Question
Gamma Ltd acquired 25% of the voting shares of Delta Ltd on 1 July 2021 for $90 000. This acquisition resulted in Gamma Ltd having
Gamma Ltd acquired 25% of the voting shares of Delta Ltd on 1 July 2021 for $90 000. This acquisition resulted in Gamma Ltd having significant influence over Delta Ltd.
The following information relates to Delta Ltd as at 30 June 2022, the end of financial year FY2022:
Profit for FY2022 | 80 000 |
---|---|
Dividend paid out of the profit of FY2022 | 40 000 |
Additional information:
Alpha Ltd is 60% owned by Gamma Ltd and is Gamma's subsidiary.
During FY2022, Delta sold $100 000 of inventories to Alpha Ltd and made profit of $40 000. As at 30 June 2022, 30% of the inventories were still held by Alpha Ltd.
a) journal entries for Gamma Ltd in FY2022 to account for its investment in Delta Ltd using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Gamma shares from Delta, ensure labelling DR or CR.
b) the carrying amount of Gamma's investment in Delta Ltd as of 30 June 2022
c) What items of the association are recognised under the Equity Method as compared to the Cost Method?
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