Parent Ltd acquired equity in Sub Ltd on 1 April 2009. At that date, the identifiable net assets were considered to be fairly valued and the equity of Sub Ltd comprised:

Share capital	$700 000
Asset revaluation surplus	45 000
Retained earnings	278 000
	$1 023 000

Parent Ltd has requested your help in the preparation of their consolidated financial statements for the financial year ended 31 March 2019 and has provided you with the following information:

• During March 2018Sub Ltd made sales to Parent Ltd of $8 000 and recognised a profit of $4 200. Parent Ltd sold this purchase of inventory to Robert Ltd during May 2018.
• During March 2019 Sub Ltd made sales to Parent Ltd of $ 8 500. The inventory sold has cost Sub Ltd $5 400. At 31 March 2019, the inventory Parent Ltd had on hand included this purchase from Sub Ltd.
• Parent Ltd borrowed $60 000 from Sub Ltd during November 2017. Interest of $1 200 is outstanding on this loan as at 31 March 2019. The total interest for the financial year ended 31 March 2019 was $1 500.
• In 2011 the total goodwill of Sub Ltd was considered by the directors to be impaired by $ 15 000 and impaired again in 2016 by $ 72 600. The directors of Parent Ltd believe that the total goodwill has been further impaired by $63 000 during this financial year ended 31 March 2019.

.During March 2018Parent Ltd made sales to Sub Ltd of $3 200 and recognised a profit of $1 600. Sub Ltd sold this inventory to Alex Ltd on 31 March 2018.

• During March 2019Parent Ltd made sales to Sub Ltd of $4 860. The inventory sold has cost Parent Ltd $2 000. The inventory of Sub Ltd at 31 March 2019 included this purchase.
• At 31 March 2019 Sub Ltd declared a finaldividend of $120 000 and Parent Ltd declared a final dividend of $75 000. Both these dividends were paid during April 2019.
• Parent Ltd rents a small office to Sub Ltd at a cost of $26 000 per annum. At 31 March 2019, Sub Ltd still owed Parent Ltd $5 000 of rental for the year ended 31 March 2019.

Question 1 continued:

Required:

(a) Assume Parent Ltd only acquired 42% of the equity in Sub Ltd for $600 000 on

1 April 2009. The following equity account balances have been extracted from the financial statements of Sub Ltd on 31 March 2019:

Share capital		$700 000
Asset revaluation surplus		70 000
Retained earnings
Retained earnings-opening balance	300 000
Profit after tax	539 000
Less dividends declared	180 000	659 000
		$ 1 429 000

Prepare the notional journal entry, at 31 March 2019, to account for Parent Ltds investment in Sub Ltd using the equity method as required by NZ IAS 28 Investments in Associates. The directors do not believe the investment has ever been impaired. The tax rate is 28%.

Complete a quick estimate, in the space provided, to support your notional journal entry.

Note: Your workings mustbe included on each line of your notional journal entry.

(b) Refer back to your answer for (a) and determine the amount at which the investment asset will be measured at, after being equity accounted for, in the financial statements as at 31 March 2019. Show your workings.

(a) Notional journal entry, for equity accounting, on 31 March 2019 Your workings must be shown on each line of the notional journal entry below:
	$	$

Workings to be shown of the quick estimate:

(b) The investment asset, after being equity accounted for, will be measured at	$
Workings: