Question 6 10 Marks

On 1 July 2018 P Ltd acquires 25 per cent of issued capital of Q Ltd for a cash consideration of $37,500. At the date of the acquisition, the shareholders equity of Q Ltd is: Share capital $120,000 and Retained earnings $30,000.

Additional information:

For year ending 30 June 2019, Q Ltd records an after-tax profit of $30,000 and pays the $25,000 dividend.

For the year ending 30 June 2020, Q records an after-tax loss of $20,000 and pays $5,000 dividend.

P Ltd has a number of subsidiaries.

Required:

1. Prepare journal entries under both the cost and equity method of accounting for the investment in Q Ltd for each of the years ended 30 June 2019 to 30 June 2020.

8 Marks

(ii) Calculate the carrying amount of the investment in Q Ltd at 30 June 2020.