Question 1: (25 marks)

On 1 July 2015, I Ltd. acquired a 30% interest in one of its suppliers, G Ltd., at a cost of 13,650. The directors of I Ltd. believe they exert 'significant influence' over G Ltd. The equity of G Ltd. at acquisition was:

Share capital (20000 shares) $20,000

Retained earnings $10,000

All the identifiable assets and liabilities of G Ltd. at 1 July 2015 were recorded at fair value except for some depreciable non-current assets with a fair value of $15,000 greater than carrying amount. These depreciable non-current assets are expected to have a 10-year life.

Additional information:

a) At 30 June 2017, I Ltd. had inventory costing $100,000 (in 2016: $60,000) on hand which had been purchased from G Ltd. A profit before tax of $30,000 (in 2016: $10,000) had been made on the sale.

b) All dividends may be assumed to be out of the profit for the current year. Dividend revenue is recognised when declared by directors.

c) Information about income and changes in equity of G Ltd. as at 30 June 2017 was:

Profit before tax $360,000

Income tax expense $180,000

Profit $180,000

Retained earnings at 1/7/16$55,000

$235,000

Dividend paid $60,000

Dividend declared $50,000

$110,000

Retained earnings at 30/6/17 $125,000

d) The equity of G Ltd. at 30 June 2017 was:

Share capital$20,000

Asset revaluation reserve$30,000

Retained earnings$125,000

The asset revaluation reserve arose from a revaluation of freehold land made at 30 June 2017. The tax rate is 30%.

Required:

Assume I Ltd. does prepare consolidated financial statements. Prepare the equity-accounting consolidation adjusting entries required in I Ltd.'s consolidated financial statements for the year ended 30 June 2017. Estimate the carrying value of I Ltd.'s investment in G Ltd. for the year ended 30 June 2017.