Week12_Practice_Question_Solutions

Week12_Practice_Ques - Week 12 Practice Questions 16.31 Investors financial statements applying the equity method Robert and Clara Under AASB 128

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Week 12 Practice Questions 16.31 Investor’s financial statements applying the equity method Robert and Clara Under AASB 128 Robert will have to produce a set of statements in which the investment in Clara is equity accounted. Robert may also have to produce a set of separate financial statements, in which cost is used for associates (the standards do not make it fully clear whether or not this latter set is required). Note that this situation is thought to be uncommon in that few such companies that have associates but are not parents are reporting entities. However, it is a useful teaching exercise to show both the cost basis and equity method side by side. (a) Financial statements at 31 December 20X5 incorporating the equity method of accounting Robert Ltd (cost basis) Robert Ltd (equity method) Clara Ltd $ $ $ Profit or loss statement Profit or loss before revenue from shares 17 300 17 300 12 000 Add Dividend revenue 2 400 Revenue from associates 3 600 Share of profit of associates 3 600 Profit or loss 19 700 20 900 12 000 Balance sheet Investment in associates 8 700 9 900 Dividend receivable 1 800 1 800 Other assets* 62 200 62 200 39 000 72 700 73 900 39 000 less Dividend payable 6 000 Net assets 72 700 73 900 33 000 Paid-up capital 35 000 35 000 15 000 Reserves 10 000 10 000 12 000 Retained profits 27 700 28 900 6 000 Owners’ equity 72 700 73 900 33 000 The other assets amount assumes all liabilities at 1 January 20X5 have been paid.
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Changes in equity statement— extracts $ $ Retained profits Retained profits 1 January 20X5 8 000 8 000 2 000 Net profit 19 700 20 900 12 000 Profit available 27 700 28 900 14 000 less Appropriations Interim dividend paid 2 000 Final dividend 6 000 Retained profits 31 December 20X5 27 700 28 900 6 000 Reserves Reserves 1 January 20X5 10 000 10 000 12 000 Changes Nil Nil Nil Reserves 31 December 20X5 10 000 10 000 12 000 $ $ $ Investment in associate (applying equity method) 20X5 1 January Cash 8 700 8 700 Dr Undated Cash 600 8 100 Dr 31 December Revenue from associates 3 600 11 700 Dr Dividend receivable 1 800 9 900 Dr If the cost basis is what the accounting records represent then the investment carrying amount will be $8 700. Note: The directors’ declaration of the dividend makes the dividend a year-end liability to be recognised by the associate, and a dividend revenue and receivable to be recognised by the investor if it needs to apply the cost basis.
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26.2 Which changes to the owners’ equity of an investee are reported
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This note was uploaded on 10/25/2011 for the course ACCT 5942 taught by Professor Diane during the Three '11 term at University of New South Wales.

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Week12_Practice_Ques - Week 12 Practice Questions 16.31 Investors financial statements applying the equity method Robert and Clara Under AASB 128

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