Question
On 1 July 2018 Becker Ltd acquired a 30% interest in Lovren Ltd for consideration of $120,000. At that date the equity of Lovren Ltd
On 1 July 2018 Becker Ltd acquired a 30% interest in Lovren Ltd for consideration of $120,000. At that date the equity of Lovren Ltd consisted of:
Share Capital 200 000
Retained Earnings 70 000
Asset Revaluation Surplus 30 000
300 000
All assets and liabilities of Lovren Ltd are recorded at fair value except for inventory which was recorded at $8,000 below its fair value. This entire inventory was sold to external parties by January 2019.
The following amounts represent the profit/(loss), dividends paid and asset revaluation surplus (ARS) balance by Lovren Ltd since acquisition:
Year ending 30/6/2020 $ | Year ending 30/6/2019 $ | |
Profit /(Loss) after tax | 30 000 | (20 000) |
Dividend paid | 8 000 | 6 000 |
ARS Balance | 44 000 | 36 000 |
On 1 January 2019, Becker Ltd sold an item of equipment to Lovren Ltd for $32,000. The equipment originally cost Becker Ltd $38,000 and had a carrying amount at the time of sale of $23,000. The equipment has a further five (5) year life. Both companies use the straight line method of depreciation.
Tax rate is 30%.
Required:
- Prepare the equity accounting journals to account for the Investment in Lovren Ltd in accordance with AASB 128 as at 30 June 2020. Assume Becker Ltd prepares consolidated financial statements and show all workings. (8 marks)
- Calculate the value of the investment of Lovren Ltd disclosed in the consolidated financial statements as at 30 June 2020. Show your workings. (2 marks)
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