On 1 January 20X5 Edward Ltd gained control of Watts Ltd by acquiring 70% of its shares. Below is an extract of financial information of both entities as at 31 December 20X9, the end of the current year:

	Edward Ltd	Watts Ltd
Net profit	80,000	30,000
Retained profits (opening)	120,000	90,000
Profit available	200,000	120,000
less Dividend paid	20,000	9,000
Retained profits (ending)	180,000	111,000
Share capital	150,000	70,000
Owners’ equity	330,000	181,000

Additional information:

• The partial goodwill method is used. Impairment of consolidation goodwill was assessed to be $1,000 in 20X8.
• Watts sold inventory to Edward during 20X8 for $16,000. The cost of inventory to Watts was $10,000. All of this inventory was still in stock as at 31 December 20X9.
• Watts sold a vehicle to Edward on 31 December 20X6 for $36,000. The vehicle originally cost Watts $40,000 and had zero residual value. Watts depreciated the vehicle at the rate of 20% p.a. using the straight-line method. The vehicle was 1 year old at the time of the intragroup sale. The vehicle’s residual value and useful life were not affected by the sale. Edward depreciates the vehicle also using the straight-line method.
• Watts sold inventory to Edward in 20X9 at the price of $5,000. The mark-up on the sale was $2,000. During 20X9, 20% of the inventory was sold to external parties.

Required:

a) Based on the information above, prepare all the necessary elimination entries at 31 December 20X9. (Reminder: Dates/Narrations are not required for the entries. There will be no marks allocated to workings.)

b) Show NCI’s allocation for the year ended 31 December 20X9 for the following.

• Net profit
• Retained profits (opening)

Answer rating: 100% (QA)

Journal Entries for elemination transaction Date 30June 30June 30June ... View the full answer