Exercise 22.2 ★ ★ ELIMINATION OF INVESTMENT IN SUBSIDIARY AND INTRAGROUP TRANSACTIONS, NO FAIR VALUE — CARRYING AMOUNT DIFFERENCES AT ACQUISITION DATE On 1 January 2013, Molly Ltd acquired all the share capital of Mia Ltd for $300 000. The equity of Mia Ltd at 1 January 2013 was: Share capital Retained earnings General reserve $ $ 200 000 50 000 20 000 270 000 At this date, all identifi able assets and liabilities of Mia Ltd were recorded at fair value. Goodwill is tested annually for impairment. By 31 December 2016, no impairment has occurred. At 1 January 2013, no goodwill had been recorded by Mia Ltd. On 1 May 2016, Mia Ltd transferred $15 000 from the general reserve (pre-acquisition) to retained earnings. The current tax rate is 30%. Assuming consolidated fi nancial statements are required for the period 1 January 2015 to 31 December 2016, provide journal entries (including the elimination of investment in subsidiary) to show the adjustments that would be made in the consolidation worksheets. Use the following information:

(a) At 31 December 2016, Mia Ltd holds $100 000 of 7% debentures issued by Molly Ltd on 1 January 2015. All necessary interest payments have been made.

(b) At the end of the reporting period, Mia Ltd owes Molly Ltd $1000 for items sold on credit.

(c) Mia Ltd undertook an advertising campaign for Molly Ltd during the year. Molly Ltd paid $8000 to Mia Ltd for this service.

(d) The beginning and ending inventories of Molly Ltd and Mia Ltd in relation to the current period included the following unsold intragroup inventory: Molly Ltd Mia Ltd Beginning inventory: Transfer price Original cost Ending inventory: Transfer price Original cost $2 000 1 400 500 300 $1 200 800 900 700 Molly Ltd sold inventory to Mia Ltd during the current period for $3000. This was $500 above the cost of the inventory to Molly Ltd. Mia Ltd sold inventory to Molly Ltd in the current period for $2500, recording a pre-tax profi t of $800.

(e) Molly Ltd received dividends totalling $63 000 during the current period from Mia Ltd. All of this related to dividends paid in the current period.