On 1 July 20x2, Tien Ltd purchased all of the issued shares of Chai Ltd for $150,000. At acquisition date, the shareholders' equity of Chai Ltd consisted of share capital and retained earnings of $120,000 and $30,000 respectively.

At 30 June 20x4, two years after acquisition, the accounts of the two companies appear as follows:

Tien Ltd Chai Ltd $ $ Sales 250,000 110,000 Cost of sales: Opening inventory 1 July 20x3 23,000 9,000 Purchases 135,000 47,000 158,000 56,000 Closing inventory 30 June 20x4 25,000 10,000 133,000 46,000 Gross profit 117,000 64,000 Depreciation expenses 25,000 15,000 Rent expenses - 4,000 Other expenses 42,000 30,000 Total expenses 67,000 49,000 50,000 15,000 Other income Profit on sale of equipment 7,000 - Rent revenue 4,000 - Total other income 11,000 - Operating profit before tax 61,000 15,000 Income tax expense 19,000 5,000 Operating profit after tax 42,000 10,000 Retained earnings 1 July 20x3 30,000 35,000 Available for appropriation 72,000 45,000 Dividends paid 35,000 - Retained earnings 30 June 20x4 37,000 45,000 Share capital 300,000 120,000 Creditors and borrowings 35,000 15,000 Other liabilities 60,000 5,000 432,000 185,000

Assets Cash at bank 3,000 2,000 Accounts receivable 35,000 30,000 Inventory 25,000 10,000 Investment in Chai Ltd 150,000 - Equipment 115,000 70,000 Accumulated depreciation (60,000) (21,000) Land and buildings (net) 144,000 79,000 Other assets 20,000 15,000 432,000 185,000

Additional information:

(a) The identifiable net assets of Chai Ltd were recorded at fair value at the date of acquisition.

(b) During the financial year, Chai Ltd paid rent of $4,000 to Tien Ltd.

(c) The opening stock of Chai Ltd includes unrealised profit of $2,000 on inventory transferred from Tien Ltd during the prior financial year.

This entire inventory was sold by Chai Ltd to parties external to the group during the current financial year.

(d) Tien Ltd sold inventory to Chai Ltd for $15,000 during the year. This inventory had an original cost to Tien Ltd of $10,000. One half of this inventory was sold to external entities by Chai Ltd during the year.

(e) An item of equipment owned by Tien Ltd and originally acquired on 1 July 20x2 (cost of $30,000 and accumulated depreciation of $6,000) was sold to Chai Ltd for $25,000 on 1 July 20x3. Tien Ltd depreciated this asset at 20% per annum straight-line on original cost. On acquiring the asset, Chai Ltd assessed that the equipment had a remaining economic life of four years and therefore has applied a 25% depreciation rate (straight-line) from the date of transfer of the asset.

(f) The tax rate is 30%.

Required:

1. Prepare an acquisition analysis and the consolidation journal entries necessary to prepare consolidated accounts for the year ending 30 June 20x4 for the group comprising Tien Ltd and Chai Ltd.

2. Complete a detailed consolidation worksheet for the year ending 30 June 20x4.

Note: show all necessary workings, narrations are not required.

[adapted from: Dagwell, R., Wines, G. & Lambert, C. (2012). Corporate accounting in Australia: Pearson Australia]