In the year ended 30 June 2018, Abbott Ltd acquired 40% of the issued shares of Costello Ltd for $72 000. This acquisiti

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In The Year Ended 30 June 2018 Abbott Ltd Acquired 40 Of The Issued Shares Of Costello Ltd For 72 000 This Acquisiti 1 (206.17 KiB) Viewed 45 times

In The Year Ended 30 June 2018 Abbott Ltd Acquired 40 Of The Issued Shares Of Costello Ltd For 72 000 This Acquisiti 2 (27.88 KiB) Viewed 45 times

In the year ended 30 June 2018, Abbott Ltd acquired 40% of the issued shares of Costello Ltd for $72 000. This acquisition did not give Abbott Ltd control of Costello Ltd as the ownership of Costello Ltd was held by a small number of shareholders. (Costello Ltd was developed as a family company in 2011.) On 1 July 2022, Abbott Ltd approached these family members following a death in the family and persuaded them to sell the remainder of the shares in Costello Ltd to Abbott Ltd for $137 700 on a cum div. basis. Information about the two companies at 1 July 2022 included the following. Abbott Ltd recorded its original investment in Costello Ltd at fair value, with changes in fair value being recognised in profit or loss. At 1 July 2022, the asset was recorded at $91 800. The equity of Costello Ltd at 1 July 2022 consisted of $144000 capital and $36 000 retained earnings. Included in the assets and liabilities recorded by Costello Ltd at 1 July 2022 were goodwill of $5400 (net of accumulated impairment losses of $3600) and dividend payable of $4500. On the acquisition date all the identifiable assets and liabilities of Costello Ltd were recorded at carrying amounts equal to their fair values except for inventories for which the fair value of $39 600 was $3600 greater than its carrying amount, and equipment for which the fair value of $94 500 was greater than the carrying amount, this being cost of $108 000 less accumulated depreciation of $18 000. Besides determining the fair values of the recorded assets and liabilities of Costello Ltd, Abbott Ltd discovered that Costello Ltd had two assets that had not been recorded by Costello Ltd. These were internally generated patents that had a fair value of $45 000 and in-process research and development for which Costello Ltd had expensed $90 000, but which Abbott Ltd valued at $18 000. Further, in the financial statements of Costello Ltd at 30 June 2022 Costello Ltd had reported the existence of a contingent liability relating to guarantees for loans. Abbott Ltd determined that this liability had a fair value of $9000. The tax rate is 30%.

Required (1) Calculate acquisition analysis (2) Prepare consolidation journal entries at 1 July 2022 (3) Briefly explain the term realised and unrealised profits in intragroup transactions. When can profits be realised in the sale of inventory or PPE?