Question

On 1 July 2017, Ukulele Ltd acquired 40% of the shares of Bongo Ltd for $99,500. At this date, all the identifiable assets and liabilities of Bongo Ltd were recorded at amounts equal to fair value except for inventory which had a fair value $9,900 greater than the carrying amount. All inventory was sold by 30 June 2018. The tax rate is 30%. Bongo Ltd was classified as an associate of Ukulele Ltd.

The profits and losses recorded by Bongo Ltd from the next 6 years were as follows:

2017–18	$29,900
2018–19	5,000
2019–20	(249,900)
2020–21	(50,000)
2021–22	15,000
2022–23	19,900

Required
Prepare the journal entries for the consolidation worksheet of Ukulele Ltd for the equity accounting of Bongo Ltd in each of the years from 2017–23. Do we deduct tax rate before sharing of profit and losses?

Ans:

Date	Account Titles and Explanation	Debit	Credit
30/06/2018
30/06/2019
	(1/7/18)
30/06/2020
	(1/7/19)
30/06/2021
	(1/7/20)
30/06/2022	(1/7/21)
30/06/2023	(1/7/22)

Answer 1

	A	A x 40%	B
Year	Post-acquisition Profit/(Loss)	Share of Profit/(Loss)40%	Cumulative share	Equity-accounted balance of investment
2017–18 (see below)	22,970	9,188	9,188	108,688
2018–19	5,000	2,000	11,188	110,688
2019–20	(249,900)	(99,960)	(88,772)	10,728
2020–21	(50,000)	(20,000)	(108,772)	-
2021–22	15,000	6,000	(102,772)	-
2022–23	19,900	7,960	(94,812)	4,688
For 2017-2018
Recorded profits of Bongo Ltd	29,900
Pre-acquisition profits  (inventory sale)(9900 x 1-30%)	6,930
Post-acquisition profits	22,970
Date	Account Titles and Explanation	Debit	Credit
30/06/2018	Investment in associates and joint ventures	9,188
	Share of profit or loss of associates and joint ventures		9,188
30/06/2019	Investment in associates and joint ventures	11,188
	Retained earnings (1/7/18 )		9,188
	Share of profit or loss of associates and joint ventures		2,000
30/06/2020	Share of profit or loss of associates and joint ventures	99,960
	Retained earnings (1/7/19 )		11,188
	Investment in associates and joint ventures		88,772
30/06/2021	Share of profit or loss of associates and joint ventures	10,728
	Retained earnings (1/7/20 )	88,772
	Investment in associates and joint ventures		99,500
30/06/2022	Retained Earnings (1/7/21)	99500
	Investment in associates and joint ventures		99500
30/06/2023	Retained Earnings (1/7/22)	99500
	Investment in associates and joint ventures		94,812
	Share of profit or loss of associates and joint ventures		4,688