Equity represented by goodwill 125 Consideration 125 50

Equity represented by goodwill 125 consideration 125

This preview shows page 43 - 45 out of 57 pages.

Equity represented by goodwill 125 000 50 000 Consideration 125 000 50 000 50 000 Since acquisition Accumulated loss Accumulated loss (-135 000 – 25 000) Adjustment to ensure that the investment in associate does not move into a credit balance (64 000 - 50 000 – 10 000) (160 000) (60 000) (64 000) 4 000 (64 000) 4 000 (4 000) Current year Profit for the year 76 000 Profit for the year 1 Adjustment (prior year’s share of loss that could not be recognised, now recognised) 200 000 80 000 (4 000) 80 000 (4 000) 4 000 Dividends paid (30 000) (12 000) (12 000) 135 000 4 000 54 000 1 277 778 – 77 778 = 200 000 Comment Losses of associates Please take note that when an associate makes losses, which result in a decrease in the carrying amount of the investment, the investor should not recognise those losses exceeding its interest in the investment. The interest in an associate is the carrying amount of the investment in associate together with any long-term interests (which includes long-term loans and preference shares). The interest (investment in ordinary shares and investment in preference shares) in Power Ltd amounts to a cost of R60 000 (R50 000 + R10 000). Since the acquisition, a loss of R64 000 has accrued in the associate, Power Ltd. The loss exceeds the carrying amount of R60 000 by R4 000. Where the share of losses exceeds the carrying amount of its interest in the associate, the investor should not recognise any further losses once the investment has been written down to Rnil (the excess amount of R4 000 cannot be recognised). In the current year (year ended 31 December 20.17) the associate Power Ltd made a profit and this profit exceeds the unrecognised losses of the previous year of R4 000. This loss should be included in the current years’ share of profit in associate.
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44 QUESTION 6 (SUGGESTED SOLUTION)(continued) C3 Pro-forma consolidation journals Dr R Cr R Investment in associate R Share of profit of associate R J1 Investment in associate 60 000 60 000 Investment in Power Ltd (ordinary shares) 50 000 Investment in Power Ltd (pref shares) 10 000 Reclassification to investment in associate J2 Retained earnings (beginning of year) 60 000 Investment in associate 60 000 (60 000) Due to prior year losses, investment in associate will have a negative balance. Therefore the investment is shown as R0 J3 Investment in associate 76 000 Investment in associate (SFP) 76 000 76 000 76 000 Current years profit in associate is greater than the prior year’s losses. Therefore re- instate investment in associate J4 Other income(dividend received) 12 000 Investment in associate (SFP) 12 000 (12 000) Elimination of intragroup dividends received 64 000 76 000 Comment Losses of associates Please take note that when an associate makes losses, which result in a decrease in the carrying amount of the investment, the investor should not recognise those losses exceeding its interest in the investment. The interest in an associate is the carrying amount of the investment in associate together with any long-term interests (which includes long-term loans and preference shares).
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  • Spring '16
  • Balance Sheet, NCI, Generally Accepted Accounting Principles, Sydney Ltd, York Ltd, Crow Ltd

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