Question one: on the 1 July 2013, Alma Ltd purchased 40% of the shares of Liverpool Ltd for $ 70000, at this date the equity of Liverpool Ltd consisted of:

Share capital	$150000
Retained earnings	$ 80000

Retained earnings at 1 July 2014 was $ 110000.

At this date, all identifiable assets and liabilities of Chelsea Ltd were recorded at fair value except for:

Item	Carrying value	Fair value
Inventory	$ 10000	$ 20000
Plant	$ 25000	$ 50000

The inventory was all sold by 30 June, 2014. The plant had a future expected useful life of 5 years.

Additional information:

1. In September, 2013, Liverpool Ltd sold inventory to Alma Ltd for $16000, this inventory had previously cost Liverpool Ltd $10000. Half of this inventory was sold by Alma Ltd at the during 2015.
2. In February 2015, Alma Ltd sold inventory to Liverpool Ltd with a profit before tax of $12000. Only one third of this inventory was sold by Liverpool Ltd to external party during June, 2015.
3. In September 2013, Liverpool Ltd sold inventory to Alma Ltd for $ 20000, it was cost Liverpool Ltd $ 10000. Half of this inventory remained unsold at 30 June 2014. However, half of remaining items of inventory was sold by Alma to external party before 30 June 2015.
4. On 1 July, 2013, Alma Ltd sold an item of Machinery to Liverpool Ltd for $80000. This item had cost Alma Ltd $ 60000. This item ha       d a future 7 years life. The machinnary was sold to external party at the first of januart,2015.
5. On 1 January, 2013, Liverpool Ltd sold plant to Alma Ltd for $79000. This item had cost Liverpool Ltd $ 65000. This item had a future 4 years life. The plant was sold by Alma to SCCOTCH Power .Co at the 1, of April for $80000.

6. Tax rate 30%
7. Dividend declared and paid during 2015 was $ 14000.
8. Profit at 30 June 2015 was $65000
9. Assets revaluation surplus of Chelsea Ltd at 30 June 2015 was $4000. Whereas it was zero at 30 June 2014.
10. There is no transfer to general reserves during 2013 to 2015

Required:

Record the necessary entries at Sophia Account at the 30^th of June 2015 using the equity method assuming that Sophia Ltd is a Parent company.

Answer rating: 100% (QA)

JOURNAL ENTRIES S NO DATE PARTICULARS DEBIT CREDIT 1 2015 SEP INVENTORYDR 3000 TO ACCOUNTS PAYABLE 3... View the full answer