On 1 July 20X6, a parent entity, Chalk Ltd, acquired 40% of the voting shares of Cheese Pty Ltd for $3,200,000 cash and obtained significant influence over that company. On the date of acquisition Cheese Pty Ltd had identifiable net assets and liabilities at fair value represented by the following equity items: Extracts from the accounting records of Chalk Ltd and Cheese Pty Ltd for the year ended

30 June 2009 are as follows:

Additional information:

(a) At 30 June 20X9, Chalk Ltd held inventories that had been supplied by Cheese Pty

Ltd at a profit of $70,000.

(b) At 30 June 20X8, Cheese Pty Ltd held inventories that had been supplied by Chalk

Ltd at a profit of $50,000. In addition, Chalk Ltd held inventories that had been

supplied by Cheese Pty Ltd at a profit of $80,000.

(c) Chalk Ltd uses the cost method to account for its investment in Cheese Pty Ltd in

its separate financial statements as there is no quoted market price for Cheese Pty

Ltd shares.

(d) Chalk Ltd applies the equity method of accounting for its associates in its

consolidated financial statements.

(e) Cheese Pty Ltd declared and paid a dividend of $500,000 for year ended 30 June

20X9.

(f) Cheese Pty Ltd recognised net increments in General Reserve and Revaluation

Surplus in year ended 30 June 20X8. No further changes occurred to these

accounts in year ended 30 June 20X9.

(g) At 30 June 20X9, Chalk Ltd estimated that the recoverable amount of its

investment in Cheese Pty Ltd was $6,000,000. All impairment losses in relation to

Chalk Ltds investment in Cheese Pty Ltd are recognised as an equity accounting

adjustment in the Chalk Ltd group consolidation worksheet. No impairment on the

investment has been recorded for prior periods.

(h) The tax rate is 30%.

Required:

Prepare the adjusting entries required in Chalk Ltds consolidated financial statements

to apply the equity accounting method to its investment in Cheese Pty Ltd for the year

ended 30 June 20X9 in accordance with AASB 128.

\begin{tabular}{|l|l|} \hline & $000 \\ \hline Share capital & 3,500 \\ \hline Revaluation surplus & 1,000 \\ \hline Retained earnings & 3,000 \\ \hline Total equity & 7,500 \\ \hline \end{tabular} \begin{tabular}{|l|c|c|} \hline & Chalk Ltd & Cheese Pty Ltd \\ \hline & $000 & $000 \\ \hline Profit after tax & 4,500 & 3,950 \\ \hline Retained earnings 1/7/X8 & 4,100 & 4,700 \\ \hline General reserve & 3,000 & 2,000 \\ \hline Revaluation surplus & 4,000 & 2,000 \\ \hline Share capital & 6,000 & 3,500 \\ \hline Total equity & 26,100 & 16,150 \\ \hline \end{tabular}