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Answer for question A is required

Answer for question A is required

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer for question A is required 

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 retained earnings of Shine Ltd was Hong Kong Dollars (HKS) 1,700,000. The non-controlling interest in Shine was measured as the proportionate share of the net assets of the subsidiary. No shares have been issued by Shine since acquisition. The summarised income statements and balance sheets of Star Ltd and Shine Ltd as at 31 December 2019 were as follows: Income Statement for the year ended 31 December 2019 Star Shine GB£ HK$ Sales 37,422,000 4,158,000 20,790,000 1,485,000 23,463,000 9,504,000 Opening inventories 1,259,280 Purchases 5,346,000 Closing inventories 1,021,680 Cost of sales 5,583,600 Gross profit 13,959,000 3,920,400 Depreciation Other expenses Interest paid Total expenses 2,376,000 712,800 629,640 237,600 415,800 3,421,440 118,800 1,069,200 Profit before tax 10,537,560 2,673,000 7,864,560 2,851,200 712,800 2,138,400 Тахation Profit after tax Balance Sheet as on 31 December 2019 Star Shine GB£ HK$ Non-current assets 8,316,000 5,464,800 Investment in Shine Ltd 267300 Current assets: Inventories 1,485,000 3,593,700 85,950 653,400 1,021,680 Trade receivables 1,306,800 Shine Ltd Cash 47,520 Total current assets 5,818,050 2,376,000 Total Assets 14,401,350 7,840,800
Transcribed Image Text: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 retained earnings of Shine Ltd was Hong Kong Dollars (HKS) 1,700,000. The non-controlling interest in Shine was measured as the proportionate share of the net assets of the subsidiary. No shares have been issued by Shine since acquisition. The summarised income statements and balance sheets of Star Ltd and Shine Ltd as at 31 December 2019 were as follows: Income Statement for the year ended 31 December 2019 Star Shine GB£ HK$ Sales 37,422,000 4,158,000 20,790,000 1,485,000 23,463,000 9,504,000 Opening inventories 1,259,280 Purchases 5,346,000 Closing inventories 1,021,680 Cost of sales 5,583,600 Gross profit 13,959,000 3,920,400 Depreciation Other expenses Interest paid Total expenses 2,376,000 712,800 629,640 237,600 415,800 3,421,440 118,800 1,069,200 Profit before tax 10,537,560 2,673,000 7,864,560 2,851,200 712,800 2,138,400 Тахation Profit after tax Balance Sheet as on 31 December 2019 Star Shine GB£ HK$ Non-current assets 8,316,000 5,464,800 Investment in Shine Ltd 267300 Current assets: Inventories 1,485,000 3,593,700 85,950 653,400 1,021,680 Trade receivables 1,306,800 Shine Ltd Cash 47,520 Total current assets 5,818,050 2,376,000 Total Assets 14,401,350 7,840,800
Current liabilities: Trade payables 1,069,200 880,988 831,600 3,564,000 Star Ltd Taxation 1,188,000 Total current liabilities 4,752,000 2,781,788 950,400 4,108,612 Debentures 2,970,000 6,679,350 Total assets less liabilities Capital and reserves Share capital Retained earnings 2,922,300 3,757,050 6,679,350 359,750 3,748,862 4,108,612 The following further information is available: (i) 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. (ii) Exchange rates were as follows: At 1 January 2015 Average for the year ending 31 December 2019 At 31 December 2018/ 1 January 2019 At 31 December 2019 (ii) GB£ 1= HK$ 15.52 GB£ 1= HK$ 10.05 GB£ 1= HK$ 9.92 GB£ 1= HK$ 10.25 Required: (a) If the functional currency of Shine Ltd is HK$, which translation method is applicable to translate Shine's financial statements to GB£ and why? (b) Showing clearly all your workings: (i) Calculate the goodwill arising from the acquisition of Shine Ltd in GB£. (ii) Compute SSG's retained earnings and non-controlling interest as at 31 December 2019. (iii) Prepare SSG's Consolidated Income Statement for the year ended 31 December 2019. (iv) Prepare SSG's Consolidated Balance Sheet for the year ended 31 December 2019.
Transcribed Image Text:Current liabilities: Trade payables 1,069,200 880,988 831,600 3,564,000 Star Ltd Taxation 1,188,000 Total current liabilities 4,752,000 2,781,788 950,400 4,108,612 Debentures 2,970,000 6,679,350 Total assets less liabilities Capital and reserves Share capital Retained earnings 2,922,300 3,757,050 6,679,350 359,750 3,748,862 4,108,612 The following further information is available: (i) An amount of HK$ 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. (ii) Exchange rates were as follows: At 1 January 2015 Average for the year ending 31 December 2019 At 31 December 2018/ 1 January 2019 At 31 December 2019 (ii) GB£ 1= HK$ 15.52 GB£ 1= HK$ 10.05 GB£ 1= HK$ 9.92 GB£ 1= HK$ 10.25 Required: (a) If the functional currency of Shine Ltd is HK$, which translation method is applicable to translate Shine's financial statements to GB£ and why? (b) Showing clearly all your workings: (i) Calculate the goodwill arising from the acquisition of Shine Ltd in GB£. (ii) Compute SSG's retained earnings and non-controlling interest as at 31 December 2019. (iii) Prepare SSG's Consolidated Income Statement for the year ended 31 December 2019. (iv) Prepare SSG's Consolidated Balance Sheet for the year ended 31 December 2019.
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