On June 30 2012 Oak Ltd acquired all the shares in Acorn Ltd for $775,000 cash. At the date of acquisition the shareholders funds of Acorn Ltd were as follows: Shareholders' Funds – Acorn Ltd Share Capital 335,000 Revaluation Surplus 105, 000 Retained Earnings 195, 000 Total Shareholders' Funds $635, 000 Additional Information • At the date of acquisition all identifiable net assets of Acorn Ltd were recorded at fair value with the exception of land, which was determined to have a fair value of $435,000. The land was recorded in the books of Acorn Ltd at $400,000 and had not been previously revalued. • Intra-group sales for the current financial year were as follows: Oak Ltd to Acorn Ltd $400,000 Acorn Ltd to Oak Ltd $100,000 • At the 30 June 2015 10% of the stock sold to Acorn Ltd from Oak Ltd remained unsold in the closing inventory of Acorn Ltd. This total stock had originally cost Oak Ltd $270,000. • At 1 July 2014 the opening inventory of Oak Ltd includes stock purchased from Acorn Ltd for $150,000. The stock has originally cost Acorn Ltd $110,000. • On 1 July 2014 Acorn Ltd sold an item of equipment to Oak Ltd for $135,000. Acorn Ltd had acquired the equipment on 1 July 2013 at a cost of $160, 000. The equipment when purchased had an estimated useful life of 5 years with no residual value. • During the current financial year Acorn Ltd paid $60,000 in dividends to Oak Ltd. These were paid from post-acquisition profits. • During the year ended 30 June 2015 Oak Ltd charged Acorn Ltd $40,000 in consulting fees. • Assume a tax rate of 30% 2 MAA716 Tri 3 2015 Assignment Part 2 Required: Prepare the consolidation entries for the financial year ended 30 June 2015 (narrations not required). Your answer must clearly indicate the most appropriate account to be adjusted by indicating at the end of the journal entry whether the account is (A), (L), (R), (E) or (OE). Part 2 (3 + 3 = 6 marks) K D Hi Fi Ltd owns and operates a chain of retail electrical stores. On 1 July 2014 K D Hi Fi Ltd purchased a 48% shareholding in Fred Smith Electronics Ltd who were struggling with both their market share and financial situation. The remaining 52% of the shares are held by hundreds of other mainly small investors. The 48% shareholding acquired by K D Hi Fi Ltd carries voting rights in Fred Smith Electronics Ltd. As well as voting rights, K D Hi Fi Ltd has the power to manage budgets, appoint and remunerate the key management personnel and suppliers and they also have the right to terminate suppliers and service providers as well as employment contracts of Fred Smith Electronics Ltd. I. Outline the three key elements of control under AASB10 Consolidated Financial Statements". II. Does K D Hi Fi Ltd exercise control over Fred Smith Electronics Ltd? Briefly justify your answer with reference to AASB10.