Farming Limited acquired a hundred percent of the share capital of Dairy Limited for a purchase consideration

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Question:

Farming Limited acquired a hundred percent of the share capital of Dairy Limited for a purchase consideration of $3,500,000. On the day of acquisition the shareholder equity of Dairy Limited consists of:

Contributed Capital: $1,900,000

Retained Earnings: $800,000

Revaluation reserve $740,000

All assets of Dairy Limited were fairly stated at acquisition date.

During the financial year ended 30^th June 2008, Dairy Limited sold inventory to Farming Limited at a selling price of $150,000. Dairy Limited had always sold goods to Farming Limited at a gross profit of 10% on cost. The inventory of Farming Limited as at 30^th June 2008 consists of items amounting to $121,000 that was purchased from Dairy Limited. Of the inventory Farming Limited had on hand at 1^st July 2007, $33,000 was purchased from Dairy Limited. Goodwill associated with the acquisition of Dairy Limited has impaired by $15,000 for the year ended 30^th June 2008. For previous years impairment of goodwill was $35,000.

Farming Limited remained the sole owner of Dairy Limited as at 30^th June 2008. Interim dividends paid by Dairy Limited for year ended 30^th June 2008 amounted to $50,000. On 30^th June 2008 the directors of Dairy Limited declared a final dividend of $60,000. The final dividend has been accounted for in the books of Farming Limited and Dairy Limited. Assume tax rate of 30 per cent.

Prepare the notional journal entries necessary to consolidation the group