Answer and Explanation:
1. For computation of the non-controlling interest as at 30 June 2019 is shown below:-
Adjusted profit = Profit tax after the year - Unrealized gain in stock - Gain on machinery
= $200,000 - $10,500 - $10,500
= $179,000
Non-controlling interest as at 30 June 2019 = Share capital + Retained earning + General reserve + Profit of the year June 2019
= ($800,000 × 20%) + ($200,000 × 20%) + ($400,000 × 20%) + ($179,000 × 20%)
= $160,000 + $40,000 + $80,000 + $35,800
= $315,800
2. The Journal entries are shown below:-
a. Profit for the year Dr, $21,000
To Stock reserves $10,500
To Equipment reserve $10,500
(Being reserves is recorded)
Working note:
For stock reserve
Sale price $120,000
Cost $60,000
Profit before tax $60,000
Tax at 30% $18,000
Profit after tax $42,000
Unsold stock 25%
Unrealized profit $10,500
For net gain on sale of machinery
Sale price $80,000
Cost $60,000
Profit before tax $20,000
Tax at 30% $6,000
Profit after tax $14,000
Unsold stock 75% (3 years from 4 years)
Unrealized profit $10,500
b. Profit for the year Dr, $179,000
To Consolidated reserves and surplus $35,800
To Non controlling interest $143,200
(Being profit of expert ltd. is recorded)
Working note
Share of non controlling stakeholders = 20% × $179,000
= $35,800
Share of Giant Ltd. = 80% × $179,000
= $143,200
We do not make any adjustment with respect to consultancy fees
