Question

On 1 July 2017 Miller Ltd acquired a 25% interest in Thomas Ltd for consideration of $73,000. At that date the equity of Thomas Ltd consisted of:

Share Capital 140 000

Retained Earnings 70 000

Asset Revaluation Surplus 12 000

  Total 222 000

All assets and liabilities of Thomas Ltd are recorded at fair value with the exception of inventory which was held at $5,000 below its fair value. The entire inventory was sold during the 2017-2018 financial year.

The following amounts represent the profit/(loss), dividends paid and asset revaluation surplus (ARS) balance by Thomas Ltd since acquisition:

   Year ending Year ending

30/6/2018 30/6/2019

$    $

Profit /(Loss) after tax 32 000 (20 000)

Dividend paid 12 000 7 000

ARS Balance 1 8 000 26 000

On 1 January 2018, Miller Ltd sold an item of equipment to Thomas Ltd for $18,000. The equipment had a cost of $30,000 and a carrying amount of $12,000 at the date of transfer. The equipment was estimated to have a further 4 years of useful life at the time of sale.

Tax rate is 30%.

Required:

Prepare the equity journals at 30 June 2018 and 30 June 2019 to account for the investment in Thomas Ltd in accordance with AASB 128, assuming Miller Ltd does not prepare consolidated financial statements. (Show calculations also)

Answer 1

	AASB 128- Investment in associates
	The dateils Thomas LTD
		30/6/2018	30/6/2019
	Profit/(Loss) After tax	$            32,000	$              (20,000)
	Dividend paid	$            12,000	$                   7,000
	ARS Balance	$            18,000	$                 26,000
	On Jan 01, 2018 Miller LTD sold equipment to Thomas LTD
	Carrying amount at the time of sale	$            12,000
	Sale proceeds	$            18,000
	Profit on sale of Equipment	$               6,000
	Tax on Above Profit	$               1,800
In the books of Miller
SL No	Journal Entries	Dr	Cr
1-Jan-18	Thomas LTD	$            18,000
	To Equipment		$                 12,000
	To Profit on sale of equipment		$                   6,000
	(Being Equipment sold to Thomas with Profit)
30-Jun-18	Corporate Tax A/C Dr	$               1,800
	To tax liability		$                   1,800
	(Being tax liability for profit on sale of equipment)
30-Jun-18	Bank A/C Dr	$               3,000
	To Dividend		$                   3,000
	(Being Dividend received from Thomas)
30-Jun-18	Investment in Thomas LTD A/C Dr	$               8,000
	To Profit on investment in Thomas		$                   8,000
	(Being Profit from Thomas accounted)
30-Jun-18	Investment in Thomas LTD A/C Dr	$               4,500
	To ARS from Thomas		$                   4,500
	(Being ARS from Thomas accounted)
30-Jun-19	Bank A/C Dr	$               1,750
	To Dividend		$                   1,750
	(Being Dividend received from Thomas)
30-Jun-19	Loss on investment in Thomas	$               5,000
	Investment in Thomas LTD A/C Dr		$                   5,000
	(Being Profit from Thomas accounted)
30-Jun-19	Investment in Thomas LTD A/C Dr	$               6,500
	To ARS from Thomas		$                   6,500
	(Being ARS from Thomas accounted)