Question

Kerry Ltd owns 70% of James Ltd. For the year ended 30 April 20X1, James Ltd reported a profit of $1 million. On 30 May 20X0, Kerry Ltd sold inventory to James Ltd for a $0.5 million profit. All this inventory was sold to customers outside the group on 1 June 20X0. What is the NCI share of James Ltd’s profit for year ended 30 April 20X1 ?

Select one:

$120,000

$150,000

$450,000

$300,000

Lillee Ltd acquired 60% of the issued share capital of Thompson Ltd on 1 February 20X1. Thompson Ltd’s shareholders equity (all at fair value) at that date was as follows:   

   $ 000s

Paid up capital 4,000

Retained profits 1,000

Asset revaluation reserve 2,000

If Lillee Ltd paid $4,000,000 for this acquisition what is the elimination entry if consolidated financial statements were prepared on 1 February 20X1? Use the partial method.

Select one:

A.

	000s	000s
Accounts	Debit $	Credit $
Paid up capital	4,000
Retained profits	1,000
Asset revaluation reserve		1,000
Investment in Thompson Ltd		4,000

-B.

	000s	000s
Accounts	Debit $	Credit $
Paid up capital	2,400
Retained profits	600
Asset revaluation reserve	1,200
Goodwill	200
Investment in Thompson Ltd		4,000

-C.

	000s	000s
Accounts	Debit $	Credit $
Paid up capital	2,400
Retained profits	600
Asset revaluation reserve	1,200
Bargain purchase		200
Investment in Thompson Ltd		4,000

-D.

	000s	000s
Accounts	Debit $	Credit $
Paid up capital	4,000
Retained profits	1,000
Asset revaluation reserve	2,000
Bargain purchase		3,000
Investment in Thompson Ltd		4,000

Answer 1

1	The stock sold to J by K does not appear any more in its inventory as it is already sold. Hence, there is no need for an adjustment of unrealized profit. K has 70% share in profits of J.
	Profit of J for the year ending 30 April 20X1	$ 1,000,000.00
	Share of K	70%
	Profits of K in J	$      700,000.00
	Non-controlling share profits	$      300,000.00
	Right answer: Option (d)

2	As partial method is used, L would record only it's share in T's reserves. L's share would be as follows
	Paid up capital - 4000*60%	2400
	Retained profits -1000*60%	600
	Asset revaluation reserve - 2000*60%	1200
	Total acquired assets	4200
	Amount paid by L for shares in T	4000
	L spent 4000 and acquired 4200 worth assets, which implies that there is a Bargain purchase of 200. Paid up capital, retained profits, asset revaluation reserve are debited, and bargain purchase and Investment account are credited. The entry will be
	Paid up capital                        2400 Retained profits                      600 Asset revaluation reserve 1200 Bargain purchase                                    200 Investment in T                                     4000
	Right answer: Option (C)