Exam 31: Associates and Joint Ventures

On 1 July 2017 Fred Ltd acquired 30% of the shares of Barney Ltd for $240 000. At that date, the equity of Barney Ltd was $800 000, with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows: Year ended Profit/(Loss) 30 June \ 2018 40000 2019 (360000) 2020 (500000) 2021 15000 2022 44000 There have been no dividends paid or movements in reserves since the date of acquisition. At 30 June 2019 the equity accounted balance of the investment in Barney was:

On 1 July 2021 Barry Ltd acquired 25% of the ordinary issued share capital of Charlie Ltd for $300 000. This investment gave rise to significant influence. The share capital and reserves of Charlie Ltd at 1 July 2021 were: Share capital \ 500000 General reserve 200000 Retained earnings 384000 \ 1084000 All the identifiable net assets of Charlie Ltd were stated at fair value at the date of acquisition except for equipment whose carrying value was $30 000 less than the fair value. The tax rate is 30%. Goodwill arising on Barry's acquisition of Charlie was:

Adjustments made for the purpose of calculating the incremental adjustment to the share of profit of an associate are:

Where an investor has discontinued the use of the equity method because the associate has incurred losses it must disclose the:

The equity method of accounting for an investment in an associate includes the following steps: I II III IV Recognise the initial investment at cost Yes Yes No No Recognise the initial investment at fair value No Yes Yes No Reduce the carrying amount by any distributions Yes No No Yes Adjust the carrying amount by the investor's share of the associate's profit or loss Yes No Yes No

When goodwill is acquired by an investor in an associate, the amortisation of goodwill is:

Colette Ltd, owns 25% of Ambrose Ltd. Ambrose's profit after tax for the year ended 30 June 2021 is $50 000. The tax rate is 30%. During the year ended 30 June 2022, Ambrose sold $8000 worth of inventories to Colette. These items had previously cost Ambrose $6500. All the items remain unsold by Colette at 30 June 2022. Colette's share of Ambrose's profit for the year ended 30 June 2022 is:

The following are regarded as factors indicating the existence of significant influence over another entity: I II III TV interchange of managerial personnel Yes Yes No Yes participation in decisions about dividends No Yes Yes Yes representation on the board of directors No Yes Yes Yes ability to control the investee's operating policies No No No Yes

Where there are transactions between the investor and associate that result in an unrealised profit, the investor's share of the associate's profit is:

For the purposes of equity accounting for an investment in an associate, it is presumed that the investor has significant influence over the other entity where the investor holds:

On 1 July 2017 Fred Ltd acquired 30% of the shares of Barney Ltd for $240 000. At that date, the equity of Barney Ltd was $800 000, with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows: Year ended Profit/(Loss) 30 June \ 2018 40000 2019 (360000) 2020 (500000) 2021 15000 2022 44000 There have been no dividends paid or movements in reserves since the date of acquisition. At 30 June 2022 the equity accounted balance of the investment in Barney was:

Robert Limited acquired a 25% interest in Jones Limited for $80 000. Robert holds other equity investments but does not prepare consolidated financial statements. Jones Limited revalued its plant and equipment class of assets during the current financial period which resulted in an increase to the asset revaluation surplus account of $36 000. The balance of the Investment in Associate account at the end of the current financial period is:

Coral Limited acquired a 40% investment in Reef Limited for $120 000. Reef declared and paid a dividend of $30 000. Coral Limited does not prepare consolidated financial statements. The appropriate entry for the investor to record this dividend is:

Carnation Ltd purchased a 25% shareholding in Bloom Ltd on 1 January 2021 for $90 000. Bloom Ltd's assets were recorded at fair values and its owners' equity, totalling $350 000, was represented as follows: Share capital $100 000 General reserve $60 000 Asset revaluation surplus $50 000 Retained profits $140 000 During July 2021, Bloom Ltd paid an interim dividend of $15 000. At 31 December 2021, Bloom Ltd reported: Profit after tax for 2021 $64 000 Final dividend payable $30 000 A transfer to the general reserve $20 000 Increase of the asset revaluation reserve to $80 000 Assuming that Carnation Ltd applies the equity method in its own books, the entry to record the dividend receivable from Bloom Ltd during the year ended 31 December 2022 would include a:

Which of the following statements is correct?

If an associate incurs losses the investor is required to:

Where an investor sells inventories to an associate and the inventories are still on hand at the end of the year the investor's share of the associate's profits is:

Investments in associates accounted for using the equity method are presented in the statement of financial position as part of:

When disclosing information about investments in associates, AASB 12/IFRS 12 Disclosure of Interests in Other Entities requires separate disclosure of which of the following? I. Unrecognised share of losses in associates, in the Notes to the accounts. II. Shares of changes recognised directly in the associate's equity, in the statement of changes in equity. III. Share of profit or loss of associates, in the statement of profit or loss and other comprehensive income. IV. Carrying amounts of investments in associates, in the statement of financial position.

David Limited acquired a 20% share in Tennant Limited for $52 000. David Limited has no other investments. At the date on which it became an associate, Tennant Limited had the following equity (which reflected the fair value of net assets on that date): Share capital $155 000 Retained earnings $110 000 At the end of the financial year following the investment, Tennant Limited generated a profit of $96 000. After applying the equity method of accounting, David Limited will have the following carrying amount for the investment: