On 1 July 2017, Great Company Ltd (GC) acquired a 15 per cent interest in Minority Ltd (ML) for a cash consideration of $100,000. Despite its small shareholding in ML, GC is considered to have significant influence over ML, since GC is able to appoint a director to ML’s Board of Directors, and is a major customer of ML. GC also provides management personnel to GC, and the two companies share technical information. On the date of the acquisition, the assets of ML were reported at fair value. The share capital and reserves of ML at the date of acquisition were:

Share capital 80,000 Retained earnings 20,000 Total shareholders’ equity $100,000

Additional information For the year ending 30 June 2018, ML recorded an after-tax profit of $150,000, from which it paid a dividend of $50,000. For the year ending 30 June 2019, ML recorded an after-tax profit of $120,000, from which it paid a dividend of $40,000. On 30 June 2019, ML revalued its PPE upwards by $8,000. Before revaluation, this PPE had a cost of $20,000 and accumulated depreciation of $10,000. The tax rate is 30 per cent. GC has a number of subsidiaries.

Required: 

Prepare the journal entries under the equity method of accounting for the investment in ML for the year ending 30 June 2019 (that is, two years after acquisition).

Answer rating: 100% (QA)

Journal Entries In Books of GC Date Title Debit Cre... View the full answer