Topic : Investment in associates On 1 July 2016, Pandini Ltd acquired 25% of the
ID: 2553867 • Letter: T
Question
Topic : Investment in associates
On 1 July 2016, Pandini Ltd acquired 25% of the shares of Amani Ltd for $400,000. The acquisition of these shares gave Pandini Ltd significant influence over Amani Ltd. At this date, the equity of Amani Ltd consisted of:
share capital $660 000
general reserve 100 000
retained earnings 440 000
At 1 July 2016, all the identifiable assets and liabilities of Amani Ltd were recorded at amounts equal to their fair values except for:
carrying amount fair value
land $1200 000 1600 000
plant ( cost $1200 000) 1000 000 1100 000
The plant was considered to have a further useful life of 5 years. The land was revalued in the records of Amani Ltd and the revaluation model applied in the measurement of the land. The tax rate is 30%.
At 30 June 2018, Amani Ltd reported the following information:
$
Profit before tax
720,000
Income tax expense
(300,000)
Profit after tax
420,000
Retained earnings at 1 July 2017
820,000
1,240,000
Dividends paid
(40,000)
Dividends declared
(50,000)
Transfer to general reserve
(30,000)
(120,000)
Retained earnings at 30 June 2018
1,120,000
Share capital
640,000
General reserve
150,000
Asset revaluation surplus
310,000
Total equity
2,220,000
Amani Ltd also reported other comprehensive income relating to gains on revaluation of land of $10,000.
Required:
Prepare the journal entries for inclusion in the consolidation worksheet of Pandini Ltd at 30 June 2018 for the equity accounting of Amani Ltd.
be able to prepare accounts for each of the above-mentioned business combinations in accordance with relevant professional and statutory reporting requirements. thanks
Question 2
Max. marks allocated
Acquisition analysis
2
Workings
2
Consolidation entries
6
Total
10
$
Profit before tax
720,000
Income tax expense
(300,000)
Profit after tax
420,000
Retained earnings at 1 July 2017
820,000
1,240,000
Dividends paid
(40,000)
Dividends declared
(50,000)
Transfer to general reserve
(30,000)
(120,000)
Retained earnings at 30 June 2018
1,120,000
Share capital
640,000
General reserve
150,000
Asset revaluation surplus
310,000
Total equity
2,220,000
Explanation / Answer
Journal Entry in the books of Pandini Ltd. W/Note: Computation of Goodwill S. No. Account & Explanation Debit Credit Particular Amount a. Cash ($40000*25%) $10,000.00 Acquistion Cost $400,000 Dividend Receivable ($50000*25%) $12,500.00 Less: Book Value (1200000*25%) $300,000 Investment in Equity of Amani Ltd. $22,500.00 Excess Money Over Book Value $100,000 To record the Dividend Revenue Less: Adjusment fof Fair Value of Land & Plant $87,500 (500000)*(1-0.30)*25% b. Investment in Equity of Amani Ltd. $100,000.00 Goodwill $12,500 Income from Equity in Amani Ltd. $100,000.00 To Record the income from Amani Limited W/Note: Computation of Share in Net Income Particular Amount Amani's Net Income 2018 $105,000 ( 420000*25%) Less: Preaqcuision Adjustment Depreciation on Plant (100000/5)*25% $5,000 Share in Amani's Income $100,000
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