Topic 1: Consolidation: Principles and accounting requirements

On 1 July 2017, Positive Ltd acquired all the issued shares of Smart Ltd for $123,000. At the date of acquisition, the shareholders equity of Smart Ltd was as follows.

	$
Share capital	65,000
General reserve	25,000
Retained earnings	20,250
Total	110,250

All the assets and liabilities of Smart Ltd were recorded at amounts equal to their fair values at the acquisition date, except for some assets detailed below.

	Carrying amount	Fair value
	$	$
Plant (cost $115,000)	100,000	105,000
Land	50,000	60,000
Inventories	15,000	19,000

Additional information:

1. The inventory was all sold by 30 June 2018.
2. The land was sold on 1 February 2018 for $75,000.
3. The plant was considered to have a further 5-year life. The plant was sold for $77,500 on 1 January 2019.
4. At acquisition date Smart Ltd had recorded a dividend payable of $3,500 and goodwill of $2,500 (net of accumulated impairment losses of $6,500).
5. Smart Ltd had not recorded some internally generated brands that Positive Ltd considered to have a fair value of $6,000. The brand was considered to have an indefinite life.
6. An item not recorded by Smart Ltd was a contingent liability relating to a current court case in which Smart Ltd was involved and a supplier was seeking compensation. Positive Ltd placed a fair value of $7,500 on this liability. This court case was settled in May 2019 at which time Smart Ltd was required to pay damages of $8,000.
7. In February 2018, Smart Ltd transferred $10,000 from the general reserve on hand at 1 July 2017 to retained earnings. A further $7,500 was transferred in February 2019.
8. Both companies have an equity account entitled Other components of equity to which certain gains and losses from financial assets are taken. At 1 July 2018, the balances of these accounts were $15,000 (Positive Ltd) and $7,500 (Smart Ltd).

The financial statements of the two companies at 30 June 2019 contained the following information:

	Positive Ltd		Smart Ltd
	$		$
Revenue	45,000		32,000
Expenses	17,000		21,000
Trading profit	28,000		11,000
Gains (losses) on sale of non-current assets	4,000		4,000
Profit before tax	32,000		15,000
Income tax expense	6,000		2,500
Profit for the period	26,000		12,500
Retained earnings 1 July 2018	51,500		27,500
Transfer from general reserve	15,000		7,500
	92,500		47,500
Dividend paid	10,000		0
Retained earnings 30 June 2019	82,500		47,500
Share capital	75,000		65,000
General reserve	5,000		10,000
Other components of equity	12,500		9,000
Total equity	175,000		131,500
Accounts payable	20,000		5,000
Deferred tax liability	9,000		5,000
Other non-current liabilities	125,000		115,000
Total liabilities	154,000		125,000
Total equity and liabilities	329,000		256,500
Plant	157,000		233,000
Accumulated depreciation plant	(91,000)		(110,000)
Land	10,000		10,000
Brands	40,000		0
Shares in Smart Ltd	123,000		0
Financial assets	55,000		103,500
Cash	5,000		2,500
Inventories	20,000		15,000
Goodwill	10,000		9,000
Accumulated impairment losses	0		(6,500)
Total assets	329,000		256,500

Required:

1. Prepare the acquisition analysis at 1 July 2017.
2. Prepare the consolidation worksheet entries for Positive Ltds group at 30 June 2019.
3. Prepare the consolidation worksheet for Positive Ltds group at 30 June 2019.

Note: you are not required to prepare the consolidation financial statements.