On 1 July 2017, Archer Ltd acquired 70% of the share capital of Levrich Ltd for $660,000. At this date, the financial statements of Levrich Ltd included the following items:

	$
Retained Earnings	300,000
Share Capital	400,000
General Reserve	50,000

At 1 July 2017 all of the identifiable net assets of Levrich Ltd were recorded at fair value except for the following assets:

	Carrying amount	Fair value
	$	$
Inventory	100,000	120,000
Machinery (cost $400,000)	300,000	350,000

Adjustments for differences between carrying amounts and fair values of assets at acquisition date are made on consolidation. During the year ended 30 June 2018, all inventory on hand at 1 July 2017 was sold. Machinery had a further ten-year life, with benefits expected to be received evenly over that time. Machinery of Levrich Ltd at 1 July 2017 is still being used by Levrich Ltd at 30 June 2020.

Additional information:

• The value of the inventory of Levrich Ltd at 1 July 2019 included an intragroup profit of $40,000 as a result of purchases from Archer Ltd. It was all sold by Levrich Ltd during the year ended 30 June 2020.

• The partial goodwill method is used by Archer Ltd.

• The balance of the general reserve of Levrich Ltd at 1 July 2019 was $80,000.

• The income tax rate is 30%.

• Extracts from the financial statements of Archer Ltd and Levrich Ltd at 30 June 2020 were as follows:

	Archer Ltd	Levrich Ltd
	$	$
Profit for the period	90,000	100,000
Retained earnings (1/7/19)	225,000	550,000
	315,000	650,000
Interim dividend paid	(45,000)	-
Dividend declared	(30,000)	(50,000)
	(75,000)	(50,000)
Retained earnings (30/6/20)	240,000	600,000
Share capital	900,000	400,000
General reserve	225,000	80,000
Dividend payable	30,000	50,000

Required:

1. Prepare the consolidation worksheet general journal entries necessary for the preparation of the consolidated financial statements of Archer Ltd at 30 June 2020. (Note: The worksheet and consolidated financial statements do not have to be prepared).

2. If Archer Ltd purchased 49% of the shares in Leverich Ltd on 1 July 2017, how would your answer to part (a) change? Briefly explain the relevant considerations and adjustments in words (no calculations required).

Answer rating: 100% (QA)

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