1. On 30 June 2017 John Ltd acquired 65% of the share capital of Smith Ltd for $133,250. At that time, Smith Ltd had equity account balances of: Share Capital $105,000 and Retained Earnings $45,000. No revaluations of assets or liabilities are required on acquisition. John Ltd uses the fair value method of recording the value of NCI.

The following information relates to the 2019/20 financial year:

2. During the year Smith Ltd made sales of $15,000 to John Ltd.
3. Closing inventory balances included the following unrealised profit amounts from intra- group sales: $900 in John Ltd (purchased from Smith Ltd).
4. On 30 June 2020 Smith Ltd sold some plant to John Ltd. A taxable gain on sale was calculated to be $6,000. The accumulated depreciation balance at that date was

$13,000. John Ltd will begin depreciating the plant on 1 July 2020.

5. The goodwill on consolidation of Smith Ltd was considered impaired by $2,000 for the year, in addition to the $3,500 impairment already recorded in prior years.
6. Smith Ltd declared and paid a dividend of $35,000.
7. Non-controlling interests to be recognized at fair value.

Additional Information:

• At 1 July 2019 Smith Ltd had equity account balances of: Share Capital $105,000 and Retained Earnings $78,000.
• Net profit after tax reported by Smith Ltd for 2019/20 was $16,830.
• Income tax rate is 30%.

REQUIRED:

Record all necessary consolidation journal entries at 30 June 2020, including the detailed calculation of the NCI balance at that date. Narrations are required. (Number your journal entries as they relate to the point numbers for each “event” as given in the information above. Where more than one journal entry is needed for an event to be completely accounted for add the letters 1a,1b,1c,… etc to them as necessary)

Acquisition analysis:
	Smith Ltd	John Ltd (65%)	NCI (35%)
Fair value of consideration transferred
NCI at fair value
FVINA assumed:
Share capital
Retained earnings
Goodwill on acquisition date

Journal Entries:

Answer rating: 100% (QA)

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