Calculate the goodwill arising from the acquisition of Shine Ltd in GB£. Compute SSG’s retained earnings and non-controlling interest as at 31 December 2019. Prepare SSG’s Consolidated Income Statement for the year ended 31 December 2019.
On 1 January 2015, Star Ltd acquired 75% of the ordinary shares of Shine Ltd in Hong Kong to form Star-Shine Group (SSG). At that date the balance on the
Income Statement for the year ended 31 December 2019 |
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|
|
Star |
Shine |
|
|
|
GB£ |
HK$ |
|
Sales |
37,422,000 |
9,504,000 |
|
|
Opening inventories |
4,158,000 |
1,259,280 |
|
|
Purchases |
20,790,000 |
5,346,000 |
|
|
Closing inventories |
1,485,000 |
1,021,680 |
|
|
Cost of sales |
23,463,000 |
5,583,600 |
|
|
|
|
|
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Gross profit |
13,959,000 |
3,920,400 |
|
|
|
|
|
|
|
|
2,376,000 |
712,800 |
|
|
Other expenses |
629,640 |
237,600 |
|
|
Interest paid |
415,800 |
118,800 |
|
|
Total expenses |
3,421,440 |
1,069,200 |
|
|
|
|
|
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Profit before tax |
10,537,560 |
2,851,200 |
|
|
|
2,673,000 |
712,800 |
|
|
Profit after tax |
7,864,560 |
2,138,400 |
|
Balance Sheet as on 31 December 2019 |
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Star |
Shine |
||
|
|
GB£ |
HK$ |
Non-current assets |
8,316,000 |
5,464,800 |
|
Investment in Shine Ltd |
267300 |
- |
|
Current assets: |
|
|
|
Inventories |
1,485,000 |
1,021,680 |
|
Trade receivables |
3,593,700 |
1,306,800 |
|
Shine Ltd |
85,950 |
- |
|
Cash |
653,400 |
47,520 |
|
Total current assets |
5,818,050 |
2,376,000 |
|
Total Assets |
14,401,350 |
7,840,800 |
|
Current liabilities: |
|
|
|
Trade payables |
3,564,000 |
1,069,200 |
|
Star Ltd |
880,988 |
||
Taxation |
1,188,000 |
831,600 |
|
Total current liabilities |
4,752,000 |
2,781,788 |
|
Debentures |
2,970,000 |
950,400 |
|
Total assets less liabilities |
6,679,350 |
4,108,612 |
|
|
|
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Capital and reserves |
|
|
|
Share capital |
2,922,300 |
359,750 |
|
Retained earnings |
3,757,050 |
3,748,862 |
|
6,679,350 |
4,108,612 |
The following further information is available:
- An amount of HK$ 200,000 was written off
goodwill as an impairment charge in the current year and HK$ 140,000 in the previous year.
- On 23 March 2019, Star Ltd sold goods £2,250,000 to Shine Ltd, making a profit of 20% on cost. At the year end, one third of these raw materials were still in the inventory of Shine Ltd, and the inter-company transactions have not been eliminated from the financial statements. The goods were recorded by Shine at the exchange rate ruling on 23 March 2019.
- Exchange rates were as follows:
At 1 January 2015 GB£ 1= HK$ 15.52
Average for the year ending 31 December 2019 GB£ 1= HK$ 10.05
At 31 December 2018/ 1 January 2019 GB£ 1= HK$ 9.92
At 31 December 2019 GB£ 1= HK$ 10.25
Required:
- If the functional currency of Shine Ltd is HK$, which translation method is applicable to translate Shine’s financial statements to GB£ and why?
- Showing clearly all your workings:
- Calculate the goodwill arising from the acquisition of Shine Ltd in GB£.
- Compute SSG’s retained earnings and non-controlling interest as at 31 December 2019.
- Prepare SSG’s Consolidated Income Statement for the year ended 31 December 2019.
- Prepare SSG’s Consolidated Balance Sheet for the year ended 31 December 2019.
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