question 1 60 marks tien ltd acquired 80 of chai ltd on 1 july 2010 at the acquisiti 573805

Question 1 [60 marks]Tien Ltd acquired 80% of Chai Ltd on 1 July 2010. At the acquisition date, the equityof Chai Ltd was:$Share capital (100,000 shares) 100,000General reserve 3,000Retained earnings 37,000All the identifiable net assets of Chai Ltd were recorded at fair value at the date ofacquisition, except for the following assets:Carrying amount Fair value$ $Plant (cost $75,000) 50,000 55,000Land 30,000 38,000The plant has a further 10 year life, with benefits expected to be received evenly overthat period. The land was sold on 1 February 2011 for $40,000. Any valuation reservein relation to the land is transferred to retained earnings on consolidation.Three years after acquisition, the financial information at 30 June 2013 of the twocompanies appears as follows:Tien Ltd Chai Ltd$ $Sales 316,000 220,000Other revenue:Debenture interest 5,000 Management and consulting fees 5,000 Dividends from Chai Ltd 12,000 Total revenue 338,000 220,000Cost of sales 130,000 85,000Manufacturing expenses 90,000 60,000Depreciation on plant 15,000 15,000Administrative expenses 15,000 8,000Financial expenses 11,000 5,000Other expenses 14,000 12,000Total expenses 275,000 185,000Profit before tax 63,000 35,000Income tax expense (25,000) (17,000) Page 2 of 4Operating profit after tax 38,000 18,000Retained earnings 1 July 2012 50,000 45,00088,000 63,000Transfer to general reserve 3,000 Interim dividend paid 10,000 10,000Final dividends declared 10,000 5,00023,000 15,000Retained earnings 30 June 2013 65,000 48,000General reserve 50,000 10,000Other components of equity 13,000 10,000Share capital 300,000 100,000Debentures 200,000 100,000Current tax liability 25,000 17,000Dividend payable 10,000 5,000Deferred tax liability 7,000Other liabilities 90,000 12,000753,000 309,000AssetsFinancial assets 50,000 60,000Debentures in Chai Ltd 100,000 Shares in Chai Ltd 131,600 Plant (cost) 120,000 102,000Accumulated depreciation – plant (65,000) (55,000)Other depreciable assets 76,000 55,000Accumulated depreciation (40,000) (25,000)Inventory 90,000 85,000Deferred tax asset 85,400 30,000Land 201,000 57,000Dividend receivable 4,000 753,000 309,000

Additional information:(a) Tien Ltd uses the full goodwill method. The fair value of non controllinginterest at 1 July 2010 was $31,500.(b) The inventory on hand of Chai Ltd on 1 July 2012 included a quantity priced at$10,000 that was transferred from Tien Ltd during the prior financial year. Thisinventory had cost Tien Ltd $7,500. This entire inventory was sold by Chai Ltdto parties external to the group during the current financial year.(c) Chai Ltd sold inventory to Tien Ltd for $60,000 during the year. This inventoryhad an original cost to Chai Ltd of $55,000. This entire inventory was held byTien Ltd during the year.(d) On 1 January 2012, Chai Ltd sold an item from its inventory to Tien Ltd for$20,000. Tien Ltd had treated this item as an addition to its plant. The item wasput into service as soon as received by Tien Ltd and depreciation charged at20% p.a. The cost of that item to Chai Ltd was $15,000.Page 3 of 4(e) The management and consulting fees of Tien Ltd were all paid by Chai Ltd andrepresented charges made for administration $2,200 and technical services$2,800. The latter were recognised as manufacturing expenses by Chai Ltd.(f) All debentures issued by Chai Ltd are held by Tien Ltd. The related interest hasbeen recorded by Tien Ltd accordingly and Chai Ltd recorded the interest paidin financial expenses.(g) Other components of equity relate to movements in the fair values of thefinancial assets. The balance of these accounts on 1 July 2012 was $10,000 forTien Ltd and $8,000 for Chai Ltd.(h) The tax rate is 30%.Required:A. Prepare an acquisition analysis and the consolidation journal entries necessaryfor preparation of the consolidated financial statements for the year ending 30June 2013 for the group comprising Tien Ltd and Chai Ltd.B. Complete a detailed consolidation worksheet for the year ending 30 June 2013.Note: show all necessary workings, narrations are not required.