M Ahmed M.

asked • 20d

Group Accounting

On 1 July 2018, QAN Ltd purchased 75% of PREM Ltd’s shares for $900,000 cash. On that day, the equity of PREM Ltd was: Share capital $650,000 Retained earnings 320,000 $970,000 At the time of acquisition, PREM Ltd recorded all its assets at their fair values except for an item of plant and some land. QAN Ltd considered that an item of plant shown in the accounts of PREM Ltd was less than the fair value. The fair value should be 75,000 not 70,000 as shown in PREM Ltd's accounts. The plant was assessed to have a remaining useful life of 5 years and was to be depreciated on a straight-line basis. The land was recorded in the accounts of PREM Ltd of $35,000 and QAN Ltd considered its fair value to be $50,000. On 21 June 2021, the land was sold to an unrelated party of QAN Ltd and PREM Ltd. On 30 June 2021, the financial statements of QAN Ltd and PREM Ltd are as follows: Statements of Financial Position of QAN Ltd and PREM Ltd as at 30 June 2021 QAN Ltd PREM Ltd Assets Cash 729,812 186,380 Accounts Receivable 76,642 37,010 Less: Allowance for doubtful accounts 10,000 66,642 4,800 32,210 Dividend Receivable 120,000 - Inventory 187,158 38,950 Total Current Assets 1,103,612 257,540 Non-current assets Deferred Tax assets 79,947 2,151 Investment in PREM Ltd 900,000 - Land 138,000 465,000 Property, Plant and Equipment (PPE) 900,000 1,500,000 Less: Accumulated depreciation of PPE 300,000 600,000 500,000 1,000,000 Total non-current assets 1,717,947 1,467,151 Total Assets Liabilities and Equity 2,821,559 1,724,691 Current Liabilities Accounts Payable 48,068 41,892 Dividend Payable 50,000 20,000 Income tax payable 2,160 20,055 Other payable 21,643 11,783 Total current liabilities 121,871 93,730 Non-Current Liabilities Bank Loan 210,000 151,000 Total Liabilities 331,871 244,730 Shareholders’ Equity Share capital 1,605,600 720,000 Retained earnings 634,088 747,961 Revaluation Reserve 250,000 12,000 Total shareholders’ equity 2,489,688 1,479,961 Total Equity and Liabilities 2,821,559 1,724,691 Sales revenue $4,689,600 $2,510,121 Cost of goods sold -2,765,800 -1,654,820 Gross profit 1,923,800 855,301 Other income (expense) 271,060 27,800 Operating income 2,194,860 883,101 Expenses -2,187,660 -816,250 Net profit before tax 7,200 66,851 Income tax expenses 21,824 -19,410 Net profit after tax (NPAT) $29,024 $47,441 Retained earnings at 1 July 2020 655,064 720,520 Dividend declared and approved, but not yet paid -50,000 -20,000 Retained earnings at 30 June 2021 $634,088 $747,961 The following information is available at 30 June 2021: x During the financial year ending 30 June 2021, PREM Ltd sold inventory to QAN Ltd for $120,000. The inventory cost PREM Ltd $80,000 to produce. 80% of this inventory was sold to other entities outside the group at the end of the financial year. Both QAN Ltd and PREM Ltd use the perpetual inventory system. x During the financial year ending 30 June 2020, PREM Ltd had sold inventory to QAN Ltd at a price of $50,000. The inventory cost PREM Ltd $40,000 to produce. Only 30% of this inventory had been sold by QAN Ltd to its customers for the financial year ended 30 June 2020. During the financial year ending 30 June 2021, a further 95% of the opening balance of this inventory was sold by QAN Ltd to its customers. x PREM Ltd sold an item of plant to QAN Ltd for $90,000 on 1 July 2018. The original cost of this plant was $120,000 with an accumulated depreciation of $40,000 as at 1 July 2018 QAN Ltd estimated this item of plant had a remaining useful life of five years (no residual value). x QAN Ltd sold an item of equipment to PREM Ltd for $25,000 on 31 December 2020. The carrying amount was $35,000 as at 31 December 2020, recorded in QAN Ltd’s account. The equipment has an estimated remaining useful life of four years with no residual values. x The recoverable amount of goodwill as at 30 June 2021 was determined at $142,500. The goodwill has been impaired as at 30 June 2020 for $9,000. No goodwill impairment loss was recor

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