Portsmouth Ltd is a manufacturer of sunglasses and Skyline Ltd is a manufacturer of sunscreens. In...

 

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Portsmouth Ltd is a manufacturer of sunglasses and Skyline Ltd is a manufacturer of sunscreens. In anticipation of high revenue growth rate of Skyline Ltd, on 1 January 2022, Portsmouth Ltd acquired 70% of the shares of Skyline Ltd by paying $33,800 cash to Skyline Ltd. The fair value of the non-controlling interests was $13,600 on the acquisition day. The followings reflect the financial performance and financial position of both companies on 31 December 2022. Income Statement for the year ended 31 December 2022 Portsmouth Ltd $ Sales Cost of sales Gross profit Other expenses Operating profit Dividend income from Skyline Ltd Profit before tax Tax expense Profit after tax Dividends declared Profit retained Retained earnings on 1 Janaurary Retained earnings on 31 Janaurary 20,360 (2,690) 17,670 (1,965) 15,705 98 15,803 (3,141) 12,662 (300) 12,362 8,428 20,790 Skyline Ltd $ 9,757 (1,296) 8,461 (870) 7,591 7,591 (1,518) 6,073 (140) 5,933 5,100 11,033 Three months before the acquisition, several workers of Skyline Ltd were injured owing to the unsafe working condition in one of the production lines Accordingly, these workers took legal action against the company for claiming damages. As of 31 December 2021, the verdict for this legal case was still pending and the company's experienced lawyer opined that the outcome is not probable based on the following estimations: Win the lawsuit Lose the lawsuit Probability 0.7 0.3 Damages to be paid within 1 year Nil $29,000 Therefore, on 31 December 2021, the above event was disclosed as a contingent liability in the notes to financial statements of Skyline Ltd. The accounting policy of Portsmouth Ltd requires that the measurement of NCI on acquisition day should be based on fair value approach. Tax rate is 20%. Required: (All figures should be rounded to zero decimal place.) 1. Based on the relevant International Financial Reporting Standard, prepare the following consolidation journal entries for the year ended 31 December 2022 (Narratives are not required.) (21 marks) CJEI: Eliminate Investment in Skyline Ltd CJE2: Adjustment of depreciation and amortization on FV change of S Ltd's asset CJE3: Adjustment of tax effect of CJE2 CJE4: Elimination of dividends income and declared between P Ltd and S Ltd CJES: Allocate post-acquisition profits of Skyline Ltd to NCI Portsmouth Ltd is a manufacturer of sunglasses and Skyline Ltd is a manufacturer of sunscreens. In anticipation of high revenue growth rate of Skyline Ltd, on 1 January 2022, Portsmouth Ltd acquired 70% of the shares of Skyline Ltd by paying $33,800 cash to Skyline Ltd. The fair value of the non-controlling interests was $13,600 on the acquisition day. The followings reflect the financial performance and financial position of both companies on 31 December 2022. Income Statement for the year ended 31 December 2022 Portsmouth Ltd $ Sales Cost of sales Gross profit Other expenses Operating profit Dividend income from Skyline Ltd Profit before tax Tax expense Profit after tax Dividends declared Profit retained Retained earnings on 1 Janaurary Retained earnings on 31 Janaurary 20,360 (2,690) 17,670 (1,965) 15,705 98 15,803 (3,141) 12,662 (300) 12,362 8,428 20,790 Skyline Ltd $ 9,757 (1,296) 8,461 (870) 7,591 7,591 (1,518) 6,073 (140) 5,933 5,100 11,033 Three months before the acquisition, several workers of Skyline Ltd were injured owing to the unsafe working condition in one of the production lines Accordingly, these workers took legal action against the company for claiming damages. As of 31 December 2021, the verdict for this legal case was still pending and the company's experienced lawyer opined that the outcome is not probable based on the following estimations: Win the lawsuit Lose the lawsuit Probability 0.7 0.3 Damages to be paid within 1 year Nil $29,000 Therefore, on 31 December 2021, the above event was disclosed as a contingent liability in the notes to financial statements of Skyline Ltd. The accounting policy of Portsmouth Ltd requires that the measurement of NCI on acquisition day should be based on fair value approach. Tax rate is 20%. Required: (All figures should be rounded to zero decimal place.) 1. Based on the relevant International Financial Reporting Standard, prepare the following consolidation journal entries for the year ended 31 December 2022 (Narratives are not required.) (21 marks) CJEI: Eliminate Investment in Skyline Ltd CJE2: Adjustment of depreciation and amortization on FV change of S Ltd's asset CJE3: Adjustment of tax effect of CJE2 CJE4: Elimination of dividends income and declared between P Ltd and S Ltd CJES: Allocate post-acquisition profits of Skyline Ltd to NCI

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