Black Ltd acquired an 80 per cent interest in White Ltd on 1 July 2013 for a cash consideration of $419 000.At that date the fair value of the net assets of White Ltd was represented by: $$\begin{array} { | l | r | }
\hline \text { Share capital } & 280000 \
\hline \text { Asset revaluation reserve } & 45000 \
\hline \text { Retained earnings } & 180000 \
\hline & 505000 \
\hline
\end{array}$$ On 30 June 2015 Black Ltd sold all its shares in White Ltd for $475 000.At this date the fair value of the net assets of White Ltd was represented by:
$$\begin{array} { | l | r | }
\hline \text { Share capital } & 280000 \
\hline \text { Asset revaluation reserve } & 60000 \
\hline \text { Retained earnings } & 245000 \
\hline & 585000 \
\hline
\end{array}$$ The retained earnings of $445 000 includes operating profit after tax of $45 000 from the current period.Impairment of goodwill was assessed at $3000.The investment has not been marked to market during the period that the shares were held.What is the amount of profit or loss on the sale of the shares recognised in the books of Black Ltd during the period ended 30 June 2015?

Question

Black Ltd acquired an 80 per cent interest in White Ltd on 1 July 2013 for a cash consideration of $419 000.At that date the fair value of the net assets of White Ltd was represented by: $$\begin{array} { | l | r | } 
\hline \text { Share capital } & 280000 \
\hline \text { Asset revaluation reserve } & 45000 \
\hline \text { Retained earnings } & 180000 \
\hline & 505000 \
\hline
\end{array}$$ On 30 June 2015 Black Ltd sold all its shares in White Ltd for $475 000.At this date the fair value of the net assets of White Ltd was represented by:
$$\begin{array} { | l | r | } 
\hline \text { Share capital } & 280000 \
\hline \text { Asset revaluation reserve } & 60000 \
\hline \text { Retained earnings } & 245000 \
\hline & 585000 \
\hline
\end{array}$$ The retained earnings of $445 000 includes operating profit after tax of $45 000 from the current period.Impairment of goodwill was assessed at $3000.The investment has not been marked to market during the period that the shares were held.What is the amount of profit or loss on the sale of the shares recognised in the books of Black Ltd during the period ended 30 June 2015?

Quizplus · Accepted Answer

The profit or loss on the sale of shares is calculated as the difference between the sale proceeds and the carrying amount of the investment at the time of sale. The carrying amount includes the initial cost of the investment, adjusted for the investor's share of the investee's net asset changes (including goodwill impairment) since acquisition. Initial investment was $419,000. The share of net assets at acquisition was 80% of $505,000 = $404,000. The share of net assets at sale was 80% of $585,000 = $468,000. The change in net assets is $468,000 - $404,000 = $64,000. Adjusting for goodwill impairment of $3,000, the adjusted carrying amount is $419,000 + $64,000 - $3,000 = $480,000. The sale proceeds were $475,000. Thus, the loss on sale is $480,000 - $475,000 = $5,000. However, since the correct answer is not listed, it appears there may have been a misunderstanding in the calculation or the provided options. The correct approach shows a calculation error; the profit or loss should be determined by the difference between the sale proceeds and the adjusted carrying amount of the investment.

Black Ltd Acquired an 80 Per Cent Interest in White