QUESTION 4-Equity accounting method (10 Marks) Pea Ltd, a parent entity, acquired a voting interest of 40 % in Pod Ltd on 1 July 20X7 for a cash consideration of $1,600,000. The acquisition gave Pea Ltd significant influence over Pod Ltd's operations. Pod Ltd's shareholders equity items at the time of acquisition were as follows: $000 2,720 Issued capital Retained earnings Total equity 860 3.580 Additional information: On 1 July 20X7, the carrying value of Pod Ltd's property, plant and equipment was $1,100,000, while the fair value was $1,400,000, and the remaining useful life for assets in this class of assets was 4 years. At the date of acquisition, all other assets and assumed liabilities were recognised at their fair value in Pod a) Ltd's financial statements. b) For the year ended 30 June 20X8, Pod Ltd recorded an after-tax profit of $900,000, out of which dividends of $200,000 were proposed and paid on 30 June 20X8. c) For the year ended 30 June 20X9, Pod Ltd had an after-tax profit of $200,000 Pod Ltd proposed and paid a dividend of S50,000 on 30 June 20X9 d) e) Pod Ltd did not record a profit or loss from discontinuing operations in either 20X8 or 20X9 During the year ended 30 June 20X9, the following inter-entity inventory transactions occurred: Pod Ltd sold inventory to Pea Ltd. The inventory cost Pod Ltd $40,000 and was sold to Pea Ltd for $50,000; 50 % of this inventory was still on hand in Pea Ltd's closing inventory at 30 June 20X9. Pea Ltd sold inventory to Pod Ltd. The inventory cost Pea Ltd $20,000 and was sold to Pod Ltd for $57,500; 20% of this inventory was still on hand in Pod Ltd's closing inventory at 30 June 20X9. gPea Ltd recognises dividends from associates as revenue when they are declared. h) Pea Ltd has elected to use the cost method to measure investments in associates and joint ventures in its separate financial statements Pea Ltd applies the equity method of accounting for its associates in its consolidated financial statements Pea Ltd's investment in Pod Ltd is subject to an annual impairment test. Impairment losses are not required to be recognised for each of the years ended 30 June 20X8 and 20X9 in Pea Ltd's separate financial statements or consolidated financial statements 7 of 8 k) The tax rate is 30% for all accounting periods Required: Prepare the adjusting entries in Pea Ltd's consolidated financial statements to apply the equity accounting method to its investment in Pod Ltd for the year ended 30 June 20X9 in accordance with AASB 128. Show all working