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Sounds Ltd purchased a 100% interest in L&S Ltd on the 1 July 2008 (2 financial years earlier) at a cost of $3 500 000. At acquisition the capital and reserves of L&S Ltd were:

Share Capital
$ 1 750 000
General Reserve
$ 200 000
Retained Earnings
$ 1 200 000


At acquisition the fair values of the following assets were considered to be greater than L&S Ltd?s carrying amounts:


Fair Value
Carrying amount
Land
$ 1 600 000
$ 1 400 000
Plant
$ 1 450 000
$ 1 400 000
Inventory
$ 622 500
$ 612 500


Additional information:
At acquisition the re-valued building had a further useful life of 10 years.
The inventory acquired was on-sold by Sounds Ltd in February 2010.
On the 1/1/2009 L&S Ltd sold an item of plant, with a carrying value of $122 500 (cost $175 000, accumulated depreciation $52,500) to Sounds Ltd for a profit of
$35 000. This plant was assessed as having a remaining useful life of 7 years.
On the 1/4/2011 Sound Ltd made a $15 000 loan to L&S Ltd at an interest rate of 7.5% p.a. To be repaid with interest on 30/9/2011
The opening inventory of Sounds Ltd as at 1/7/2010 included inventory acquired from L&S Ltd for $34,500 that had cost L&S Ltd $28 750.
Also during the current year:
L&S Ltd sold $81 000 of inventory to Sounds Ltd. All this inventory remained unsold as at 30 June 2011
Sounds Ltd sold L&S Ltd inventory for $15 000. The inventory had originally cost Sounds Ltd $12 000. Half this inventory was still unsold by L&S Ltd as at 30 June 2011.
Sounds Ltd management considered that Goodwill needed to be impaired by a further $3 200. Goodwill had previously been impaired by $8 000.
L&S Ltd paid Sounds Ltd a management fee of $62 000
The income tax rate is 30%.

The accounts for Sounds Ltd & L&S Ltd at 30 June 2011 are as follows:


Sounds Ltd
L&S Ltd
$000
$000
Reconciliation of opening and closing retained earnings
Sales revenue
4 000
1 000
Less: cost of goods sold
-1 700
-400
Other revenue
245
87.5
Less: other expenses
-210
-105
Profit
2 335
582.5
Tax expense
636
250
Profit after tax
1 699
332.5
Retained earnings 30 Jun 10
3 500
1 900
5 199
2 232.5
Dividends paid
700
140
Retained earnings 30 Jun 11
4 499
2 092.5








Statement of financial position

Shareholders? Equity
Retained earnings 30 Jun 11
4 499
2 092.5
Share capital
14 000
1 750
Current liabilities
Accounts payable
350
197.5
Non-current liabilities
Loans
2 100
875
Total Liabilities
2 450
1 072.5
Total Shareholder equity and Liabilities
20 949
4 915
Current assets
Cash
805
477.5
Accounts receivable
509
512.5
Inventory
2 100
1 050
Non-current assets
Land
5 040
1 400
Plant
8 645
1 300
Investment in Jackson Ltd
3 500
Deferred tax asset
350
175
Total Assets
20 949
4 915



Required:

A) Complete the acquisition analysis and BCVR entries as at 1 July 2008
B) Prepare the consolidation entries as at 30 June 2011
C) Prepare the consolidation worksheet as at 30 June 2011

No consolidated financials are required for this question.

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Question: 3
Ans: Acquisition analysis
Net fair value of identifiable assets and liabilities of L&S ltd.
$000 $000
Equity = (1750+200+1200) 3150
+200(1-30%) Land 140
+50(1-30%) Plant 35
+10(1-30%) Inventory 7
Total 3332
Consideration transferred 3500
Goodwill realised = (3500 – 3332) 168

BCVR Entries as at 1 July 2008 $000 $000
Dr Cr
Land 200
Deferred tax liability 60
Business combination valuation reserve 140

Plant 50
Deferred tax liability 15
Business combination valuation reserve 35

Inventory 10
Deferred tax liability 3
Business combination valuation reserve 7

The inventory acquired was on - sold by Sounds ltd in February 2010
$000 $000
Dr Cr
Inventory 10
Deferred tax liability 3
Business combination valuation reserve 7

Cost of sales 10
Inventory 10

Deferred tax liability 3
Income tax expense 3

Business combination valuation reserve 7
Retained earning 7

On the 1/1/2009 L&S Ltd sold an item of plant, with a carrying value of $122 500 (cost $175 000, accumulated depreciation $52,500) to Sounds Ltd for a profit of $35 000. This plant was assessed as having a remaining useful life of 7 years.


but I could not do the consolidated journal entry and consolidated worksheet can anyone help with that or just advise me how you can do it