Question 3 (30 marks)

On 1 August 2014, Erik Ltd acquired 10% of the shares in Finn Ltd for $8 000. Erik Ltd used the fair value method to measure this investment with movements in fair value being recognised in profit or loss. At 1 July 2016, the fair value of this investment was $15 400. The original investment in Finn Ltd was due to the fact that Finn Ltd was undertaking research into particular microbiological elements that could influence the profitability of Erik Ltd. With the continuing success of this research, Erik Ltd decided to acquire the remaining shares (cum div.) in Finn Ltd.

On 1 July 2016, Erik Ltd made an offer to buy the remaining shares in Finn Ltd for $151 000 cash. This offer was accepted by the shareholders of Finn Ltd. On 1 July 2016, immediately after the business combination, the statement of financial position of Finn Ltd was as follows:

	Eric Ltd	Finn Ltd
Share capital	$130,000	$90,000
General reserve	56,500	12,000
Retained earnings	93,500	36,000
Total equity	280,000	138,000
Dividend payable	25,000	12,600
Other liabilities	75,000	25,000
Total liabilities	100,000	37,600
Total equity and liabilities	380,000	175,600
Cash	11,000	20,600
Receivables	25,200	20,000
Other assets	10,000	8,000
Shares in Finn Ltd	153,800	0
Inventory	55,000	42,000
Plant and equipment	210,000	107,000
Accumulated depreciation	(85,000)	(22,000)
Total assets	380,000	175,600

On analysing the financial statements of Finn Ltd, Erik Ltd determined that all the assets and liabilities recorded by Finn Ltd were shown at amounts equal to their fair values except for:

	Carrying amount	Fair value
Plant and equipment (cost $46 000)	$35 000	$43 000
Inventory	42 000	46 000

The plant and equipment is expected to have a further 4-year life and is depreciated on a straight-line basis. The inventory was all sold by 30 June 2017.

Finn Ltd had expensed all the outlays on research and development. Erik Ltd placed a fair value of $12 000 on this asset. Finn Ltd also had reported a contingent liability at 30 June 2016 in relation to claims by customers for damaged goods. Erik Ltd placed a fair value of $3 000 on these claims. The research and development is amortised evenly over a 10-year period. The claims by customers were settled in May 2017 for $2 800.

The company tax rate is 30%.

Required

A. Prepare the consolidation worksheet entries of Erik Ltd at 1 July 2016, immediately after the business combination and complete the worksheet below.

B. Prepare the consolidation worksheet entries at 30 June 2017.