Question

Crown Ltd is the ultimate entity in a group of companies. On 1 July 2018 Crown Ltd acquired a 35 percent 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:

Share Capital: $985000

Retained Earnings: $355000

Total Shareholder's funds: $1340000

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. Crown Ltd accrues the dividends of associates as revenue when they are proposed. The investment has been recorded in Crown's books in accordance with the cost method.

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

Answer 1

Appropriate general journal entries for the period ended 30 June 2020 for Crown Limited
Account Titles	Debit	Credit
Dividend Receivable	21,000
Dividend Revenue		21,000
(60,000 x 35% )
Under Cost method, Investment are kept at cost & adjusted for year end fair value adjustment. Only dividend revenue are recognized as Income under Cost method.