Question 2

Refer back to Assignment 4, Question 2 Part A and answer the following:

Parent Ltd acquired equity in Subsidiary Ltd on 1 April 2006. At that date, the identifiable net assets were considered to be fairly valued and the equity of Subsidiary Ltd comprised:

Share capital	$450 000
Retained earnings	270 000
Asset revaluation surplus	80 000

Parent Ltd has requested your help in the preparation of their consolidated financial statements for the financial year ended 31 March 2018 and has provided you with the following information:

• During March 2017 Subsidiary Ltd made sales to Parent Ltd of $9 000. The inventory sold had cost Subsidiary Ltd $4 000. Parent Ltd had not sold this purchase of inventory as at 31 March 2017.

• During March 2018 Subsidiary Ltd made sales to Parent Ltd of $8 800 and recognised a profit of $3 840. The inventory Parent Ltd had on hand at 31 March 2018 included this purchase from Subsidiary Ltd.

• During March 2017 Parent Ltd made sales to Subsidiary Ltd of $10 000 and recognised a profit of $4 670. Subsidiary Ltd sold this inventory before 31 March 2017.

• During March 2018 Parent Ltd made sales to Subsidiary Ltd of $11 300 and recognised a profit of $5 200. The inventory of Subsidiary Ltd at 31 March 2018 included this purchase.

• Subsidiary Ltd rents part of the Parent Ltds warehouse at a cost of $8 000 per annum. At 31 March 2018, Subsidiary Ltd still owed Parent Ltd $1 500 of rental for the year ended 31 March 2018.

• In 2008 the total goodwill of Subsidiary Ltd was considered by the directors to be impaired by $10 000 and impaired again in 2012 by $5 200. The directors of Parent Ltd believe that the total goodwill has been further impaired by $2 000 during this financial year ended 31 March 2018.

(a) Assume Parent Ltd only acquired 30% of the equity in Subsidiary Ltd for $261 000 on

1 April 2006.

The following equity account balances have been extracted from the financial statements of Subsidiary Ltd on 31 March 2018:

Share capital		$450 000
Asset revaluation surplus		85 000
Retained earnings
Retained earnings-opening balance	280 000
Profit after tax	125 000
Dividends declared and paid	80 000	325 000
		$ 860 000

Prepare the notional journal entry, at 31 March 2018, to account for Parent Ltds investment in Subsidiary 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%.

Your workings must be included on each line of your notional journal entry. Complete a quick estimate in the space provided.

(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 2018. Show your workings.

Could anyone help me with the question please?