On 1 July 2018 Becker Ltd acquired a 30% interest in Lovren Ltd for consideration of $120,000. At that date the equity of Lovren Ltd consisted of:

Share Capital                                200 000

Retained Earnings                          70 000

Asset Revaluation Surplus             30 000

                                                      300 000

All assets and liabilities of Lovren Ltd are recorded at fair value except for inventory which was recorded at $8,000 below its fair value. This entire inventory was sold to external parties by January 2019.

The following amounts represent the profit/(loss), dividends paid and asset revaluation surplus (ARS) balance by Lovren Ltd since acquisition:

	Year ending 30/6/2020 $	Year ending 30/6/2019 $
Profit /(Loss) after tax	30 000	(20 000)
Dividend paid	8 000	6 000
ARS Balance	44 000	36 000

On 1 January 2019, Becker Ltd sold an item of equipment to Lovren Ltd for $32,000. The equipment originally cost Becker Ltd $38,000 and had a carrying amount at the time of sale of $23,000. The equipment has a further five (5) year life. Both companies use the straight line method of depreciation.     

Tax rate is 30%.

Required:

1. Prepare the equity accounting journals to account for the Investment in Lovren Ltd in accordance with AASB 128 as at 30 June 2020. Assume Becker Ltd prepares consolidated financial statements and show all workings. (8 marks)

2. Calculate the value of the investment of Lovren Ltd disclosed in the consolidated financial statements as at 30 June 2020. Show your workings. (2 marks)

Answer rating: 100% (QA)

Cost of postacquisition retained earnings Net loss 2019 20000 Less dividend paid 6000 Add ... View the full answer