Fish Ltd acquired an 80 per cent interest in Chips Ltd on 1 July 2003 for a cash consideration of $838,000.At that date the fair value of the net assets of Chips Ltd was represented by: On 30 June 2005 Fish Ltd sold all its shares in Chips Ltd for $950,000.At this date the fair value of the net assets of Chips Ltd was represented by:
The retained earnings of $490,000 includes operating profit after tax of $90,000 from the current period.Impairment of goodwill was assessed at $6,000.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 Fish Ltd during the period ended 30 June 2005?
A) $14,000
B) $112,000
C) $20,000
D) $118,000
E) None of the given answers.

Question

Fish Ltd acquired an 80 per cent interest in Chips Ltd on 1 July 2003 for a cash consideration of $838,000.At that date the fair value of the net assets of Chips Ltd was represented by:  On 30 June 2005 Fish Ltd sold all its shares in Chips Ltd for $950,000.At this date the fair value of the net assets of Chips Ltd was represented by:
 The retained earnings of $490,000 includes operating profit after tax of $90,000 from the current period.Impairment of goodwill was assessed at $6,000.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 Fish Ltd during the period ended 30 June 2005?
A) $14,000 
B) $112,000 
C) $20,000 
D) $118,000 
E) None of the given answers.

Quizplus · Accepted Answer

First, we need to calculate the carrying amount of investment in Chips Ltd by Fish Ltd as at 30 June 2005:

Cash consideration paid on 1 July 2003 = $838,000 
Add: Share of post-acquisition profit (80% x $90,000) = $72,000 
Less: Impairment of goodwill = $6,000 
Carrying amount of investment as at 30 June 2005 = $904,000

Next, we need to calculate the gain on sale of investment:

Sale consideration received on 30 June 2005 = $950,000 
Less: Carrying amount of investment as at 30 June 2005 = $904,000 
Gain on sale of investment = $46,000

Therefore, the amount of profit on the sale of shares recognized in the books of Fish Ltd during the period ended 30 June 2005 is $46,000. However, the question asks for the amount of profit or loss, and since the answer is positive (i.e., gain), we can also express it as $46,000 profit or no loss. The closest option is B, which states $112,000, but that is not correct.

Fish Ltd Acquired an 80 Per Cent Interest in Chips