Exam 21: Associates and Joint Ventures

Investor Limited acquired a 30% interest in Investee Limited for €27 000. Investor holds other equity investments but does not prepare consolidated financial statements. Investee Limited revalued its buildings class of assets by €10 000 during the current financial period. The balance of the investment in associate account at the end of the current financial period is:

Gunawan Limited acquired a 20% share in Juliano Limited for €18 000. Gunawan Limited has no other investments. At the date on which it became an associate, Juliano Limited had the following equity: $\bullet$ Share capital €50 000 $\bullet$ Retained earnings €40 000 At the end of the financial year following the investment, Juliano Limited generated a profit of €6000. After applying the equity method of accounting, Gunawan Limited will have the following carrying amount for the investment:

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

The following information relates to questions Nero Ltd purchased a 30% per cent shareholding in Bianco Ltd on 1 January 20X8 for $180,000. Bianco Ltd’s assets recorded at fair values and its owners’ equity, totalling $520,000, was represented as follows: Share capital \ 260,000 Reserves \ 120,000 Retained profits \ 100,000 Asset revaluation reserve \ 40,000 During July 20X8, Bianco Ltd paid an interim dividend of $18,000. At 31 December 20X8, Bianco Ltd reported: Profit for 20X8 \ 48,000 Final dividend payable \ 14,000 A transfer to the general reserve \ 10,000 Increase of the asset revaluation reserve to \ 70,000 -Assuming that Nero Ltd applies the equity method in its own books the entry to record the dividend receivable from Bianco Ltd at 31 December 20X9 would include:

The following information relates to questions On 1 July 2013 Joey Ltd acquired 25% of the shares of Leo Ltd for £100 000. At that date the equity of Leo Ltd was £400 000, with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows: Year ended 30 June Prafit(Lass) 20\times5 20,000 20\times6 (200,000) 20\times7 (250,000) 20\times1 16,000 20\times9 20,000 There have been no dividends paid or movements in reserves since the date of acquisition. -At 30 June 20X8 the equity accounted balance of the investment in Leo was:

Where an investor sells inventory to an associate in a prior year and the inventory is sold by the associate during the current year the investment in associate account is:

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

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

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

The following information relates to questions On 1 July 20X3 Alpha Ltd acquired a 25% share of Beta Ltd. At that date the following assets had carrying amounts different to their fair values in Beta's books: Asset Carying amount Fair value Inventory 12 000 15 000 Machinery 24 DOQ 30 000 All inventory was sold to third parties by 30 June 20X4. On 1 July 20X3, the machinery had a remaining useful life of 3 years. The tax rate is 30%. -The adjustment required to the investment in associate account at 30 June 20X4 in relation to the above assets is:

When goodwill is acquired by an investor in an associate, the amortisation of goodwill 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 20X8 Berardo Ltd acquired 25% of the ordinary issued share capital of Ricky Ltd for €375 000. This investment gave rise to significant influence. The share capital and reserves of Ricky Ltd at 1 July 20X8 were: Share capital 400,000 General reserve 250,000 Retained earnings 275,000 925,000 All the identifiable net assets of Ricky Ltd were stated at fair value at the date of acquisition except for a building whose carrying value was €50 000 less than the fair value. Goodwill arising on Berardo's acquisition of Ricky was:

The following information relates to questions On 1 July 20X3 Alpha Ltd acquired a 25% share of Beta Ltd. At that date the following assets had carrying amounts different to their fair values in Beta's books: Asset Carying amount Fair value Inventory 12 000 15 000 Machinery 24 DOQ 30 000 All inventory was sold to third parties by 30 June 20X4. On 1 July 20X3, the machinery had a remaining useful life of 3 years. The tax rate is 30%. -The adjustment required to the investment in associate account at 30 June 20X5 in relation to the above assets is:

Where an acquisition in an associate results in an excess the excess is accounted for in the year of acquisition as follows:

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:

The following information relates to questions Nero Ltd purchased a 30% per cent shareholding in Bianco Ltd on 1 January 20X8 for $180,000. Bianco Ltd’s assets recorded at fair values and its owners’ equity, totalling $520,000, was represented as follows: Share capital \ 260,000 Reserves \ 120,000 Retained profits \ 100,000 Asset revaluation reserve \ 40,000 During July 20X8, Bianco Ltd paid an interim dividend of $18,000. At 31 December 20X8, Bianco Ltd reported: Profit for 20X8 \ 48,000 Final dividend payable \ 14,000 A transfer to the general reserve \ 10,000 Increase of the asset revaluation reserve to \ 70,000 -The equity carrying amount of the investment in Bianco Ltd at 31 December 20X8 is:

For the purposes of equity accounting, significant influence is regarded as the power of an investor to:

The following information relates to questions On 1 July 2013 Joey Ltd acquired 25% of the shares of Leo Ltd for £100 000. At that date the equity of Leo Ltd was £400 000, with all identifiable assets and liabilities being measured at fair value. Profits/(losses) made since the date of acquisition are as follows: Year ended 30 June Prafit(Lass) 20\times5 20,000 20\times6 (200,000) 20\times7 (250,000) 20\times1 16,000 20\times9 20,000 There have been no dividends paid or movements in reserves since the date of acquisition. -At 30 June 20X7 the equity accounted balance of the investment in Leo was:

Clovelly Ltd owns 25% of Bronte Ltd. Bronte's profit after tax for the year ended 30 June 20X5 is £30 000. The tax rate is 30%. On 1 July 20X3, Bronte Ltd sold an item of plant to Clovelly Ltd for £8000. The carrying amount of the asset on this date in Bronte Ltd's records was £3000. The plant had a remaining useful life of 5 years. Clovelly's share of Bronte's profit for the year ended 30 June 20X5 is: