P Ltd acquired 35% of the equity share of A Ltd on 1 January 2021 for...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
P Ltd acquired 35% of the equity share of A Ltd on 1 January 2021 for $272,000. P Ltd prepares consolidated financial statements and applies the equity method to account for its investment in A Ltd. Johnny, a junior accountant working at P Ltd, suggests that a 'line by line' approach to consolidation should be adopted in respect of A Ltd. The net profits of A Ltd are $50,000 during 2021 A Ltd sold goods that cost $100,000 to P Ltd at a price of $120,000 during the year ended 31 December 2021. On 31 December 2021, 20% of these goods remained in P Ltd's inventories. In its financial records, P Ltd originally entered "Debit Inventories $120,000" and "Credit Cash $120,000", among other entries. Required: (a) Considering P Ltd's shareholding in A Ltd (i.e. 35 %), advise if Johnny's proposed approach to consolidation of the accounts of the two entities is appropriate in the context of equity accounting. (b) Prepare journal entries related to the net profits of A Ltd during the year ended 31 December 2021. (c) Prepare journal entries for the unrealized profits of A Ltd during the year ended 31 December 2021. (d) In the context of equity accounting, explain the difference that may arise when the cost of investment in an associate is greater than the investor's share of net assets of the associate and the accounting treatment of such a difference. P Ltd acquired 35% of the equity share of A Ltd on 1 January 2021 for $272,000. P Ltd prepares consolidated financial statements and applies the equity method to account for its investment in A Ltd. Johnny, a junior accountant working at P Ltd, suggests that a 'line by line' approach to consolidation should be adopted in respect of A Ltd. The net profits of A Ltd are $50,000 during 2021 A Ltd sold goods that cost $100,000 to P Ltd at a price of $120,000 during the year ended 31 December 2021. On 31 December 2021, 20% of these goods remained in P Ltd's inventories. In its financial records, P Ltd originally entered "Debit Inventories $120,000" and "Credit Cash $120,000", among other entries. Required: (a) Considering P Ltd's shareholding in A Ltd (i.e. 35 %), advise if Johnny's proposed approach to consolidation of the accounts of the two entities is appropriate in the context of equity accounting. (b) Prepare journal entries related to the net profits of A Ltd during the year ended 31 December 2021. (c) Prepare journal entries for the unrealized profits of A Ltd during the year ended 31 December 2021. (d) In the context of equity accounting, explain the difference that may arise when the cost of investment in an associate is greater than the investor's share of net assets of the associate and the accounting treatment of such a difference.
Expert Answer:
Answer rating: 100% (QA)
a Johnnys proposed approach of using a line by line consolidation method is not appropriate in the context of equity accounting Under the equity metho... View the full answer
Related Book For
International Financial Reporting And Analysis
ISBN: 9781473766853
8th Edition
Authors: David Alexander, Ann Jorissen, Martin Hoogendoorn
Posted Date:
Students also viewed these general management questions
-
Marguerite is a photographer who takes images for use in corporate promotional materials. Many of her images are of buildings and the surrounding areas in her hometown. Which of the following...
-
The summarized statements for the year ended 31 December 2007 for Mat, Rug and P entities are as follows: Statements of comprehensive income for the year ended 31 December 2007 The following...
-
Show that the De boogle W.1. associated with a particle of sest may mo & KE~ Kis given. by_ ch JK (K + 2mc)
-
Prove that the function x2 x - 1 | f (x) = x 1)(x 2) is differentiable for all r E (-0, 1) U (1, 2) U (2, ). - |
-
Use Newtons method to find all the roots of the equation correct to eight decimal places. Start by drawing a graph to find initial approximations. 23. x-x-5x' + 4x + 3 -0 24. x(4 x) =- 25. r/2-x-= |...
-
A 16-cm-diameter open cylinder 27 cm high is full of water. Find the central rigid-body rotation rate for which (a) One third of the water will spill out; and (b) The bottom center of the can will be...
-
What account is debited when a partner withdraws supplies for personal use?
-
Evaluating the Choice among Three Alternative Inventory Methods Based on Income and Cash Flow Effects Daniel Company uses a periodic inventory system. Data for 2012: beginning merchandise inventory...
-
Health surveys are commonly conducted to evaluate the overall state of affairs in terms of health decisions and trends. The Centers for Disease Control collects thousands of data elements from a...
-
5. Changes in the money supply The following graph represents the money market for some hypothetical economy. This economy is similar to the United States in the sense that it has a central bank...
-
Given a Return on Investment of 30%, an asset turnover ratio of 2, and financial leverage of 3, what is the firm's net profit percentage as defined by the DuPont Formula? 2% O 2.5% 5% 6% 10%
-
How is a junction capacitance created in a reverse-biased pn junction diode?
-
How is a pn junction formed? What is meant by a built-in potential barrier, and how is it formed?
-
Describe the concepts of drift current and diffusion current in a semiconductor material.
-
Explain the contribution of the cases of Candler (1951), Hedley Byrne (1963) and Caparo (1990), with respect to the auditors duty of care to third parties.
-
Describe an extrinsic semiconductor material. What is the electron concentration in terms of the donor impurity concentration? What is the hole concentration in terms of the acceptor impurity...
-
Discuss the concept of popular culture and explain how popular culture is related with mass media.? Give some examples of popular culture and elaborate relationship between popular culture and...
-
Use the following data to answer the next two (2) questions: Product 1 Product 2 Product 3 Direct Material Cost $25,000 $30,000 $35,000 Direct Labor Cost $30,000 $40,000 $50,000 Direct Labor Hours...
-
Consider the threats to adherence to the principles of the IESBA Code of Ethics in relation to each of the ethical principles of the IESBA Code of Ethics. For example, the threat of self-interest can...
-
The preparation of consolidated financial statements provides useful information to users. Discuss.
-
Current purchasing power adjustments are simple to apply, but hard to explain and interpret. Discuss.
-
Why would a founder decide to form a membership organization rather than choosing a self - perpetuating board? When might this structure be essential? When might it be an unnecessary challenge?
-
A constructive partnership between the chair and the chief executive is vital to every nonprofit. Why is this true or does it always matter?
-
For the most part, chairs change regularly, but the chief executive stays in place for a longer period of time. How can this situation affect the dynamics of the two positions?
Study smarter with the SolutionInn App