Question

Buster Ltd is the ultimate entity in a group of companies. On 1 July 2018 Buster...

Buster Ltd is the ultimate entity in a group of companies. On 1 July 2018 Buster Ltd acquired a 35 per cent interest in Party Ltd for a cash consideration of $469,000. At the date of acquisition, the net assets of Party Ltd were recorded at fair value and are represented by equity as follows:

Additional information relating to the period ended 30 June 2020:

The opening Balance of Party’s retained earnings as at 1 July 2019 was $530,000.

Party Ltd had an after-tax loss of $190,000 for the 2019/2020 period.
Party Ltd declared a $60,000 dividend out of post-acquisition profits. This dividend will not be paid until the following period. Buster Ltd accrues the dividends of associates as revenue when they are proposed.

The investment has been recorded in Buster’s books in accordance with the cost method.

Required:

Prepare the appropriate general journal entries for the period ended 30 June 2020 for Buster Limited. Assume the company prepares consolidated financial statement (it is a parent entity as it controls several subsidiary companies).

Homework Answers

Answer #1

Buster shall account for its interest in Party as associate accounting. As per IFRS, a Company shall account interest in associate using Equity Method of Accounting.

As on 30 June 2020, following journal entry shall be recorded-

Jornal entries to be recorded in standalone-
Date Account Name Debit Credit
30-06-2020 Investment A/c----Dr.        66,500
To Profit in Associate A/c        66,500
(Being 35% share in Party's profit recorded)
30-06-2020 Dividend Receivable A/c---Dr.        21,000
To Investment A/c        21,000
(The Company has created dividend receivable from Party for its share)

There shall be no journal entry for Associates in Consolidation books seperately.

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