On 1 July 2020, ABC Ltd acquired a 25% interest in XYZ Ltd for consideration of $144,000.
Question:
On 1 July 2020, ABC Ltd acquired a 25% interest in XYZ Ltd for consideration of $144,000. At that date the equity of XYZ Ltd consisted of:
Share Capital | 288,000 |
Retained Earnings | 100,800 |
Asset Revaluation Surplus | 43,200 |
432,000 |
All assets and liabilities of XYZ Ltd are recorded at fair value except for inventory which was recorded at $11,520 below its fair value. This inventory was sold to external parties on 1 March 2021.
The following amounts represent the profit/(loss), dividends paid and asset revaluation surplus (ARS) balance by XYZ Ltd since acquisition:
Year ending 30 June 2022 | Year ending 30 June 2021 | |
$ | $ | |
Profit /(Loss) after tax | 43,200 | -28,800 |
Dividend paid | 11,520 | 8,640 |
ARS Balance | 63,360 | 51,840 |
On 1 April 2022, XYZ Ltd sold an item of Equipment to ABC Ltd for $46,080. The Equipment originally cost XYZ Ltd $54,720 and had a carrying amount at the time of sale of $33,120. Both companies apply a 20% straight-line method of depreciation.
The tax rate is 30%.
Required:
- Prepare the equity accounting journals to account for the Investment in XYZ Ltd in accordance with AASB 128 as of 30 June 2022. Assume ABC Ltd prepares consolidated financial statements and show all workings.
- Calculate the carrying amount of the Investment in XYZ Ltd disclosed in the consolidated financial statements as of 30 June 2022.