Question 1 King Ltd acquired 80% of the shares of Queen Ltd on 1 July 2005 for S 325,000 when the equity of Queen Ltd consisted of Share Capital Retained Earnings General Reserve $250,000 45,000 35,000 All identifiable assets and liabilities of Queen Ltd are recorded at fair value at this date except for the following: Carrying Amount: Fair Value: Inventory Plant (cost $200,000) $50,000 $150,000 $60,000 $180,000 Queen Ltd had not recorded an intermally generated Trademark. King Ltd valued this Trademark at $60,000. The Trademark was considered to have an indefinite life. All of this inventory was sold by Queen Ltd before 30 June 2007. The plant had a further 10- year life with depreciation based on the straight-line method. The tax rate is 30%. Selected financial information for both companies at 30 June 2010 is as follows: King LtdQueen Ltd 400,000 $220,000 290,000) (180.000) 40,000 5,000 35,000 Sales Revenue Cost of Sales 110,000 Profit before tax Tax Expense 30,000 Profit for the period Retained Earnings at 1/7/09 Interim Dividend Paid 80,000 60,000 (8,000) 75,000 110,000 140,000 10,000) (8,000) (15,000) Final Dividend Declared Retained Earnings at 30/6/10 Share Capital 124,000 85,000 600,000 250,000 50,000 General Reserve 15,000 325,000 Investment in Queen Ltd Dividend Payable 8,000 15,000