On 1 July 2020 Lion Ltd acquired 100% of the share capital (cum. div.) of Horse...

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On 1 July 2020 Lion Ltd acquired 100% of the share capital (cum. div.) of Horse Ltd for $480,000. At that date, the relevant balances in the records of Horse Ltd were: $ Share capital General reserve Retained earnings Dividend payable 297,600 24.000 86,400 9,600 At the date of acquisition all assets and liabilities of Horse Ltd were recorded in the accounting records at amounts equal to their fair values with the exception of the following assets: Land Equipment Carrying amount $ 38,400 21,120 Fair value $ 46,080 30,720 The land was sold on 1 March 2023 for $52,800. The cost of the Equipment was $38400 and had a further 4-year life as at the date of acquisition. Horse Ltd reported a contingent liability at 1 July 2020 in relation to claims by customers for damaged goods. Lion Ltd placed a fair value of $8,640 on these claims at acquisition date. This claim was subsequently settled on 1 December 2022 for $4,800. Additional information: a) On 1 July 2022, Horse Ltd held inventories that had been sold to it by Lion Ltd in the previous year for $19,200, at a mark-up of 25%. The inventory was sold to external parties by the 30 June 2023. b) On 15 December 2022, Lion Ltd purchased inventory from Horse Ltd for $17,280, recording a before-tax profit of $5,760. By 30 June 2023, Lion Ltd sold 2/3 of these to external entities for $14,400. c) On 1 January 2021, Horse Ltd sold an item of Machine to Lion Ltd for $30,720. The original cost of the Machine to Horse Ltd was $38,400 and had a carrying amount at the time of sale of $21,120. Machines of this class is depreciated at 25% p.a. d) All transfers from retained earnings to the general reserve by Horse Ltd were from post- acquisition earnings. f) On realisation of the business combination valuation reserve, a transfer is made to retained earnings on consolidation. g) The tax rate is 30%. The financial statements of the two companies on 30 June 2023 are as follows: Lion Ltd Horse Ltd $ Revenues Expenses Net profit before tax Income tax expense Net profit after tax Retained earnings 1 July 2022 Dividend paid Transfer to general reserve Retained earnings 30 June 2023 Share capital General reserve Loan payable to Horse Ltd Deferred tax liabilities Other liabilities TOTAL EQUITY AND LIABILITIES Cash Accounts receivable Inventory Deferred tax assets Loan receivable f22rom Lion Ltd Investment in Horse Ltd Non-current assets TOTAL ASSETS $ 796,800 (595,200) 201,600 (67,200) 134,400 144,000 278,400 (38,400) (9,600) 230,400 412,800 48,000 38,400 14,400 91,200 835,200 70,080 62,400 57,600 15,360 470,400 159,360 835,200 432,000 (316,800) 115,200 (38,400) 76,800 120,000 196,800 (19,200) (8,640) 168,960 297,600 46,080 3,840 24.960 541,440 144,000 45,120 10,560 38,400 303,360 541,440 Required: Prepare the acquisition analysis and consolidation journal entries for the Lion Ltd group for the year ended 30 June 2023. Round all numbers to the nearest whole dollar. On 1 July 2020 Lion Ltd acquired 100% of the share capital (cum. div.) of Horse Ltd for $480,000. At that date, the relevant balances in the records of Horse Ltd were: $ Share capital General reserve Retained earnings Dividend payable 297,600 24.000 86,400 9,600 At the date of acquisition all assets and liabilities of Horse Ltd were recorded in the accounting records at amounts equal to their fair values with the exception of the following assets: Land Equipment Carrying amount $ 38,400 21,120 Fair value $ 46,080 30,720 The land was sold on 1 March 2023 for $52,800. The cost of the Equipment was $38400 and had a further 4-year life as at the date of acquisition. Horse Ltd reported a contingent liability at 1 July 2020 in relation to claims by customers for damaged goods. Lion Ltd placed a fair value of $8,640 on these claims at acquisition date. This claim was subsequently settled on 1 December 2022 for $4,800. Additional information: a) On 1 July 2022, Horse Ltd held inventories that had been sold to it by Lion Ltd in the previous year for $19,200, at a mark-up of 25%. The inventory was sold to external parties by the 30 June 2023. b) On 15 December 2022, Lion Ltd purchased inventory from Horse Ltd for $17,280, recording a before-tax profit of $5,760. By 30 June 2023, Lion Ltd sold 2/3 of these to external entities for $14,400. c) On 1 January 2021, Horse Ltd sold an item of Machine to Lion Ltd for $30,720. The original cost of the Machine to Horse Ltd was $38,400 and had a carrying amount at the time of sale of $21,120. Machines of this class is depreciated at 25% p.a. d) All transfers from retained earnings to the general reserve by Horse Ltd were from post- acquisition earnings. f) On realisation of the business combination valuation reserve, a transfer is made to retained earnings on consolidation. g) The tax rate is 30%. The financial statements of the two companies on 30 June 2023 are as follows: Lion Ltd Horse Ltd $ Revenues Expenses Net profit before tax Income tax expense Net profit after tax Retained earnings 1 July 2022 Dividend paid Transfer to general reserve Retained earnings 30 June 2023 Share capital General reserve Loan payable to Horse Ltd Deferred tax liabilities Other liabilities TOTAL EQUITY AND LIABILITIES Cash Accounts receivable Inventory Deferred tax assets Loan receivable f22rom Lion Ltd Investment in Horse Ltd Non-current assets TOTAL ASSETS $ 796,800 (595,200) 201,600 (67,200) 134,400 144,000 278,400 (38,400) (9,600) 230,400 412,800 48,000 38,400 14,400 91,200 835,200 70,080 62,400 57,600 15,360 470,400 159,360 835,200 432,000 (316,800) 115,200 (38,400) 76,800 120,000 196,800 (19,200) (8,640) 168,960 297,600 46,080 3,840 24.960 541,440 144,000 45,120 10,560 38,400 303,360 541,440 Required: Prepare the acquisition analysis and consolidation journal entries for the Lion Ltd group for the year ended 30 June 2023. Round all numbers to the nearest whole dollar.

Answer rating: 100% (QA)

SOLUTION To prepare the acquisition analysis and consolidation journal entries for the Lion Ltd group for the year ended 30 June 2023 well follow the ... View the full answer