Question

On 1 July 2014 Padma Ltd acquires 25 per cent of the issued capital of Jamuna Ltd for a cash consideration of $360 000. At the date of acquisition, the shareholders' equity of Jamuna Ltd is:

Share capital $450 000

Retained earnings $300 000

Total shareholders' equity $750 000

Additional information

On the date of acquisition, buildings have a carrying amount in the accounts of Jamuna Ltd of $240 000 and a market value of $300 000. The buildings have an estimated useful life of 10 years after 1 July 2014.

For the year ending 30 June 2015 Jamuna Ltd records an after-tax profit of $90 000, from which it pays a dividend of $30 000.

For the year ending 30 June 2016 Jamuna Ltd records an after-tax profit of $300 000, from which it pays a dividend of $150 000.

Assume a tax rate of 30% is assumed

Required:

Apply equity method of accounting to:

(a) Calculate the amount of goodwill at the date of acquisition

(b) Prepare the journal entries for the year ending 30 June 2015

(c) Prepare the journal entries for the year ending 30 June 2016