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 Capital200 000
Retained Earnings 70 000
Asset Revaluation Surplus30 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:
a)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.
b)Calculate the value of the investment of Lovren Ltd disclosed in the consolidated financial statements as at 30 June 2020. Show your workings.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started