On 1 July 2016, Cena Ltd acquired 80% of the shares of Lesnar Ltd for $40 000. The following balances appeared in the records of Lesnar Ltd at this date:
| Share Capital | $20 000 |
| General Reserve | 2 000 |
| Retained Earnings | 10 000 |
At 1 July 2016, all the identifiable assets and liabilities of Lesnar Ltd were recorded at fair value except for the following:
| Carrying amount | Fair value | |
| Machinery (cost $36 000) | $30 000 | $40 000 |
| Inventory | 16 000 | 20 000 |
| Receivables | 20 000 | 18 000 |
The machinery, which had a remaining useful life of 5 years, was adjusted to fair value after the acquisition date in the consolidation worksheet. The machinery was sold by Lesnar Ltd on 1 January 2021 for $4000, with the related valuation reserve being transferred on consolidation to retained earnings. By 30 June 2017, receivables had all been collected and inventory sold. For the year ended 30 June 2021, the following information is available:
a) Intragroup sales were:
Lesnar Ltd to Cena Ltd – $40 000. The mark-up on cost of all sales was 25%.
At 30 June 2021, inventory of Cena Ltd included $2000 of items acquired from Lesnar Ltd.
b) At 30 June 2020, inventory of Cena Ltd included goods of $1000 resulting from a sale on 1 March 2020 of non-current assets by Lesnar Ltd at a before-tax profit of $200. These items were sold by Cena Ltd on 1 September 2020. This class of non-current assets is depreciated using a 10% depreciation rate on a straight-line basis.
c) On 1 January 2021, Lesnar Ltd sold an item of plant to Cena Ltd for $2000 at a before-tax profit of $800. For plant assets, Lesnar Ltd applies a 10% p.a. straight line depreciation rate, and Cena Ltd uses a 5% p.a. straight-line method.
d) The current tax rate is 20%.
Financial information for the year ended 30 June 2021 includes the following:
| Cena Ltd | Lesnar Ltd | |
| $ | $ | |
| Sales revenue | 88000 | 52000 |
| Other revenue | 12000 | 8000 |
| Total revenue | 100000 | 60000 |
| Cost of sales | 58000 | 26000 |
| Other expenses: | ||
| Selling and administrative (including depreciation) | 4000 | 2000 |
| Financial | 2000 | 1000 |
| Carrying amount of non-current assets sold | 6000 | 5000 |
| 70000 | 34000 | |
| Gross profit | 30000 | 26000 |
| Dividend revenue | 3000 | 0 |
| Profit before tax | 33000 | 26000 |
| Income tax expense | 13200 | 10400 |
| Profit | 19800 | 15600 |
| Retained earnings at 1 July 2020 | 40000 | 20000 |
| 59800 | 35600 | |
| Transfer to general reserve | 3800 | 1000 |
| Interim dividend paid | 4000 | 8000 |
| Final dividend declared | 4000 | 4000 |
| 11800 | 13000 | |
| Retained earnings at 30 June 2021 | 48000 | 22600 |
| Asset revaluation reserve (1/7/20) | 3000 | 2000 |
| Gains on property revaluation | 1000 | 500 |
| Asset revaluation reserve (30/6/21) | 4000 | 2500 |
Required:
Prepare the acquisition analysis and consolidation worksheet journal entries for the preparation of the consolidated financial statements of Cena Ltd at 30 June 2021 using the partial goodwill method.
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