Financial information for Thomas Ltd and its 100% owned subsidiary, Gordon Ltd, for the period ended 30 June 2025 is provided below.


Thomas Ltd ($) Gordon Ltd ($)
Sales revenue 52500 49560
Dividend revenue 2080 0
Gain on sale of PPE 2060 4120
Other income 2040 4080
Total income 58680 57760
Cost of Sales 43260 37080
Other expenses 6240 2080
Total expenses 49500 39160
Profit before income tax 9180 18600
Income tax expense 2835 4095
Profit for the period 6345 14505
Retained earnings (1 July 2024) 12840 6420
19185 20925
Interim dividend paid 5200 2080
Retained earnings (30 June 2025) 13985 18845


Thomas Ltd acquired its shares in Gordon Ltd at 1 July 2024 for $40800 on a cum div. basis. At that date, Gordon Ltd recorded share capital of $20800. Gordon Ltd had declared prior to the acquisition a dividend of $6300 that was paid in September 2024.


At 1 July 2024, all identifiable assets and liabilities of Gordon Ltd were recorded at fair value except for inventories, for which  the carrying amount was $816 less than fair value.

Some of the inventories have been a little slow to sell, and 10% of it is still on hand at 30 June 2025. Inventories on hand in Gordon Ltd at 30 June 2025 also includes some items acquired from Thomas Ltd during the period ended 30 June 2025. These were sold by Thomas Ltd for $10600, at a profit before tax of $2040.

Half of the goodwill on acquisition of Gordon Ltd by Thomas Ltd was written off as the result of an impairment test on 30 June 2025.

During September 2024, Thomas Ltd provided some management services to Gordon Ltd at a fee of $1020 paid by 30 June 2025.

On 1 January 2025, Gordon Ltd sold machinery to Thomas Ltd at a gain of $4280. This machinery had a carrying amount to Gordon Ltd of $40800, and was considered by Thomas Ltd to have a further 5-year useful life.

By 30 June 2025, the financial assets acquired by Thomas Ltd and Gordon Ltd from external entities increased in value by $2160 and $1417 respectively with gains and losses being recognised in other comprehensive income.

The income tax rate is 30%.



  1. Prepare the acquisition analysis at 1 July 2024.
  2. Prepare the business combination valuation entries and pre-acquisition entries at 1 July 2024.
  3. Prepare the business combination valuation entries and pre-acquisition entries at 30 June 2025.
  4. Prepare the consolidation worksheet journal entries to eliminate the effects of intragroup transactions at 30 June 2025.
  5. Discuss the concept of ‘realisation’ using the intragroup transactions in this question to illustrate the concept.
  6. Prepare the consolidated worksheet for the preparation of the consolidated financial statements for the period ended 30 June 2025.
  7. Prepare the consolidated statement of profit and loss and other comprehensive income for Thomas Ltd and its subsidiary, Gordon Ltd, at 30 June 2025.

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