Question
1. On 1 January 2018, SuperCha Ltd, a bubble milk tea chain, acquired a 30 per cent interest in HighlandTea Ltd for $120,000 in cash.
1. On 1 January 2018, SuperCha Ltd, a bubble milk tea chain, acquired a 30 per cent interest in HighlandTea Ltd for $120,000 in cash. As at the acquisition date, the assets of HighlandTea Ltd were reported at fair value. In addition:
For the year ended 31 December 2018, HighlandTea Ltd recorded an after-tax loss of $20,000.
For the year ended 31 December 2019, HighlandTea Ltd recorded an after-tax profit of $40,000 and paid a dividend of $5,000.
Record the relevant equity accounting adjustments in the books of SuperCha Ltd for the year ending 31 December 2019 only. SuperCha Ltd accounts for its investment in HighlandTea Ltd using equity accounting (record one account in each line).
2. Following from above, what is the value of the Investment in Associate recorded in SuperCha Ltd's books as at 31 December 2019.
3. SuperCha Ltd also owns 46% of another company, DentTea Ltd. DentTea Ltd was started by Arthur Dent, and the remaining 54% of shares are still owned by Dent Family members. The Dent Family is very large (over 100 people) and family members do not get along with each other. Currently, SuperCha Ltd controls 3 out of the 5 Board of Director seats for DentTea Ltd. How should SuperCha Ltd account for its investment in DentTea Ltd? Explain why and motivate your answer with reference to the definition of control.
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