journal entries, you must specify whether the entry is a debit or credit entry by including Dr or Cr before the account name. Credit entries must also be indented. Journal entries which do not follow these requirements will be awarded a mark of zero. Below are examples of correctly formatted journal entries:

Dr Cash 1000

Cr Cash 1000