Investment in associates

Abby Ltd acquired 30% of the issued ordinary shares of Binny Ltd for $160,000 on 1 July 2018. The equity of Binny Ltd at that date was as follows. All assets were recorded at fair value.

$

Ordinary shares

250,000

Retained earnings

175,000

At 30 June 2019, Abby Ltd had inventories costing $60,000 on hand which had been purchased from Binny Ltd. Binny Ltd had recognised a profit before tax of $25,000 on the sales.

At 30 June 2019, Binny Ltd had inventories costing $20,000 on hand which had been purchased from Abby Ltd. Abby Ltd had recognised a profit before tax of $5,000 on the sales.

For the year ended 30 June 2019, the income and changes in equity of Binny Ltd are as follows:

$

Profit before income tax

175,000

Income tax expense

(55,000)

Profit after income tax

120,000

Retained earnings at 1 July 2018

175,000

295,000

Dividends paid

(30,000)

Dividends declared

(20,000)

Retained earnings at 30 June 2019

245,000

Additional information:

All dividends are paid/declared out of the current year profit.

Abby Ltd recognises dividends as revenue when they are declared by the investee.

The tax rate is 30%.

Required:

Prepare an acquisition analysis in relation to the acquisition made by Abby Ltd.

Prepare the equity journal entries to account for Abby Ltds investment in Binny Ltd for the year ended 30 June 2019, assuming that Abby Ltd prepares consolidated financial statements. Show all workings.