Question

In: Accounting

Piano Ltd has a 30% interest in a joint venture, Mandolin Ltd, in which it invested...

Piano Ltd has a 30% interest in a joint venture, Mandolin Ltd, in which it invested $50 000 on 1 July 2014. The equity of Mandolin Ltd at the acquisition date was:

Share capital

Retained earnings

$ 30 000

120 000

All the identifiable assets and liabilities of Mandolin Ltd were recorded at amounts equal to their fair values. Profits and dividends for the years ended 30 June 2015 to 2017 were as follows:

Profit before tax

Income tax expense

Dividends paid

2015

2016

2017

$80 000

70 000

60 000

$30 000

25 000

20 000

$80 000

15 000

10 000

*

Required

A. Prepare journal entries in the records of Piano Ltd for each of the years ended 30 June 2015 to 2017 in relation to its investment in the joint venture, Mandolin Ltd. (Assume Piano Ltd does not prepare consolidated financial statements.)

B. Prepare the consolidation worksheet entries to account for Piano Ltd’s interest in the joint venture, Mandolin Ltd. (Assume Piano Ltd does prepare consolidated financial statements.)

30%

Piano Ltd Mandolin Ltd

Expert Solution

Goodwill calculation
Share capital	30000
Retained earnings	120000
Net fair value of identifiable assets	150000
share	30%
prop. Fair value acquired (1.5 *30%)	45000
Cost of investment	50000
Goodwill (50000-45000)	5000

	PBT	INCOME TAX	PAT	DIVIDEDN	Padividend
2015	80,000	30,000	50,000	80,000	-30,000	(Profit after dividend is negative that means to that extent retained earning is used
2016	70,000	25,000	45,000	15,000	30,000
2017	60,000	20,000	40,000	10,000	30,000

1. Journal entries in the accounts of Piano Ltd: Assume Piano Ltd does not prepare consoli- dated financial statements
Date	Particular	DR	CR
01-Jul-14	Investment in Mandolin Ltd	50,000
	Cash/Payable		50,000
	(Acquisition of shares in Mandolin Ltd)

2014	Cash	24,000
	Investment in Mandolin Ltd		24,000
	(dividend received during the year 80000*30%)

30-06-2015	Investment in Mandolin Ltd	15,000
	Share of profit or loss of associates and joint ventures		15,000
	(Recognition of profit in Mandolin Ltd: 30% x $50 000)

2015	Cash	4,500
	Investment in Mandolin Ltd		4,500
	(dividend received during the year 15000*30%)

30-06-2016	Investment in Mandolin Ltd	13,500
	Share of profit or loss of associates and joint ventures		13,500
	(Recognition of profit in Mandolin Ltd: 30% x $45 000)

2016	Cash	3,000
	Investment in Mandolin Ltd		3,000
	(dividend received during the year 10000*30%)

30-06-2017	Investment in Mandolin Ltd	12,000
	Share of profit or loss of associates and joint ventures		12,000
	(Recognition of profit in Mandolin Ltd: 30% x $40 000)


2. Consolidation Worksheet Entries: Assume Piano Ltd prepares consolidated financial statements
Date	Particular	DR	CR
30-Jun-15	Investment in Mandolin Ltd	15,000
	Share of profit or loss of associates and joint ventures		15,000
	(Recognition of profit in Mandolin Ltd: 30% x $50 000)

2015	Dividend revenue	24,000
	Investment in Mandolin Ltd		24,000
	(dividend received during the year 80000*30%)

	Retained earning	9,000
	Investment in Mandolin Ltd		9,000
	(retained earning used for payment of dividend 30000*30%)

2015	Cash	4,500
	Retained earning		4,500
	(dividend received during the year 15000*30%)

30-06-2016	Investment in Mandolin Ltd	13,500
	Share of profit or loss of associates and joint ventures		13,500
	(Recognition of profit in Mandolin Ltd: 30% x $45 000)

2016	Cash	3,000
	Investment in Mandolin Ltd		3,000
	(dividend received during the year 10000*30%)

30-06-2017	Investment in Mandolin Ltd	12,000
	Share of profit or loss of associates and joint ventures		12,000
	(Recognition of profit in Mandolin Ltd: 30% x $40 000)

09-07-1905	Cash	3,000
	Share of profit or loss of associates and joint ventures		3,000
	(Recognition of profit in Mandolin Ltd: 30% x $40 000)

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