Exercise 22.5 ★ ★ CONSOLIDATION WORKSHEET, IMPAIRMENT OF GOODWILL Financial information for Amy Ltd and its 100% owned subsidiary, Zara Ltd, for the year ended 31 December 2016 is provided below: Amy Ltd Zara Ltd Sales revenue Dividend revenue Other income Proceeds from sale of property, plant and equipment $25 000 1 000 1 000 5 000 $23 600 — 2 000 22 000 Total 32 000 47 600 Cost of sales Other expenses Carrying amount of property, plant and equipment sold 21 000 3 000 4 000 18 000 1 000 20 000 Total expenses 28 000 39 000 Profi t before income tax Income tax expense 4 000 (1 350) 8 600 (1 950) Profi t for the period Retained earnings (1/1/16) 2 650 6 000 6 650 3 000 Interim dividend paid 8 650 (2 500) 9 650 (1 000) Retained earnings (31/12/16) $ 6 150 $ 8 650 Amy Ltd acquired its shares in Zara Ltd at 1 January 2016, buying the 10 000 shares in Zara Ltd for $20 000 — Zara Ltd recorded share capital of $10 000. The shares were bought on a cum div. basis as Zara Ltd had declared a dividend of $3000 that was not paid until March 2016. At 1 January 2016, all identifi able assets and liabilities of Zara Ltd were recorded at fair value except for inventory, for which the carrying amount of $2000 was $400 less than fair value. Some of this inventory has been a little slow to sell, and 10% of it is still on hand at 31 December 2016. Inventory on hand in Zara Ltd at 31 December 2016 also includes some items acquired from Amy Ltd during the year. These were sold by Amy Ltd for $5000, at a profi t before tax of $1000. Half the goodwill was written off as the result of an impairment test on 31 December 2016.

During March 2016, Amy Ltd provided some management services to Zara Ltd at a fee of $500. By 31 December 2016, the fi nancial assets acquired by Amy Ltd and Zara Ltd increased by $1000 and $650 respectively, with gains being recognised in other comprehensive income. The tax rate is 30%. Required 1. Prepare the consolidated statement of profi t or loss and other comprehensive income for Amy Ltd and its subsidiary, Zara Ltd, at 31 December 2016. 2. Discuss the concept of ‘realisation’ using the intragroup transactions in this question to illustrate the concept.