accounting question
On 1 July 2017, Enola Ltd acquired 75% of the share capital of Holmes Ltd for $1,900,000 paid in cash. At the date of acquisition, the accounts of Holmes Ltd included the following: Share Capital $1,200,000 General reserve $400,000 Retained earnings $200,000 All the identifiable assets and liabilities of Holmes Ltd were recorded at fair value except for inventory which was recorded at $50,000 below fair value. The inventory was sold on 1 January 2018 for $52,000. Additional information: 1. The inventory of Enola Ltd on 1 July 2019 included inventory purchased from Holmes Lid for $96,500. The original cost of the inventory was $56,000. The inventory was sold outside the group in January 2020. 2. On 1 July 2019, Enola Ltd sold Equipment to Holmes Ltd for $300,000. The equipment originally cost Enola Ltd $400,000 and had a carrying amount of 290,000 at the date of sale. The remaining useful life of the equipment is 2 years. 3. The financial statements of Holmes Ltd for the year ended 30 June 2020 showed: 30 June 20203. The financial statements of Holmes Lid for the year ended 30 June 2020 showed: 30 June 2020 $ Profit before tax (20,360) Income tax expense 3,920 Profit after tax (16,440) Retained earnings - opening bal. (7,000) Retained earnings - closing bal. (23,440) Share capital 1,800,000 General reserve 450,000 The applicable tax rate is 30%. The following consolidation adjusting entries have been recorded for the year ended 30 June 2020 and you can assume that they are correct. DEBIT ($) CREDIT ($)The applicable tax rate is 30%. The following consolidation adjusting entries have been recorded for the year ended 30 June 2020 and you can assume that they are correct. DEBIT ($) CREDIT ($) (a) Elimination of pre-acquisition equity Share capital 900,000 General reserve 300,000 Retained earnings 150,000 FVA 26,250 Goodwill 523,750 Investment in Subsidiary 1,900,000 (b) Fair value of inventory sold Retained earnings 35,000 FVA 35,000 (c) Intra group sale of inventoryFVA 35,000 (c) Intra-group sale of inventory Retained earnings 40,500 Cost of goods sold 40,500 Income tax expense 12,150 Retained earnings 12,150 (d) Intra-group sale of equipment Gain on sale 10,000 Equipment 100,000 Accumulated depreciation 110,000 Deferred tax asset 3,000 Income tax expense 3,000 (e) Depreciation of equipment Accumulated depreciation 5,000(d) Intra-group sale of equipment Gain on sale 10.000 Equipment 100,000 Accumulated depreciation 110,000 Deferred tax asset 3,000 Income tax expense 3,000 (e) Depreciation of equipment Accumulated depreciation 5,000 Depreciation expense 5,000 Income tax expense 1,500 Deferred tax asset 1,500 Requirements: (1) Prepare the NCI memorandum of profit for the year ended 30 June 2020. (5 marks) Use a table to display your workings using 3 columns: 1 column for the description, 1 column for the subsidiary and 1 column for the NCI information. (ii) Prepare the NCI memorandum of retained earnings as at 30 June 2020. (5 marks) Use a table to display your workings using 3 columns: 1 column for the description, 1 column for the subsidiary and 1 column for the NCI information (iii) Explain: what is NCI, how it is reported and why the group is required to report the amount of NCI in its consolidated financial statements. (4 marks)
