Question
Pine Ltd acquired a 40% interest in Apple Ltd for $265,000 on 1 July 2017.At that date, shareholders' equity of Apple Ltd consisted of: $
Pine Ltd acquired a 40% interest in Apple Ltd for $265,000 on 1 July 2017.At that date, shareholders' equity of Apple Ltd consisted of:
$
Share Capital
535,000
Retained Earnings
55,000
At 1 July 2017, the identifiable net assets of Apple Ltd were recorded at fair value.
Information about income and changes in equity for Apple Ltd for the year ended 30 June 2020 is as follows:
Apple Ltd
$
Revenue
500,000
Expenses
(340,000)
Profit before income tax
160,000
Income tax expense
(40,000)
Profit for the period
120,000
Retained earnings (1/7/19)
120,000
240,000
Dividend paid
(20,000)
Dividend declared
(40,000)
(60,000)
Retained earnings (30/6/20)
180,000
Additional information:
On 1 January 2019, Apple Ltd sold Pine Ltd an item of furniture for $50,000.The furniture had originally cost Apple Ltd $70,000 and had a carrying amount of $40,000 at the time of sale to Pine Ltd.Both companies depreciate furniture at the rate of 20% per annum on cost.
Apple Ltd sells goods to Pine Ltd at a profit.The inventory of Pine Ltd at 1 July 2019 included $3,000 unrealised profit as result of purchases from Apple Ltd.
Pine Ltd regards Apple Ltd as an 'associate' company.
The tax rate is 30%.
In accordance with AASB 128 Investments in Associates:
(a)Prepare the journal entry(s) in the records of Pine Ltd in relation to the investment in Apple Ltd for the year ended 30 June 2020 assuming Pine Ltd does not prepare consolidated financial statements.
(b)Prepare the consolidation worksheet general journal entry(s) in relation to the investment in Apple Ltd for the year ended 30 June 2020 assuming Pine Ltd prepares consolidated financial statements.
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