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Question 3: (19 marks) The retained profit of Happy Ltd for the year ended 31 December 2019 was: Profit after tax $800,000 Dividend paid for

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Question 3: (19 marks) The retained profit of Happy Ltd for the year ended 31 December 2019 was: Profit after tax $800,000 Dividend paid for preference shares (from 2019 profit) (100,000) Final dividend paid for ordinary shares (from 2018 profit) (150,000) Retained profit for the year $550,000 The equity section of Happy Ltd as at 31 December 2019 was as follows: Ordinary shares @$0.5 $4,000,000 5% Preference shares @$1 2,000,000 Retained profit 1,050,000 $7,050,000 Additional information: ii. On 1 January 2019 Big Ltd acquired 2,400,000 ordinary shares and 800,000 preference shares of Happy Ltd by cash and there were no changes in ordinary shares and preference shares of Happy Ltd during the year. Big Ltd appointed its Chief Finance Officer to be the non-executive director of Happy Ltd. iii. During the year, Big Ltd sold merchandises amounting to $500,000 to Happy Ltd, of which 20% of merchandises were still kept in Happy Ltd at the year-end. The sales made from Big Ltd to Happy Ltd were at a mark up of 25%. iv. On 1 January 2019, the fair value and carrying amount of tangible fixed asset of Happy Ltd were $7,000,000 and $6,500,000 respectively, in which the remaining life of the fixed asset was 5 years. There were no significant differences between the book value and fair value of the other net assets of Happy Ltd at the date of acquisition. Happy Ltd has not recorded such adjustment in its financial record. V. Based on the recoverable value of the investment of associate at 31 December 2019, the premium on acquisition for Happy Ltd was reduced to $1,100,000. vi. During the year, Happy Ltd paid the management fee of $600,000 to Big Ltd for the service provided. Required: a. Determine whether Happy Ltd is an associated company of Big Ltd. (3 marks) b. Provide the journal entries in the book of Big Ltd in respect of the dividend received from Happy Ltd for the year of 2019. (3 marks) c. Compute the premium paid for the acquisition of associate on the assumption that Happy Ltd is an associate company of Big Ltd. (3 marks) d. Further to part c, provide the journal entries for the consolidated statement of financial position of Big Ltd for the year of 2019 in respect of Happy Ltd. (10 marks) Question 3: (19 marks) The retained profit of Happy Ltd for the year ended 31 December 2019 was: Profit after tax $800,000 Dividend paid for preference shares (from 2019 profit) (100,000) Final dividend paid for ordinary shares (from 2018 profit) (150,000) Retained profit for the year $550,000 The equity section of Happy Ltd as at 31 December 2019 was as follows: Ordinary shares @$0.5 $4,000,000 5% Preference shares @$1 2,000,000 Retained profit 1,050,000 $7,050,000 Additional information: ii. On 1 January 2019 Big Ltd acquired 2,400,000 ordinary shares and 800,000 preference shares of Happy Ltd by cash and there were no changes in ordinary shares and preference shares of Happy Ltd during the year. Big Ltd appointed its Chief Finance Officer to be the non-executive director of Happy Ltd. iii. During the year, Big Ltd sold merchandises amounting to $500,000 to Happy Ltd, of which 20% of merchandises were still kept in Happy Ltd at the year-end. The sales made from Big Ltd to Happy Ltd were at a mark up of 25%. iv. On 1 January 2019, the fair value and carrying amount of tangible fixed asset of Happy Ltd were $7,000,000 and $6,500,000 respectively, in which the remaining life of the fixed asset was 5 years. There were no significant differences between the book value and fair value of the other net assets of Happy Ltd at the date of acquisition. Happy Ltd has not recorded such adjustment in its financial record. V. Based on the recoverable value of the investment of associate at 31 December 2019, the premium on acquisition for Happy Ltd was reduced to $1,100,000. vi. During the year, Happy Ltd paid the management fee of $600,000 to Big Ltd for the service provided. Required: a. Determine whether Happy Ltd is an associated company of Big Ltd. (3 marks) b. Provide the journal entries in the book of Big Ltd in respect of the dividend received from Happy Ltd for the year of 2019. (3 marks) c. Compute the premium paid for the acquisition of associate on the assumption that Happy Ltd is an associate company of Big Ltd. (3 marks) d. Further to part c, provide the journal entries for the consolidated statement of financial position of Big Ltd for the year of 2019 in respect of Happy Ltd. (10 marks)

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