Question

Question 6                                                                                                           

On 1 July 2018, Corona Ltd acquires 20% of the issued capital of Iris Ltd for a cash consideration of $300 000. The directors of Corona Ltd believe this investment represents significant influence over the investee. The equity of Iris Ltd at the acquisition date was:

Share Capital	160 000
Revaluation Surplus	220 000
Retained Earnings	320 000

All identifiable assets and Liabilities of Iris Ltd were recorded at fair values. For the period ended 30 June 2019, Iris Ltd:

1. Recorded a profit of $130 000 with an income tax expense of $30,000.
2. Paid its shareholders a total of $50,000 in dividends.

During the financial period ending 30 June 2020 Iris Ltd:

1. recorded a loss of $50,000 and therefore paid no income tax and no dividends.

Required

Prepare journal entries in the records of Corona Ltd for each of the years ended 30 June 2019 to 2020 in relation to its investment in the associate, Iris Ltd.

(Assume Corona Ltd also owns 100 % shares in Vaccine Ltd, a subsidiary entity).

Answer 1

Answer- Journal Entries

Date	Accounts	Debit	Credit
July 1, 2018	Investment in Associate	$3,00,000.00
	Cash		$3,00,000.00
June 30, 2019	Investment in associate	$    20,000.00
	Share of profit of associate($100,000*20%)		$    20,000.00
June 30, 2019	Bank	$    10,000.00
	Dividend Income($50,000*20%)		$    10,000.00
June 30, 2019	Dividend Income	$    10,000.00
	Investment in Associate		$    10,000.00
June 30, 2020	Share of Loss($50,000*20%)	$    10,000.00
	Investment in Associate		$    10,000.00