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The financial information for Moon Ltd and its 100% owned subsidiary, Light Ltd, for the period ended 31 December 2022 is as follows:


Moon Ltd Light Ltd
Sales revenue $ 60 000 $ 57 000
Dividend revenue 3 000 0
Gain on sale of property, plant and equipment 3 000 5 000
Other income 4 000 6 000
Total income 70 000 68 000
Cost of sales 45 000 38 000
Other expenses 7 000 4 000
Total expenses 52 000 42 000
Profit before income tax 18 000 26 000
Income tax expense 5 800 6 100
Profit for the period 12 200 19 900
Retained earnings (1/1/22) 14 000 9 000
26 200 28 900
Interim dividend paid 7 000 3 000
Retained earnings (31/12/22) 19 200 25 900


Moon Ltd acquired its shares in Light Ltd at 1 January 2022 for $45 000 on a cum div. basis. At that date, Light Ltd recorded share capital of $30 000. Light Ltd had declared prior to the acquisition a dividend of $5000 that was paid in April 2022.


At 1 January 2022, all identifiable assets and liabilities of Light Ltd were recorded at fair value except for inventories, for which the carrying amount was $700 less than fair value. There was a fall in sales due to some negative google reviews and hence, 10% of inventories was still on hand at 31 December 2022. Inventories on hand in Light Ltd at 31 December 2022 also includes some items acquired from Moon Ltd during the period ended 31 December 2022. These were sold by Moon Ltd for $12 000, at a profit before tax of $4000.


Half of the goodwill on acquisition of Light Ltd by Moon Ltd was written off as the result of an impairment test on 31 December 2022.


During March 2022, Moon Ltd provided some management services to Light Ltd at a fee of $3000 paid by 31 December 2022.


On 1 July 2022, Light Ltd sold equipment to Moon Ltd for a gain of $5000. This equipment had a carrying amount to Light Ltd of $50 000, and was considered by Moon Ltd to have a 5-year life. By 31 December 2022, the financial assets acquired by Moon Ltd and Light Ltd from external entities increased in value by $3000 and $1500 respectively with gains and losses being recognised in other comprehensive income.

The income tax rate is 30%.


With your group partners you are required to:

  1. Prepare the acquisition analysis at 1 January 2022.
  2. Prepare the business combination valuation entries and pre-acquisition entries at 1 January 2022.
  3. Prepare the business combination valuation entries and pre-acquisition entries at 31 December 2022.
  4. Prepare the consolidation worksheet journal entries to eliminate the effects of intragroup transactions at 31 December 2022.
  5. Discuss the concept of ‘realisation’ using the intragroup transactions in this question to illustrate the concept.
  6. Prepare the consolidation worksheet for the preparation of the consolidated financial statements for the period ended 31 December 2022.
  7. Prepare the consolidated statement of profit or loss and other comprehensive income for Moon Ltd and its subsidiary, Light Ltd, at 31 December 2022.

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