Topic 3: Consolidation: Non-controlling interests On 1 July 2016, Peaceful Ltd acquired 80% of the shares of Serene Ltd on an ex div basis for $305,600. All the identifiable assets and liabilities of Serene Ltd were recorded at amounts equal to their fair values except for: Carrying amount Fair value $ $ Inventories 120,000 130,000 Machinery (cost $200,000) 160,000 165,000 At 30 June 2016, Serene Ltd had recorded a dividend payable of $10,000. The inventory on hand at 1 July 2016 was all sold by 30 November 2016. The machinery had a further 5-year life, but was sold on 1 April 2019. At acquisition date, Serene Ltd reported a contingent liability of $15,000 that Peaceful Ltd considered to have a fair value of $7,000. This liability was settled in June 2017 for $10,000. At acquisition date, Serene Ltd had not recorded an asset relating to equipment design as the asset was still in the research phase. Peaceful Ltd placed a fair value on the asset of $12,000, reflecting expected benefits existing at acquisition date. The asset was considered to have a further 10-year life. On 1 January 2018, the asset met the requirements of AASB 138 Intangible Assets and subsequent expenditure by Serene Ltd on the asset was capitalised. Peaceful Ltd uses the full goodwill method. At 1 July 2016, the fair value of the non-controlling interest was $75,000. On 30 June 2019 the trial balances of Peaceful Ltd and Serene Ltd were as follows Peaceful Ltd Serene Ltd Debit balances $ $ Shares in Serene Ltd 305,600 Inventories 180,000 60,000 Financial assets 229,000 215,000 Other current assets 10,000 2,000 Deferred tax assets 15,800 8,000 Plant 452,100 303,000 Land 144,200 42,000 Equipment design - 18,000 Goodwill 20,000 22,000 Cost of sales 120,000 70,000 Other expenses 50,000 10,000 Income tax expense 35,000 40,000 Dividend paid 14,000 6,000 Dividend declared 20,000 4,000 1,595,700 800,000 Credit balances Share capital 800,000 330,000 Other components of equity 100,000 80,000 Other reserves 50,000 1,000 Retained earnings (1/7/18) 45,000 16,000 Transfer from other reserves - 2,000 Sales 200,000 140,000 Other revenue 40,000 25,000 Gains/losses on sale of non-current assets 10,000 5,000 Debentures 70,000 20,000 Deferred tax liability 20,000 12,000 Other current liabilities 38,700 35,000 Dividend payable 10,000 4,000 Accumulated amortisation equipment design - 4,000 Accumulated impairment losses goodwill - 16,000 Accumulated depreciation - plant 212,000 110,000 1,595,700 800,000 Additional information 1. On 1 July 2017, Serene Ltd sold an item of plant to Peaceful Ltd at a profit before tax of $4,000. Peaceful Ltd depreciates this class of plant at a rate of 10% p.a. on cost while Serene Ltd applies a rate of 20% p.a. on cost. 2. At 30 June 2018, Peaceful Ltd had on hand some items of inventory purchased from Serene Ltd in June 2018 at a profit before tax of $500. These were all sold by 30 June 2019. 3. During the financial year ending 30 June 2019, Peaceful Ltd recorded a sales of inventory to Serene Ltd at $12,000, after adding a mark-up of 20% on cost. $3,000 of this inventory remains unsold by 30 June 2019. 4. The other components of equity relate to financial assets. These assets are measured at fair value with movements in fair value being recognised in other comprehensive income. 5. The parent and the subsidiary are considered to be separate cash generating units. Management have analysed the impairment indicators on an annual basis and conducted an impairment test on the subsidiary cash generating unit in the financial year ending 30 June 2018, which resulted in the writing down of goodwill in the records of the subsidiary by $4,000. There have been no other business combinations involving these entities since 1 July 2016. 6. The tax rate is 30%. 7. Extracts from the statement of changes in equity for Serene Ltd were as follows: Financial year ending 30 June 2017 30 June 2018 30 June 2019 $ $ $ Retained earnings (opening balance) 20,000 19,000 16,000 Profit for the year 20,000 20,000 50,000 Dividends paid (3,000) (6,000) (6,000) Dividends declared (15,000) (17,000) (4,000) Transfers to/from other reserves* (3,000) - 2,000 Retained earnings (closing balance) 19,000 16,000 58,000 Other reserves (opening balance) 30,000 33,000 33,000 Transfers to/from retained earnings* 3,000 - (2,000) Bonus issue* - - (30,000) Other reserves (closing balance) 33,000 33,000 1,000 Other components of equity (opening balance) 10,000 42,000 72,000 Movements in fair value 32,000 30,000 8,000 Other components of equity (closing balance) 42,000 72,000 80,000 Share capital (opening balance) 300,000 300,000 300,000 Bonus issue* - - 30,000 Share capital (closing balance) 300,000 300,000 330,000 *These items were from equity earned prior to 1 July 2016. Required: 1. Prepare an acquisition analysis. 2. Prepare the consolidation worksheet entries for the year ended 30 June 2019. Note: you are not required to prepare the consolidation worksheet and the consolidated financial statements.