Answer for question B ( i, ii, iii, iv) is required. On 1 January 2015, Star Ltd acquired 75% of the ordinary shares of Shine Ltd in Hong Kong to form Star-Shine Group (SSG). At that date the balance...

Answer for question B ( i, ii, iii, iv) is required.

On 1 January 2015, Star Ltd acquired 75% of the ordinary shares of Shine Ltd in Hong Kong to form Star-Shine Group (SSG). At that date the balance on the retained earnings of Shine Ltd was Hong Kong Dollars (HK$) 1,700,000. The non-controlling interest in Shine was measured as the proportionate share of the net assets of the subsidiary. No shares have been issued by Shine since acquisition. The summarised income statements and balance sheets of Star Ltd and Shine Ltd as at 31 December 2019 were as follows:

The following further information is available:

(i) An amount of HK$ 200,000 was written off goodwill as an impairment charge in the current year and HK$ 140,000 in the previous year.

(ii) On 23 March 2019, Star Ltd sold goods £2,250,000 to Shine Ltd, making a profit of 20% on cost. At the year end, one third of these raw materials were still in the inventory of Shine Ltd, and the inter-company transactions have not been eliminated from the financial statements. The goods were recorded by Shine at the exchange rate ruling on 23 March 2019.

(iii) Exchange rates were as follows:

At 1 January 2015 GB£ 1= HK$ 15.52

Average for the year ending 31 December 2019 GB£ 1= HK$ 10.05

At 31 December 2018/ 1 January 2019 GB£ 1= HK$   9.92

At 31 December 2019 GB£ 1= HK$ 10.25

Required:

(b) Showing clearly all your workings:

(i) Calculate the goodwill arising from the acquisition of Shine Ltd in GB£.

(ii) Compute SSG’s retained earnings and non-controlling interest as at 31 December 2019.

(iii) Prepare SSG’s Consolidated Income Statement for the year ended 31 December 2019.