Fan Ltd Acquired a 60 Per Cent Interest in Dance

Multiple Choice

Fan Ltd acquired a 60 per cent interest in Dance Ltd on 1 July 2012 for a cash consideration of $780 000.At that date the fair value of the net assets of Dance Ltd was represented by: $$\begin{array} { | l | r | } \hline \text { Share capital } & 860000 \\\hline \text { Asset revaluation reserve } & 120000 \\\hline \text { Retained earnings } & \underline { 290000 } \\\hline & \underline { 1270000 } \\\hline\end{array}$$ On 30 June 2015 Fan Ltd sold all its shares in Dance Ltd for $880 000.At this date the fair value of the net assets of Dance Ltd was represented by:
$$\begin{array} { | l | r | } \hline \text { Share capital } & 860000 \\\hline \text { Asset revaluation reserve } & 240000 \\\hline \text { Retained earnings } & \underline{350000 }\\\hline & \underline{1450000} \\\hline\end{array}$$ The retained earnings of $350 000 include operating profit after tax of $20 000 from the current period.Impairment of goodwill was assessed at $5400,the impairment having been incurred evenly across the last three years.The investment has not been marked to market during the period that the shares were held.What is the elimination entry required for the consolidated accounts?

A)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Operating profit after tax } & 10200 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 20400 & \\\hline \mathrm { Dr } & \text { Asset revaluation reserve } & 72000 & \\\hline \mathrm { Cr } & \text { Profit on sale of investment } & & 100000 \\\hline \mathrm { Cr } & \text { Profit on sale of subsidiary } & & 2600 \\\hline\end{array}$$
B)
$$\begin{array} { | r | l | r | r | } \hline \mathrm { Dr } & \text { Profit on sale of investment } & 118000 & \\\hline \mathrm { Dr } & \text { Loss on sale of subsidiary } & 62000 & \\\hline \mathrm { Cr } & \text { Operating profit after tax } & & 20000 \\\hline \mathrm { Cr } & \text { Retained earnings } & & 40000 \\\hline \mathrm { Cr } & \text { Asset revaluation reserve } & & 120000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Profit on sale of investment } & 100000 & \\\hline \mathrm { Dr } & \text { Loss on sale of subsidiary } & 2600 & \\\hline \mathrm { Cr } & \text { Operating profit after tax } & & 10200 \\\hline \mathrm { Cr } & \text { Retained earnings } & & 20400 \\\hline \mathrm { Cr } & \text { Asset revaluation reserve } & & 72000 \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | r | r | } \hline \mathrm { Dr } & \text { Operating profit after tax } & 20000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 40000 & \\\hline \mathrm { Dr } & \text { Asset revaluation reserve } & 120000 & \\\hline \mathrm { Cr } & \text { Profit on sale of investment } & & 62000 \\\hline \mathrm { Cr } & \text { Profit on sale of subsidiary } & & 118000 \\\hline\end{array}$$