Exam 20: Accounting for Investments in Associates

Campbell Limited acquired a 30% investment in Laura Limited for $21 000.Laura Limited declared and paid a dividend of $5 000.Campbell Limited does not prepare consolidated financial statements.The appropriate entry for Campbell Limited to record this dividend is:

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:

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: -Share capital $50 000 -Retained earnings $40 000 At the end of the financial year following the investment,Juliano Limited generated a profit of $6 000.After applying the equity method of accounting,Gunawan Limited will have the following carrying amount for the investment:

The adjustment required to the investment in associate account at 30 June 20X7 in relation to the above assets is:

An investor company acquired a 40% interest in an associate for $30 000.The investor is part of a consolidated group.In the financial period immediately following the date on which it became an associate,the investee took the following action: -revalued assets up to fair value by $5 000 -generated profits of $16 000 -declared a dividend of $3 000 The balance in the investor's account 'Shares in associate',after equity accounting has been applied,is:

At 30 June 20X9 the equity accounted balance of the investment in Leo was:

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 accounting method applied to investments in associates,known as the equity method,is also known as the:

At 30 June 20X6 the equity accounted balance of the investment in Leo was:

Explain why the equity method is often referred to as the single line method.

Explain why adjustment entries for equity accounting must be made on a year to year basis.

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:

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:

The adjustment required to the investment in associate account at 30 June 20X8 in relation to the above assets is:

Outline and discuss the concept of significant influence.

Explain why the equity method is not applied to an investor and associate relationship unless the investor holds shares in the associate.

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

Perry Ltd owns 25% of Gaga Ltd.Gaga's profit after tax for the year ended 30 June 20X4 is $30 000.The tax rate is 30%.During the year ended 30 June 20X4,Perry sold $5000 worth of inventory to Gaga.These items had previously cost Perry $3000.All the items remain unsold by Gaga at 30 June 20X4.Perry's share of Gaga's profit for the year ended 30 June 20X4 is:

Outline the accounting treatment where an associate makes accounting losses.

Organisations to which AASB 128 Investments in Associates,applies include: