On 1 July 2018, Jasbra Ltd acquired 80% of the shares of Sandan Ltd on an ex-div basis for $305,600. At this date, all the identifiable assets and liabilities of Sandan Ltd were recorded at amounts equal to fair value except for:

	Carrying amount	Fair value
Inventory	$120,000	$130,000
Machinery (cost $200,000)	$160,000	$165,000

At 30 June 2018, Sandan Ltd had recorded a dividend payment of $10,000. The inventory on hand on 1 July 2018 was all sold by 30 December 2018. The machinery had a further 5-year life, but was sold on 1 April 2021. At the acquisition date, Sandan Ltd reported a contingent liability of $15,000 that Jasbra Ltd considered to have a fair value of $7000. This liability was settled in June 2019 for $10,000. At the acquisition date, Sandan Ltd had not recorded an asset relating to equipment design as the asset was still in the research phase. Jasbra 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 2020, the asset met the requirements of IAS 38 Intangible Assets and subsequent expenditure by Sandan Ltd on the asset was capitalised.

Jasbra Ltd uses the full goodwill method. At 1 July 2018, the fair value of the non-controlling interest was $75,000.

Additional information:

1. On 1 July 2019, Sandon Ltd sold an item of plant to Jasbra Ltd at a profit after tax of $4000. Jasbra Ltd depreciates this class of plant at a rate of 10% p.a. on cost while Sandan Ltd applies a rate of 20%p.a. on cost.
2. On 30 June 2020, Jasbra Ltd had on hand some items of inventory purchased from Sandan Ltd in June 2019 at a profit before tax of $500. These were all sold by 30 June 2021.
3. During the 2021-2021 period Jasbra Ltd sold $12,000 inventory to Sandan Ltd at a mark-up of 20% on cost. $3000 of this inventory remains unsold by 30 June 2021.
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 has analyzed the impairment indicators on an annual basis and conducted an impairment test on the subsidiary cash-generating unit in the 2019-20 year, which resulted in the writing down of goodwill in the records of the subsidiary by $4000. There have been no other business combinations involving these entities since 1 July 2018.
6. The tax rate is 30%
7. Shareholder approval is not required in relation to dividends.
8. On 30 June 2021 the trial balances of Jasbra Ltd and Sandan Ltd were as follows:

Debit balances	Jasbra Ltd	Sandan Ltd
Shares in Sandan Ltd	305,600	-----
Inventory	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 1/7/20	45,000	16,000
Transfers from other reserves	------	2,000
Sales	200,000	140,000
Other revenue	40,000	25,000
Gains/losses on the 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 amortization – equipment design	----	4,000
Accumulated impairment losses - goodwill	----	16,000
Accumulated depreciation - plant	212,000	110,000
	1,595,700	800,000

1. Extracts from the statement of changes in equity for Sandan Ltd were as follows:

	2018-2019	2019-2020	2020-2021
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 2018

Required: Non-controlling interests:

Prepare the acquisition analysis in relation to the acquisition to determine the gain on bargain purchase or goodwill. 

Prepare business combination journal entries, pre-acquisition entries, NCI share of equity, and intra-group transactions in the records of Jasbra Ltd. as of 30 June 2021. 

Answer rating: 100% (QA)

a Acquisition analysis Gain on bargain purchase Goodwill Carrying amount of identifiable assets and liabilities 305600 Adjustments Inventory 10000 Mac... View the full answer