Fred Ltd owns 140,000 shares in Ginger Ltd, which it purchased for 450,000 cash on 1 January 2018 The results for the year ended 31 December 2020 are as follows Statement of Profit or Loss Fred Ltd Ginger Ltd 000 000 Revenue 1,400 780 Cost of Sales (650) (330) Gross Profit 750 450 Administrative and distribution costs (175) (133) Investment Income 50 4 Profit before tax 625 321 Tax expense (138) (97) Profit for the year 487 224 Extracts from Statements of Changes in Equity Retained earnings brought forward 593 455 Profit for the period 487 224 Dividends paid (155) (70) Retained earnings carried forward 925 609 Additional information During the year Ginger Ltd sold goods which originally cost 30,000 to Fred Ltd for 60,000 At 31 December 2020, one third of these goods had not yet been sold by Fred Ltd On the date of acquisition, the fair value of the plant of Ginger Ltd exceeded its book value by 100,000 The plant had a remaining useful life of five years as at that date This adjustment has not been reflected in the books of Ginger Ltd, however it should be reflected in the consolidated statements It is group policy to calculate depreciation on a straight line basis and charge it to administrative and distribution costs Ginger Ltd has an issued share capital of 200,000 ordinary shares of 1 each The fair value of the effective non controlling interest in Ginger Ltd as at the date of acquisition was 220,000 and the retained earnings at that date were 250,000 It is group policy to record goodwill and non controlling interest in full Goodwill in the consolidated statement of financial position in respect of the acquisition of Ginger Ltd was carried at 80,000 at the start of the year, and at 50,000 as at the end of the year Required a) For the Fred Ltd Group in respect of the year ended 31 December 2020, prepare the Consolidated Statement of Profit or Loss and an extract from the Group Statement of Changes in Equity that reconciles the opening and closing balances of Retained Earnings b) Explain why the adjustments you have made regarding the intercompany sales and fair value of plant are required

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Fred Ltd owns 140,000 shares in Ginger Ltd, which it purchased for 450,000 cash on 1 January 2018. The results for the year ended 31

Fred Ltd owns 140,000 shares in Ginger Ltd, which it purchased for 450,000 cash on 1 January 2018. The results for the year ended 31 December 2020 are as follows:

Statement of Profit or Loss

	Fred Ltd	Ginger Ltd
	000	000
Revenue	1,400	780
Cost of Sales	(650)	(330)
Gross Profit	750	450
Administrative and distribution costs	(175)	(133)
Investment Income	50	4
Profit before tax	625	321
Tax expense	(138)	(97)
Profit for the year	487	224

Extracts from Statements of Changes in Equity:

Retained earnings brought forward	593	455
Profit for the period	487	224
Dividends paid	(155)	(70)
Retained earnings carried forward	925	609

Additional information:

During the year Ginger Ltd sold goods which originally cost 30,000 to Fred Ltd for 60,000. At 31 December 2020, one third of these goods had not yet been sold by Fred Ltd

On the date of acquisition, the fair value of the plant of Ginger Ltd exceeded its book value by 100,000. The plant had a remaining useful life of five years as at that date. This adjustment has not been reflected in the books of Ginger Ltd, however it should be reflected in the consolidated statements. It is group policy to calculate depreciation on a straight- line basis and charge it to administrative and distribution costs.

Ginger Ltd has an issued share capital of 200,000 ordinary shares of 1 each.

The fair value of the effective non-controlling interest in Ginger Ltd as at the date of acquisition was 220,000 and the retained earnings at that date were 250,000

It is group policy to record goodwill and non-controlling interest in full

Goodwill in the consolidated statement of financial position in respect of the acquisition of Ginger Ltd was carried at 80,000 at the start of the year, and at 50,000 as at the end of the year

Required:

a) For the Fred Ltd Group in respect of the year ended 31 December 2020, prepare the Consolidated Statement of Profit or Loss and an extract from the Group Statement of Changes in Equity that reconciles the opening and closing balances of Retained Earnings

b) Explain why the adjustments you have made regarding the intercompany sales and fair value of plant are required