16) The amount of unrealized profit arising from sale of inventory from Saint to Pirate is?

Pirate acquired 60% of the share capital of Saint on 1 January 2010 for $ 6,000 when Saint had the following balances

Saint

Share capital

5,000

Retained Earnings

2,000

The following information is also relevant:

A- In arriving at the consideration for the shares in Saint, the fair value of Saints property, plant and equipment was agreed at $500 above the book value -5 year remaining life.

B- During the current year 2012, Saint sold Merchandise Inventory to Pirate for $375 and made a gross profit of 20% on this sale. 40% of these goods remained in the inventory of Pirate at 31 December 2012.

C- On 1 January 2012, Pirate sold a plant asset to Saint for $ 2,000. The asset had an original cost of $ 10,000, accumulated depreciation of $ 8,200 and a 10 year remaining useful life. The asset is depreciated by Saint using the straight-line method over its remaining useful life- including full year depreciation at year of purchase.

D- Goodwill was impaired by 10% during the year 2012

E- The dividend revenue in Pirate was received from Saint.

F- The Full goodwill method is used.

The income statements of the two companies for the year ended 31 December 2012 were as follows:

Pirate $

Saint $

Sales Revenue

24,900

19,000

Cost of cods sold

(15,300)

(11,000)

Gross profit

9,600

8,000

Operating expenses

(4,800)

(2,200)

Dividend revenue received from Saint

750

-

Gain on sale of plant asset

200

-

Pretax profit

5,750

5,800

Taxation

(900)

(600)

Net income

4,850

5,200

Select one: a. 40 b. 30 c. 75 d. 32

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