P Co acquired interests in Z Co. The current financial statements are shown below. All figures are in $ unless as otherwise indicated.

Fair and book values of identifiable net assets of Z Co as at date of acquisition:

Additional information:

1. 

2. P Co provided loans to Z Co during the first half of 20x3 for construction of equipment.
Interest income from Z Co:

Z Co applied correctly the requirements of IAS 23 Borrowing Costs. Z Co commenced the depreciation of the equipment over a useful life of five years from 1 July 20x3.
3. Apply a tax rate of 20% on all appropriate adjustments. Recognize tax effects on fair value adjustments. P Co and Z Co recognize impairment losses, if any, at the financial year-end.

Required
1. Prepare equity accounting entries for the year ended 31 December 20x4.
2. Perform an analytical check of the balance of the investment in associate account as at 31 December 20x4.
3. Ignore (1) and (2). P Co applies the equity method to determine the investment in associate in its separate financial statements from date of initial investment.

a. Determine the investment in associate balance as at 31 December 20x3.

b. Prepare the journal entries to apply the equity method in the current year ended 31 December 20x4.

c. Compare the investment balance as at 31 December 20x4 derived from Q3

(a) and Q3

(b) with Q2.

Transcribed Image Text:

Income Statement and Partial Statement of Changes in Equity for the Year Ended 31 December 20x4 Profit before tax. Tax... Profit after tax.. Dividends declared. Profit retained... Retained earings, 1 Jan 20x4. Retained eamings, 31 Dec 20x4. P Co Z Co 900,000 2,800,000 (560,000) (189,000) 2,240,000 711,000 (120,000) (100,000) 2,120,000 611,000 1,000,000 300,000 3,120,000 911,000