QUESTION 1

Large Parent Ltd acquired 70% of the equity in Sub Ltd on 1 April 2006. At that date, the equity of Sub Ltd was comprised of Share capital of $4 500 and Retained earnings of $ 2 300. Sub Ltd uses the cost model for its property, plant and equipment (PPE).

On the 1 April 2006:

- the fair value of the PPE was $490 greater than the cost.

- there was a contingent liability of $96.

The general ledger balances for the year ended 31 March 2022 are provided below.

	Large Parent Ltd	Sub Ltd
Income statement/dividend items:	$	$
Income (all types)	14 700	10 200
Less: Expenses (all types)	8 200	5 750
Profit before tax	6 500	4 450
Less: Income tax expense	2 425	1 200
Profit after tax	4 075	3 250
Retained earnings opening balance	6 000	3 800
Less: Dividends declared	3 000	2 500
Balance Sheet items:
Retained earnings closing balance	7 075	4 550
Share capital	10 250	4 500
Various liabilities	17 925	3 115
Loan payable to Parent Ltd	-	1 250
Interest payable to Parent Ltd	-	15
Total equity and liabilities	$35 250	$13 430
Various current assets	2 785	1 000
Inventory	600	430
Interest receivable	15	-
PPE	25 000	12 000
Loan receivable	1 250	-
Investment in Sub Ltd	5 600	-
Total assets	$35 250	$13 430

Note: ignore the information about the contingent liability and the fair value of the PPE being greater than the cost.

Required:

Assume Large Parent Ltd acquired 26% of the equity of Sub Ltd on 1 April 2006 and paid a cash sum of $2 080 for the acquisition. Because of this acquisition, Large Parent Ltd has significant influence over Sub Ltd.

Q1 Prepare a quick estimate of the proposed increase to the investment.