Question

Codger Limited acquired a 40% investment in Lodger Limited for $50 000. Lodger declared and paid a dividend of $10 000. Codger Limited does not prepare consolidated financial statements. The appropriate entry for the investor to record this dividend is:

	a.	DR Cash $4 000 CR Investment in associate $4 000
	b.	DR Dividends payable $4 000 CR Cash $4 000
	c.	DR Cash $4 000 CR Dividend revenue $4 000
	d.	DR Investment in associate $4 000 CR Dividend revenue $4 000.

The following are regarded as factors indicating the existence of significant influence over another entity:

	I	II	III	IV
representation on the board of directors	Yes	Yes	Yes	Yes
participation in decisions about dividends	No	Yes	Yes	Yes
interchange of managerial personnel	No	No	No	Yes
ability to control the investee’s operating policies	No	Yes	No	No

	a.	I.
	b.	II.
	c.	III.
	d.	IV.

According to AASB 107/IAS 7 Statement of Cash Flows, which of the following items does NOT fall within the definition of cash?

	a.	Bank notes and coins.
	b.	Non-bank bills that are readily convertible to cash.
	c.	Deposits on the short-term money market with a term of less than 3 months.
	d.	Accounts receivable.

During the financial year, Cresswell Limited had a cost of sales amounting to $260 000. Opening and ending balances of related accounts were:

              Opening balance                                    Closing balance

Inventories                                          $46 000                                                $55 000

Accounts Payable                   $18 000                                               $26 000

A discount of $2000 for prompt payment was received. The amount of cash paid for goods purchased during the year was:

	a.	$259 000.
	b.	$263 000.
	c.	$275 000.
	d.	$279 000.

Answer 1

Answer 1)

a. DR Cash $4000

CR Investment in associate $4000

The investment in associate is reduced when the investor receives a distribution from the associate.

Answer 2)

d. IV

Ability to control the investee’s operating policies is not regarded as a factor indicatingt existence of significant influence over another entity.

Answer 3)

d. Accounts Receivable

According to AASB 107/IAS 7 Statement of Cash Flows, Accounts Receivable do NOT fall within the definition of cash.

Answer 4)

a. $259000

The amount of cash paid for goods purchased during the year = $260000 - $46000 + $55000 + $18000 - $26000 - $2000(discount) = $259000