Link Ltd acquired 80% of the shares of Connect Ltd on 1 July 2012 for $115 000. At this date the equity of Connect Ltd consisted of:

Share capital (100 000 shares) General reserve Retained earnings

$ 80000 2 400 29 600

All the identifiable assets and liabilities of Connect Ltd were recorded at amounts equal to their fair values except for:

	Carrying amount	Fair value
Plant (cost $65 000)	$52 000	$56 000
Land	40 000	45 000
Inventory	25 000	28 000

The plant was expected to have a further useful life of 10 years. The land was sold on 1 January 2015. The inventory was all sold by 30 June 2013. Link Ltd uses the full goodwill method. The fair value of the non-controlling interest (NCI) at 1 July 2012 was $28 000. At 1 July 2012, Connect Ltd had unrecorded brands that had a fair value of $18 000. These had an indefinite life.

Additional information

Ø Connect Ltd had inventory on hand at 30 June 2014 that included inventory at cost of $8000 that had been sold to it by Link Ltd. This inventory had cost Link Ltd $6000. It was all sold by Connect Ltd by 30 June 2015.

Ø During the 2014-15 year, Connect Ltd sold inventory to Link Ltd for $48 000. At 30 June 2015, Link Ltd still had some of this inventory on hand. This inventory had been sold to it by Connect Ltd at a profit of $4000.

Ø On 1 January 2014, Connect Ltd sold plant to Link Ltd for $16 000. This had a carrying amount in Connect Ltd at time of sale of $12 000. Plant of this class is depreciated at 20% per annum.

Ø Management and consultation fees derived by Link Ltd are all from Connect Ltd and represent charges for administration $1760 and technical services for the manufacturing section $2240.

Ø All debentures issued by Connect Ltd are held by Link Ltd.

Ø Other components of equity relate to movements in the fair values of financial assets held by the entities. Gains and losses on these financial assets are recognised in other comprehensive income. The balance of the other components of equity account at 1 July 2014 was $8000 (Link Ltd) and $6400 (Connect Ltd).

Ø The tax rate is 30%

Ø Financial information at 30 June 2015 of Link Ltd and its subsidiary company, Connect Ltd, is shown below.

 

	Link Ltd	Connect Ltd
Sales revenue	$252 800	$176 000
Debenture interest	4 000	—
Management and consultation fees	4 000	—
Dividends	9 600	—
Total revenue	270 400	176 000
Cost of sales	(104 000)	(68 000)
Manufacturing expenses	(82 000)	(53 000)
Depreciation on plant	(12 000)	(12 000)
Administrative expenses	(12 000)	(6 400)
Financial expenses	(8 800)	(4 000)
Other expenses	(11 200)	(9 600)
Total expenses	230 000	153 000
Profit from trading	40 400	23 000
Gains on sale of non-current assets	10 000	5 000
Profit before income tax	50 400	28 000
Income tax expense	(20 000)	(13 600)
Profit for the year	30 400	14 400
Retained earnings at 1 July 2014	40 000	36 000
	70 400	50 400
Dividend paid	(8 000)	(8 000)
Dividend declared	(8 000)	(4 000)
	(16 000)	(12 000)
Retained earnings at 30 June 2015	54 400	38 400
Share capital	240 000	80 000
General reserve	37 600	8 000
Other components of equity	10 400	8 000
Debentures	160 000	80 000
Current tax liability	20 000	13 600
Dividend payable	8 000	4 000
Deferred tax liabilities	12 000	5 600
Other current liabilities	60 000	9 600
Total equity and liabilities	$602 400	$247 200
Shares in Connect Ltd	$115 000	—
Debentures in Connect Ltd	80 000	—
Plant	96 000	$81 600
Less: Accumulated depreciation	(52 000)	(44 000)
Intangibles	60 800	44 000
Less: Accumulated amortisation	(32 000)	(20 000)
Deferred tax assets	58 600	24 000
Financial assets	40 000	48 000
Land	120 000	45 600
Inventory	72 000	44 000
Receivables	44 000	24 000
Total assets	$602 400	$247 200

Required

1. Prepare:

(i) The acquisition analysis; and

(ii) The business combination valuation reserve and pre-acquisition entries for the year ended 30 June 2015

2. Explain how the calculations used in 1 (i) and 1 (ii) above meet the requirements of AASB 3 Business Combinations

3. Calculate NCI share of equity at:

(i) 1 July 2012;

(ii) 1 July 2012 – 30 June 2014; and

(iii) 1 July 2014 – 30 July 2015

4. For the year ended 30 June 2015, prepare:

(i) The consolidation journal entries for intra-group transactions

(ii) The consolidation worksheet given all consolidation journal entries as required by 1-4

(iii) Consolidated statement of profit and loss and other comprehensive income

(iv) Consolidated statement of changes in equity; and

(v) Consolidated statement of financial position