> Sovereign Investments Ltd purchased 100% of Agent International Trading Ltd for $2,400,000 on 01/07/2020. >At...

  

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> Sovereign Investments Ltd purchased 100% of Agent International Trading Ltd for $2,400,000 on 01/07/2020. >At the date of aquisition, the books of Agent showed: Share capital: $1,400,000 General reserve: $452,000 Retained earnings: $49,000 TOTAL EQUITY: $2,301,000 ➤ At date of acquisition, all identifiable net assets of Agent were recorded at fair value, with the exception of a block of land. The land had a carrying value of $970,000 but a fair value of $1,040,000 ➤ Over the 2022 financial year, Agent paid Sovereign $67,200 in management fees. Sovereign booked this income to 'Service revenue'. > Sovereign invested a further $400,000 in Loan in Agent. Interest was paid at an annual rate of 13%. All interest has been fully paid/received during the financial year. > Sovereign holds no investments in equities, other than their investment in Agent International Trading Ltd. Both companies use accrual accounting when recognising interest and dividends (both paid and received). ➤ The board of directors at Sovereign declared an interim dividend of $146,500 on 20 Dec 2021 and was paid 28 days later. Final dividends for Sovereign of $244,200 was declared on 25 June 2022, and paid 28 days following. ➤ The board of directors at Agent declared an interim dividend of $49,550 on 20 Dec 2021 and was paid 30 days later. Final dividend for Agent of $66,100 was declared on 20 June 2022, and paid 28 days following. > Over the financial year, Agent purchased $1,730,000 of inventory from Sovereign, which had originally cost them $930,000. By 30 June 2022, only 65% remained on hand. > On 01/07/2020, Sovereign sold a machine to Agent for $447,000. The original cost of the asset was $1,450,000, and at the time of the sale accumulated depreciation was $892,000. > The machine was estimated to have a useful remaining life of 6 years and nil residual value. Both companies use straight line depreciation. ➤ The company tax rate is 30%. Assume all sales are made on credit. Ignore franking credits, GST and Superannuation. ➤ Both companies are in a similar industry and use the financial year ending 30 June. The majority of income arises from the wholesale of products with a minority of service fee revenue. > Sovereign Investments Ltd purchased 100% of Agent International Trading Ltd for $2,400,000 on 01/07/2020. >At the date of aquisition, the books of Agent showed: Share capital: $1,400,000 General reserve: $452,000 Retained earnings: $49,000 TOTAL EQUITY: $2,301,000 ➤ At date of acquisition, all identifiable net assets of Agent were recorded at fair value, with the exception of a block of land. The land had a carrying value of $970,000 but a fair value of $1,040,000 ➤ Over the 2022 financial year, Agent paid Sovereign $67,200 in management fees. Sovereign booked this income to 'Service revenue'. > Sovereign invested a further $400,000 in Loan in Agent. Interest was paid at an annual rate of 13%. All interest has been fully paid/received during the financial year. > Sovereign holds no investments in equities, other than their investment in Agent International Trading Ltd. Both companies use accrual accounting when recognising interest and dividends (both paid and received). ➤ The board of directors at Sovereign declared an interim dividend of $146,500 on 20 Dec 2021 and was paid 28 days later. Final dividends for Sovereign of $244,200 was declared on 25 June 2022, and paid 28 days following. ➤ The board of directors at Agent declared an interim dividend of $49,550 on 20 Dec 2021 and was paid 30 days later. Final dividend for Agent of $66,100 was declared on 20 June 2022, and paid 28 days following. > Over the financial year, Agent purchased $1,730,000 of inventory from Sovereign, which had originally cost them $930,000. By 30 June 2022, only 65% remained on hand. > On 01/07/2020, Sovereign sold a machine to Agent for $447,000. The original cost of the asset was $1,450,000, and at the time of the sale accumulated depreciation was $892,000. > The machine was estimated to have a useful remaining life of 6 years and nil residual value. Both companies use straight line depreciation. ➤ The company tax rate is 30%. Assume all sales are made on credit. Ignore franking credits, GST and Superannuation. ➤ Both companies are in a similar industry and use the financial year ending 30 June. The majority of income arises from the wholesale of products with a minority of service fee revenue.

Answer rating: 100% (QA)

Journal Entries in the Books of Agent Particulars Debit Credit Naration Bank Ac Dr To Soverign 2400000 2400000 Purchase Consideration Paid SoverignAc ... View the full answer