On 1 July 2022 Ma Ltd acquires a 25 per cent interest in Pa Ltd for a cash consideration of $375 000. On the date of the acquisition, the assets of Pa Ltd are reported at fair value. The share capital and reserves of Pa Ltd at the date of acquisition are:

Additional information

• For the year ending 30 June 2023, Pa Ltd records an after-tax profit of $80 000, from which it pays a dividend of $30 000.
• For the year ending 30 June 2024, Pa Ltd records an after-tax profit of $100 000, from which it pays a dividend of $50 000.
• On 30 June 2024, Pa Ltd revalues its land upwards by $70 000.
• The tax rate is 30 per cent.
• Ma Ltd has a number of subsidiaries.

Required

Prepare the journal entries under both the cost and the equity method of accounting for the investment in Pa Ltd for the year ending 30 June 2024 (that is, two years after acquisition).

Transcribed Image Text:

Share capital Retained earnings Total shareholders' $1 000 000 $500 000 equity $1 500 000