In: Accounting
On January 1, 2020, ABC Co. paid $800,000 to acquire common shares of XYZ Co., which
represented 30% of XYZ Co.’s shares outstanding. The value of XYZ’s net assets was
$1,850,000 on that date. The excess of the purchase price over ABC’s share of XYZ’s net assets
is attributed to unrecorded intangibles with a 20-year life. XYZ earned net income and
comprehensive income of $400,000 in 2020 and paid dividends of $80,000. The investment in
XYZ had a fair value of $1,025,000 at December 31, 2020. XYZ incurred a net loss and
comprehensive loss of $425,000 in 2021 and paid no dividends. At December 31, 2021, the fair
value of the investment was $720,000 and the recoverable amount was $765,000. Assume that
ABC follows IFRS.
Prepare all the journal entries that ABC is required to make related to the XYZ shares in
2020 and 2021, assuming ABC has no significant influence over XYZ, and uses the FV-NI
model for the investment
Prepare all the journal entries that ABC is required to make related to the XYZ shares in
01/01/2020
ABC A/c Dr 240000
To Xyz A/c 240000
(Aquire the shares from Xyz shares ,which is 30% Outstanding)
Net Profit A/c Dr 4,00,000
To Net Loss A/C 4,00,0000
(earned net income and comprehensive income)
Dividend A/c Dr 80,000
To, Net Profit A/c 80,000
( Being paid the dividend $ 80,000)
*31-dec-2020
Net Loss A/c Dr 4,25,000
To Net Profit A/c 4,25,000
( Being Dec 2020 ,the company face the net loss)
Thanking You.......................