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On 1 July 2017 F Ltd acquires 25% of the ordinary issued capital of R Ltd for $750 000. Upon acquisition of this financial interest in R Ltd, F Ltd appoints three directors to the twelve-seat board of directors of R Ltd.
All identifiable net assets of R Ltd are stated at fair value except for the following:
Item
Carrying value ($)
Fair value ($)
Difference ($)
Depreciable assets - Land -
1 280 1 500
000 000
1 400
2 000
120 500
The depreciable assets are considered to have a further 10 years useful life. The share capital and reserves of R Ltd at 1 July 2017 are:
Share Capital $800 000
Retained earnings $550 000
General reserve $150 000
$1 500 000
F Ltd ($)
R Ltd ($)
Profit before tax
1
000
910
Income tax expense
390
370
Profit after tax
610
540
Retained earnings - opening
520
550
130
090
Transfer to reserves
-
50
Dividend paid
60
180
Dividend proposed
140
Retaining earnings - closing
930
800
Additional Information:
F Ltd has a number of subsidiaries.
Required:
Question (i) Determine goodwill and record relevant journal entries of acquisition using the 'cost method' of accounting for F Ltd for the year ending 30 June 2018.
Question (ii) Record relevant journal entries using 'equity method' of accounting for F Ltd and its associates R Ltd for the year ending 30 June 2018, in accordance with AASB128.
Question : Also calculate the final amount at which the investment in R Ltd. would be shown in the consolidated worksheet prepared by F Ltd as at 30 June 2018.
Financial Statement Analysis and Preparation
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