Question

1.9 Mozart Ltd acquired 25% of shares and significant influence over the operations of Liszt Ltd on 1 January 20X0. Both companies have financial years ending 31 December. Liszt Ltd reported a profit of $80,000 and paid a cash dividend of $0.04 per share. Liszt Ltd has issued 1 million ordinary shares. Under equity accounting, by how much would the ‘Investment in Liszt Ltd’ account change for the year ended 31 December 20X0?

Select one:

increase of $40,000

decrease of $40,000

decrease of $20,000

increase of $10,000

2. According to AASB 128, the main evidence of significant influence, through an investor’s power to participate in policy setting, could be:

Select one:

actual participation in policy making.

any or all conditions in this list.

representation on the associate’s governing body.

material transactions between investors and associate.

Answer 1

1) Since Listz ltd issued 1 million ordinary shares and the cash dividend for the year was $0.04 per share. The total value of the newly issued shares would be $40000.

But when looking from Mozart ltd's side, they have acquired 25% of shareholding in Listz ltd. So we can say that their investment in Listz ltd would increase by (40000 * 25%) ie. $10000.

So the answer would be an increase of $10000.

2) From the AASB 128 we can see that there are 5 conditions of which any 1 has to be excercised in order to say there exists significant influence by an entity.

actual participation in policy making is one

representation on the associate’s governing body. This is another one

material transactions between investors and associate. This is also another one.

So from this we can say that the answer is option number 2. Any or all conditions in this list.

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