Radio Ltd Acquired All the Issued Capital of Wave Ltd

question 30

Multiple Choice

Radio Ltd acquired all the issued capital of Wave Ltd on 1 July 2014 for cash consideration of $2 million.The fair value of the net assets of Wave Ltd at that date was $1.8 million as follows: $$\begin{array} { | l | r | } \hline \text { Share capital } & \$ 1000000 \\\hline \text { Retained earnings } & \underline{800000} \\\hline \text { Total equity } & \underline{\$ 1800000} \\\hline\end{array}$$ During the period ending 30 June 2015,Wave Ltd declare a dividend of $300 000 that is identified as being paid out of pre-acquisition profits.Goodwill had been determined to have impaired by $20 000 during the period.What consolidation journal entries would be required to prepare group accounts for the period ended 30 June 2015?

• A)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\
• \hline \mathrm { Dr } & \text { Retained earnings } & 500000 & \\
• \hline \mathrm { Dr } & \text { Goodwill } & 500000 & \\
• \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 2000000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Impairment loss } & 250000 & \\
• \hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 250000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\
• \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 300000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\
• \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\
• \hline
• \end{array}\]
• B)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\
• \hline \mathrm { Dr } & \text { Retained earnings } & 800000 & \\
• \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 1800000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Retained earnings } & 20000 & \\
• \hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 20000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\
• \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\
• \hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\
• \hline
• \end{array}\]
• C)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\
• \hline \mathrm { Dr } & \text { Retained earnings } & 500000 & \\
• \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 1500000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Impairment loss } & 20000 & \\
• \hline \mathrm { Cr } & \text { Retained earnings } & & 20000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\
• \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\
• \hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\
• \hline
• \end{array}\]
• D)
• \[\begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\
• \hline \mathrm { Dr } & \text { Retained earnings } & 800000 & \\
• \hline \mathrm { Dr } & \text { Goodwill } & 200000 & \\
• \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 2000000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Impairment loss -goodwill } & 20000 & \\
• \hline \mathrm { Cr } & \text { Accumulated impairment loss-goodwill } & & 20000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\
• \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\
• \hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\
• \hline
• \end{array}\]

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Definitions:

Total Variable Costs

The sum of all costs that vary with the level of output, such as materials and labor costs.

Earrings

Jewelry pieces designed to be worn on the earlobes or other parts of the ear.

Total Costs

The complete sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.

Earrings

Jewelry worn on the earlobes or other parts of the ear, often for adornment.