On 1 July 2018, Water Ltd acquired 35% of the share capital of Melon Ltd for $8,500. At that date the equity of Melon Ltd consisted of Share Capital $10,000 and Retained Earnings $2,500. All identifiable assets and liabilities of Melon Ltd were recorded at fair value except for the following:

Carrying AmountFair Value

Inventory$1,000$2,500

Depreciable Assets$6,000$10,000

Inventory was sold in the 12 months after 1 July 2018.The depreciable assets were considered to have a further 5 year life.

Additional Information:

(i)For the year ended 30 June 2020, Melon Ltd recorded a profit before tax of $5,900 and an income tax expense of $900.A dividend of $1,000 was paid.

(ii)Water Ltd regards Melon Ltd as an associated company.

(iii)During the year ended 30 June 2020, Melon Ltd sold inventory to Water Ltd for $6,000.The cost of this inventory to Melon Ltd was $3,000.Water Ltd has resold only 40% of this inventory making a profit before tax of $800.

(iv) On 1 January 2019, Water Ltd sold Melon Ltd equipment for $4,000 at a profit before tax of $1,500 to Water Ltd.Both companies charge depreciation of 20% p.a. straight line.

(v)Assume a tax rate of 30%.

Required:

In accordance with AASB 128 Investments in Associates:

a)Prepare the journal entry(s) in the records of Water Ltd in relation to the investment in Melon Ltd for the year ended 30 June 2020 assuming Water Ltd is not a parent company.