Accounting for an associate within — and where there are no — consolidated financial statements   LO3, 4, 5 On 1 July 2018, Flying Ltd purchased 40% of the shares of Fox Ltd for $63 200. At that date, equity of Fox Ltd consisted of: Share capital $125 000 Retained earnings 11 000 At 1 July 2018, the identifiable assets and liabilities of Fox Ltd were recorded at fair value. Information about income and changes in equity for both companies for the year ended 30 June 2021 was as follows. Flying Ltd Fox Ltd Profit before tax $26 000 $23 500 Income tax expense 10 600 5 400 Profit 15 400 18 100 Retained earnings (1/7/20) 18 000 16 000 33 400 34 100 Dividend paid 5 000 4 000 Dividend declared 10 000 5 000 15 000 9 000 Retained earnings (30/6/21) $18 400 $25 100 Additional information • Flying Ltd recognises dividends as revenue when they are declared by the investee. • On 31 December 2019, Fox Ltd sold Flying Ltd a motor vehicle for $12 000. The vehicle had originally cost Fox Ltd $18 000 and was written down to $9000 for both tax and accounting purposes at time of sale to Flying Ltd. Both companies depreciated motor vehicles at the rate of 20% p.a. on cost. • The beginning inventories of Fox Ltd included goods at $4000 bought from Flying Ltd; their cost to Flying Ltd was $3200. • The ending inventories of Flying Ltd included goods purchased from Fox Ltd at a profit before tax of $1600. • The tax rate is 30%. Required 1. Prepare the journal entries in the records of Flying Ltd to account for the investment in Fox Ltd under the equity method for the year ended 30 June 2021 assuming Flying Ltd does not prepare consolidated financial statements. 2. Prepare the consolidated worksheet entries in relation to the investment in Fox Ltd, assuming Flying Ltd does prepare consolidated financial statements at 30 June 2021.