Exam 29: Associates and Joint Ventures

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

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: 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:

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

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: $\blacktriangleright$ Share capital $50 000 $\blacktriangleright$ 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:

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:

Which of the following statements is correct?

The following information relates to questions 22 to 24 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: 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:

The following information relates to questions 15 and 16 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: During July 20X8, Bianco Ltd paid an interim dividend of $18,000. At 31 December 20X8, Bianco Ltd reported: -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:

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

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

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

The following information relates to questions 22 to 24 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: 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:

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:

The following information relates to questions 12 & 13 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: 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:

The equity method of accounting for an investment in an associate includes the following steps:

If an associate incurs losses the investor is required to:

The following information relates to questions 15 and 16 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: During July 20X8, Bianco Ltd paid an interim dividend of $18,000. At 31 December 20X8, Bianco Ltd reported: -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:

Clovelly Ltd, owns 25% of Bronte Ltd. Bronte's profit after tax for the year ended 30 June 20X3 is $30 000. The tax rate is 30%. During the year ended 30 June 20X4, Bronte sold $5000 worth of inventory to Clovelly. These items had previously cost Bronte $3000. All the items remain unsold by the Clovelly at 30 June 20X3. Clovelly's share of Bronte's profit for the year ended 30 June 20X3 is:

The following information relates to questions 12 & 13 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: 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 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: