Assignment task:
On 1 July 2017, Abe Ltd acquired 30% of the shares of Jason Ltd for $82,000. The directors of Abe Ltd believe that Abe Ltd exerts 'significant influence' over Jason Ltd. All the identifiable assets and liabilities of Jason Ltd at the date of acquisition were recorded in their books at fair value except for plant with a fair value of $20,000 in excess of its carrying amount. The plant is expected to have a further 5 years' useful life.
1. Abe Ltd recognises dividends as revenue when declared by its investee companies. All dividends are assumed to be out of current year profits.
2. On 1 January 2018, Jason Ltd sold an item of equipment to Abe Ltd, carrying amount at date of sale was $20,000, for $30,000. Abe Ltd depreciates this equipment at 20% per annum.
3. At 30 June 2019, Abe Ltd had unsold inventories costing $50,000 (2018: $80,000) which had been purchased from Jason Ltd. Jason Ltd has recorded a profit before tax of $11,000 (2018: $16,000) in its books for the respective years.
4. Jason Ltd recorded an asset revaluation surplus in the year ended 30 June 2018.
5. Jason Ltd also transferred $8,000 from retained earnings to general reserve in the year ended 30 June 2018
Please explain why for Jason's Adjusted profit, year ended 30 June 2018 : The unrealised profit in ending inventory is $11,200 = 11,000 × (1 - 30%)