Now lets see what happens two years later on 30 June 2012 The income statements

Now lets see what happens two years later on 30 june

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Question 3 Now let’s see what happens two years later, on 30 June 2012. The income statements and balance sheets of the three group members on 30 June 2012 are given below. Other than dividends, assume there are no intercompany transactions.Topping $Base $Pizza $Trading profit a/taxDividend income15,0004,000 (.4 x 10,000)6000 (.75 x 8000)16,0002000 (.20 x 10000)17,000Op. profit after tax25,00018,00017,000Ret.Earn June 200140,00010,00020,000Less: Dividends paid(20,000)(8000)(10,000)Ret.Earn June 200245,00020,00027,000Capital50,00032,00015,00095,00052,00042,000Investment in Base35,000Investment in Pizza20,00010,000Other assets40,00042,00042,00095,00052,00042,000The partial goodwill method is used.Required:Calculate the NCI's total interest in the equity of the group at 30 June 2012. Solution: Calculation of NCI at 30 June 2012: Base: 25% direct, zero indirect = 25% total Pizza: 40% direct, 5% indirect = 45% total Total NCI Operating profit a/tax Less: dividend income Trading profit a/tax 18,000 (2000) 16,000 x .25 = 4,000 17,000 zero 17,000 x .45 = 7,650 11,650 Retained Earnings July 00 (i.e. Preacq profits) RE for year to June 01 (all postacquisition) 8,000 x .25 = 2,000 2,000 x .25 = 500 15,000 x .40 = 6,000 5,000 x .45 = 2,250 8,000 10,750 2,750 Less: Dividends paid (8,000) x .25 = (2,000) (10,000) x .40 = (4,000) (6,000) Ret. Earnings June 02 4,500 11,900 16,400 Capital 32,000 x .25= 8,000 15,000 x .40 = 6,000 14,000 Distributing prohibited | Downloaded by Mel Chh ([email protected]) lOMoARcPSD|2617216
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Question 4: The equity method of accounting Piano Ltd has a 30% interest in an associate, Mandolin Ltd, in which it invested $50 000on 1 July 2014.Profits and dividends for the years 30 June 2015 to 30 June 2017 were as follows:Profit after taxDividends paid201520162017$90 00050 00060 000$80 00020 00010 000REQUIREDAssume Piano Ltd does NOT prepare consolidated financial statements. Prepare the journal entries to apply the equity method for the year to 30 June 2017. Assume Piano Ltd does prepare consolidated financial statements. Prepare the journal entries to apply the equity method for the year to 30 June 2017. Account name Debit Credit Investment in Mandolin Ltd Retained earnings ([($90,000 - $80,000) + ($50,000 - $20,000)] * 30%) Investment in Mandolin Ltd Share of profit or loss ($60,000 * 30%) Dividend revenue Investment in Mandolin Ltd ($10,000 * 30%) Dr 12,000 Dr 18,000 Dr 3,000 Cr 12,000 Cr 18,000 Cr 3,000 Distributing prohibited | Downloaded by Mel Chh ([email protected]) lOMoARcPSD|2617216
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Question 5 On 1 January 2000, ABC Ltd acquired 90,000 shares (20%) of XYZ Ltd’s ordinary shares at $10 per share and obtained significant influence over the investee. Assume that the purchase price equals the net equity acquired (no goodwill or discount). For the year ended 31 December 2000, XYZ Ltd reported a net profit of $500,000; ABC Ltd’s share is 20% or $100,000. On that day, XYZ Ltd declared and paid a cash dividend of $250,000, of which ABC Ltd received $50,000. For the year ended 31 December 2001, XYZ Ltd reported a net loss of $60,000: ABC’s 20% share is $12,000. Assume that the cost and equity methods are applied in ABC’s booksRequired: Prepare journal entries in the books of ABC for its investment in XYZ, using (a) the cost method and (b) the equity method Solution Cost Method Equity Method Dr Cr Dr Cr 1 January 2000 Dr Investment in XYZ Ltd Cr Cash $900,000 $900,000 Dr Investment in XYZ Cr Cash $900,000 $900,000 31 December 2000 Dr Cash Cr Dividend Revenue $50,000 $50,000
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