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 Gammas 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. Required: a) Prepare 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. Note 1) Use the provided journal entry template to enter your answer. 2) Workings/calculations or narrations are NOT required. 3) The template should provide enough space. However, if you find the space is insufficient in the template or encounter a table formatting issue, write your journal entries below the template and ensure labelling DR or CR. b) Calculate the carrying amount of Gamma's investment in Delta Ltd as at 30 June 2022. Show workings. c) What items of the associate are recognised under the Equity Method as compared to the Cost Method?
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