Question
On 1 July 2021, Oldfield Ltd acquired 23% of the shares of Shadow Ltd for $340,000. There is a presumption that, as the shareholding is
On 1 July 2021, Oldfield Ltd acquired 23% of the shares of Shadow Ltd for $340,000. There is a presumption that, as the shareholding is greater than 20%, Oldfield Ltd exerts a significant influence over the management of Shadow Ltd.
At the date of the acquisition of the 23% shareholding the equity of Shadow Ltd was made up of:
Share capital $ 561,000
Retained earnings 374,000
General reserve 85,000
Total equity $ 1,020,000
At 1 July 2021, with the exception of land and plant and machinery, all the identifiable assets and liabilities of Shadow Ltd were recorded at their fair values.
Carrying amount Fair value
Land $ 935,000 $ 1,275,000
Plant and machinery (cost $780,000) 650,000 715,000
It was assessed that the plant and machinery would remain in operation for a further 5 years. With the revaluation of the land Shadow Ltd created an Asset Revaluation Surplus Account and measured the value of the land annually. The tax rate is 30%.
The following is an extract from the financial statements of Shadow Ltd for 30 June 2023:
Profit before tax $ 612,000
Income tax expense (255,000)
Profit after tax 357,000
Retained earnings at 1 July 2022 697,000
1,054,000
Dividends paid (34,000)
Dividends declared (42,500)
Transfer to general reserve (27,500)
Retained earnings at 30 June 2023 950,000
General reserve at 1 July 2022 102,000
Transfer from retained earnings 27,500
General reserve at 30 June 2023 129,500
Asset revaluation surplus at 1 July 2022 284,000
Other comprehensive income gains on revaluation 11,500
Asset revaluation surplus at 30 June 2023 295,500
Share capital at 30 June 2023 561,000
Total equity at 30 June 2023 $1,936,000
Required
Prepare the Oldfield Ltd journal entries to include its equity investment in Shadow Ltd in the consolidated financial statements at 30 June 2023.
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