Question

accounting question

The following information has been extracted from the financial records of Associate Ltd     at 1 April 2004 and at 31 March 2017.

	Associate Ltd 1 April 2004	Associate Ltd 31 March 2017
	$	$
Sales		1 800 000
Less cost of goods sold		1 200 000
Gross profit		600 000
Less expenses		328 400
Profit before tax		271 600
Plus rental income		26 000
Less income tax expense		71 880
Profit after tax		225 720
Retained earnings- opening balance		230 500
Less dividends declared		100 000
Balance sheet balances:
Share capital	450 000	450 000
Retained earnings – closing balance	220 000	356 220
Asset revaluation surplus	70 000	82 000
Accounts payable	85 600	158 000
Dividends payable	-	40 000
Other liabilities	474 400	876 220
Total equity and liabilities	$1 300 000	$2 100 000
Accounts receivable	130 000	205 000
Inventory	90 000	107 000
Other assets	80 000	90 000
Property, plant and equipment	1 000 000	1 698 000
Total assets	$1 300 000	$2 100 000

Additional information provided:

(i) Investor Ltd acquired 20% the equity in Associate Ltd on 1 April 2004 for $350 000 cash.

(ii) Each financial year Investor Ltd has been paying Associate Ltd an office rental fee of   $26 000.

(iii) Investor Ltd records dividend income from Associate Ltd when it is declared by Associate Ltd.

(iv) During March 2016 Associate Ltd made an upward sale to Investor Ltd of $32 000 and recognised a profit of $10 560. This purchase of inventory remained in Investor Ltd’s inventory as at 31 March 2016.

.

(v) During March 2017 Associate Ltd made an upward sale to Investor Ltd of $40 000 and

recognised a profit of $13 200. Investor Ltd did not sell this purchase of inventory until

14 May 2017.

(vi) During March 2016 Investor Ltd made a downward sale to Associate Ltd of $8 000 and

recognised a profit of $2 400. This purchase remained in Associate Ltd’s inventory as at 31

March 2016.

(vii) During March 2017 Investor Ltd made a downward sale to Associate Ltd of $5 000 and

recognised a profit of $2 000. Associate Ltd sold this inventory before the 2017 financial year

end.

(viii) The tax rate is 28%.

Required:

(a) State the amount at which the asset Investment in Associate will be measured at in the

general ledger of Investor Ltd as at 31 March 2017.

(b) Prepare the notional journal entry, as at 31 March 2017, to account for the asset

Investment in Associate using the equity method as required by

NZ IAS 28 Investments in

Associates

. Show all workings in the notional journal entry.

Complete a ‘quick estimate’ in the

space provided.

(c) Determine the amount at which the asset Investment in Associate will be measured at,

after being equity accounted for, in the financial statements as at 31 March 2017. Show

workings.

(a) Investment in Associate general ledger amount:

$

(b) The equity method notional journal entry as at 31 March 2017: All workings must be shown clearly on each line of your notional journal entry. If necessary round up or down to the nearest whole dollar.
	$	$

Workings for the ‘quick estimate’:

(c) Investment in Associate after being equity accounted for:	$
All workings must be shown:

Answer 1