Question D

DiNozzo Ltd acquires a 25% interest in Ziva Ltd on 1July 2004, for cash

consideration of $450,000. On the date of acquisition, the assets of Ziva Ltd are

reported at fair value. The equity of Ziva Ltd at that time were:

Share capital $1,450,000

Retained earnings 350,000

Total shareholders equity 1,800,000

Additional information:

For year ending 30 June 2005, Ziva Ltd records an after tax profit of

$200,000, from which it pays a dividend of $80,000.

For the year ending 30 June 2006, Ziva Ltd records an after tax profit of $180,000, from which it pays a dividend of $75,000.

On 30 June 2006 Ziva Ltd revalues its land upwards by $100,000.

Required :

Prepare the journal entries under the equity method of accounting for the investment in Ziva Ltd for the year ending 30 June 2006, assuming DiNozzo Ltd prepare consolidated financial reports.

Question E

An Australian company, Harry Ltd, purchased goods on credit on 1 May 2007 from an English company, Potter Ltd, costing 150,000 NZD (dollars). Harry Ltd pays for these goods (required in NZD) on 30 June 2007.

Exchange rates are as follows:

1/5/07 $A 1.00 = 0.825 NZD

30/6/07 $A 1.00 = 0.770 NZD

Provide the relevant journal entries (including relevant narrations) in the books of Harry Ltd to account for the above transactions. Assume that delivery of the goods by Potter Ltd and payment by Harry Ltd, all occurred on the appropriate dates, and ignore any transaction costs (eg bank fees).

Question F

Big Company owns all of the issued capital of Small Company. Big Company acquires its 100 per cent interest in Small Company on 1 July 2018 for a cost of $2,000. All assets are fairly stated at acquisition date. The share capital and reserves of Small Company on the date of acquisition are:

Share capital 1,250

Retained earnings 750

2,000

The reconciliation of retained earnings and statement of financial positions of Big Company and Small Company, as at 30 June 2019, are as follows:

Big Company Small Company

($) ($)

Reconciliation of opening and closing retained earnings

Profit before tax 500 250

Tax 125 100

Profit after tax 375 150

Opening retained earnings 1,000 750

1,375 900

less Dividends declared 175 125

Closing retained earnings 1,200 775

Statement of financial position

Shareholders funds

Retained earnings 1,200 775

Share capital 1,250 1,250

Liabilities

Accounts payable 2,500 250

Dividends payable 175 125

5,125 2,400

Assets

Cash 250 175

Accounts receivable 125 325

Dividends receivable 250 -

Inventory 375 400

Plant and equipment 2,125 1,500

Investment in Small Company 2,000 -

5,125 2,400

Required :

Provide the consolidated statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity for Big Company and its controlled entity for the year ending 30 June 2019.