Parent Ltd acquired 75% of the equity in Sub Ltd for $150 000 on 1 April 2004. Parent Ltd has provided you with the following general ledger account balances for the year ended 31 March 2021.

	Parent Ltd	Sub Ltd
Income statement/dividend items:	$	$
Income (all types of income)	522 500	275 000
Less expenses	410 000	197 000
Profit before tax	112 500	78 000
Less income tax expense	50 000	18 000
Profit after tax	62 500	60 000
Retained earnings opening balance	50 000	40 000
Less: dividends declared and paid	50 000	15 000
Balance Sheet items:
Retained earnings closing balance	62 500	85 000
Share capital	400 000	100 000
Various liabilities	127 900	70 000
Loan payable to Sub Ltd	2 100	-
Bank loan	92 500	30 000
Total equity and liabilities	$685 000	$285 000
Receivables	40 000	20 000
Inventory	120 000	55 000
Loan receivable	-	2 100
Non-current assets	375 000	207 900
Investment in Sub Ltd	150 000	-
Total assets	$685 000	$285 000

Additional information:

(i) On 1 April 2004, the equity of Sub Ltd comprised: Share capital of $100 000 and Retained

earnings of $30 000. The net assets of Sub Ltd were considered to be fairly valued at the date

of acquisition.

(ii)The directors decided that the goodwill arising on consolidation has been further impaired

by $4 000 at 31 March 2021. In previous years, the goodwill had been impaired by a total of

$26 000.

(iii) The non-controlling interest (NCI) is to be measured at fair value.

(iv) Towards the end of March 2020, Sub Ltd had made sales to Parent Ltd amounting to

$20 000. The inventory sold had cost Sub Ltd $15 000. The inventory of Parent Ltd as at

31 March 2020 included this purchase.

Question 1 continued:

Required:

Assume that Parent Ltd acquired 30% of the equity of Sub Ltd on 1 April 2004 and paid a cash sum of $60 000 for the acquisition; because of this acquisition, Parent Ltd has significant influence over Sub Ltd.

(a) Prepare a quick estimate of the proposed increase to the investment.

(b)Prepare the notional journal entry at 31 March 2021 to account for Parent Ltds investment in Sub Ltd (an associate); use the equity method as required by NZ IAS 28 Investments in Associates. The tax rate is 28%. Note: You must include your workings on each line of your notional journal entry.

(c) Reconcile your quick estimate to your notional journal entry dollar amount.

(d) Determine the amount at which the investment asset will be measured, after being equity accounted for, in the financial statements at 31 March 2021.

Answer booklet

(a) Quick estimate

(b) Notional journal entry on 31 March 2021	$	$

Question 1 continued:

(c) Reconciliation

(d) The Investment, after being equity accounted for, will be measured at:	$
Workings: