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Q1) Wellington owns 30% of Boot, which it purchased on 1 May 20X7 for $2.5 million. At that date Boot had retained earnings of $5.3 million. At the year end date of 31 October 20X7 Boot had retained earnings of $6.4 million after paying out a dividend of $1 million. On 30 September 20X7 Wellington sold $700,000 of goods to Boot, on which it made 30% profit. Boot had resold none of these goods by 31 October. At what amount will Wellington record its investment in Boot in its consolidated statement of financial position at 31 October 20X7?
Answer
Cost of investment 2,500
Share of post-acquisition profit 330
(6,400 – 5,300) × 30%)
PURP (63)
(700 × 30% ×30%)
= 2767My question is why did they ignore the dividend payment of $1million?
Q2) Ruby owns 30% of Emerald and exercises significant influence over it. Emerald sold goods to Ruby for $160,000. Emerald applies a one third mark up on cost. Ruby still had 25% of these goods in inventory at the year end.
What amount should be deducted from consolidated retained earnings in respect of this transaction?My answer: 160000 x (30/130) x 0.25 x 0.3 = 2775
BPP answer : ($160,000 / 4) × 25% × 30% = $3,000
What went wrong?
Q3) On 1 October 20X6 Plateau acquired the following non-current investment: 3 million equity shares in Savannah by an exchange of one share in Plateau for every two shares in Savannah plus $1.25 per acquired Savannah share in cash. The market price of each Plateau share at the date of acquisition was $6 and the market price of each Savannah share at the date of acquisition was $3.25.
On 1 October 20X6, Plateau sold an item of plant to Savannah at its agreed fair value of $2.5 million. Its carrying amount prior to the sale was $2 million. The estimated remaining life of the plant at the date of sale was five years (straight-line depreciation).
What is the correct journal to post the unrealised profit on the transfer of plant?
My answer:
DR Group retained earnings $0.5m
CR Property, plant and equipment $0.5mBPP answer:
DR Group retained earnings $0.4m
CR Property, plant and equipment $0.4mQ4) On 1 October 20X6 Plateau acquired 30% of the equity shares of Axle at a cost of $7.50 per share in cash.
Retained earnings
– at 30 September 20X6 = 11000
– for year ended 30 September 20X7 = 5000
What amount will be shown in the consolidated statement of financial position at 30 September 20X7 in respect of the investment in Axle?My answer:
Cost (4m x 30% x $7.50) = 9m
Share of post-acquisition retained earnings (6,000 × 30%) = 1.8m
Total = 10.8mBPP answer
Cost (4m x 30% x $7.50) = 9m
Share of post-acquisition retained earnings (5,000 × 30%) = 1.5m
Total = 10.5m@danny969 said:
Q1) Wellington owns 30% of Boot, which it purchased on 1 May 20X7 for $2.5 million. At that date Boot had retained earnings of $5.3 million. At the year end date of 31 October 20X7 Boot had retained earnings of $6.4 million after paying out a dividend of $1 million. On 30 September 20X7 Wellington sold $700,000 of goods to Boot, on which it made 30% profit. Boot had resold none of these goods by 31 October. At what amount will Wellington record its investment in Boot in its consolidated statement of financial position at 31 October 20X7?Answer
Cost of investment 2,500
Share of post-acquisition profit 330
(6,400 – 5,300) × 30%)
PURP (63)
(700 × 30% ×30%)
= 2767My question is why did they ignore the dividend payment of $1million?
Q2) Ruby owns 30% of Emerald and exercises significant influence over it. Emerald sold goods to Ruby for $160,000. Emerald applies a one third mark up on cost. Ruby still had 25% of these goods in inventory at the year end.
What amount should be deducted from consolidated retained earnings in respect of this transaction?My answer: 160000 x (30/130) x 0.25 x 0.3 = 2775
BPP answer : ($160,000 / 4) × 25% × 30% = $3,000
What went wrong?
Q1 – The dividend has already been paid out of the retained earnings and so has already been accounted for.
Q2 – 30% is not the same as one third, you should be doing 1/3 divided by 1 1/3.
@danny969 said:
Q3) On 1 October 20X6 Plateau acquired the following non-current investment: 3 million equity shares in Savannah by an exchange of one share in Plateau for every two shares in Savannah plus $1.25 per acquired Savannah share in cash. The market price of each Plateau share at the date of acquisition was $6 and the market price of each Savannah share at the date of acquisition was $3.25.On 1 October 20X6, Plateau sold an item of plant to Savannah at its agreed fair value of $2.5 million. Its carrying amount prior to the sale was $2 million. The estimated remaining life of the plant at the date of sale was five years (straight-line depreciation).
What is the correct journal to post the unrealised profit on the transfer of plant?
My answer:
DR Group retained earnings $0.5m
CR Property, plant and equipment $0.5mBPP answer:
DR Group retained earnings $0.4m
CR Property, plant and equipment $0.4mQ4) On 1 October 20X6 Plateau acquired 30% of the equity shares of Axle at a cost of $7.50 per share in cash.
Retained earnings
– at 30 September 20X6 = 11000
– for year ended 30 September 20X7 = 5000
What amount will be shown in the consolidated statement of financial position at 30 September 20X7 in respect of the investment in Axle?My answer:
Cost (4m x 30% x $7.50) = 9m
Share of post-acquisition retained earnings (6,000 × 30%) = 1.8m
Total = 10.8mBPP answer
Cost (4m x 30% x $7.50) = 9m
Share of post-acquisition retained earnings (5,000 × 30%) = 1.5m
Total = 10.5mQ3 – There is one year worth of depreciation to account for that you haven’t accounted for at $0.1m per annum
Q4. – There must be additional information within the question that you’ve not seen to get that answer.
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