Question

1. On 1 January 2018, Wu’s Tea Ltd, a bubble milk tea chain, acquired a 20...

1. On 1 January 2018, Wu’s Tea Ltd, a bubble milk tea chain, acquired a 20 per cent interest in UnluckyCoffee Ltd for $120,000 in cash. As at the acquisition date, the assets of UnluckyCoffee Ltd were reported at fair value. For the year ending 31 December 2018, UnluckyCoffee Ltd recorded an after-tax loss of $20,000. Wu’s Tea Ltd accounts for its investment in UnluckyCoffee Ltd using the equity method of accounting. • The assets of Wu’s Tea Ltd, inclusive of its investment in UnluckyCoffee Ltd accounted for under equity accounting was $4,000,000 as at 31 December 2018. • The EBIT of Wu’s Tea Ltd, inclusive of its investment in UnluckyCoffee Ltd accounted for under equity accounting is $200,000 as at 31 December 2018. • The fair value of UnluckyCoffee Ltd was assessed to be only $70,000 at the end of the year. What is the ROA for Wu’s Tea Ltd? What would their ROA be if their investment in Unlucky Coffee Ltd was accounted for as a financial instrument?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer:

(i). ROA of Wu'e Ltd = EBIT / Assets of Wu's

= 200,000 / 4000000

      = 5%

(ii). ROA when investment is tested for impairment

Total assets of Wu's before impairment = 4000000

Share of investment in Unlucky Coffee in total assets = [ 120000 - (20000 *20%)] = $116,000

(iii) Share of investment in fair value of Unlucky coffee = 70000 * 20% = $14,000

Therefore total assets of Wu's = $4,000,000 - $116,000 + $14,000 = $3,898,000

ROA = (200000 - 106000) / 3898000

             = 2.41%

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On 1 January 2018, Wu’s Tea Ltd, a bubble milk tea chain, acquired a 20 per...
On 1 January 2018, Wu’s Tea Ltd, a bubble milk tea chain, acquired a 20 per cent interest in UnluckyCoffee Ltd for $120,000 in cash. As at the acquisition date, the assets of UnluckyCoffee Ltd were reported at fair value. For the year ending 31 December 2018, UnluckyCoffee Ltd recorded an after-tax loss of $20,000. Wu’s Tea Ltd accounts for its investment in UnluckyCoffee Ltd using the equity method of accounting. The assets of Wu’s Tea Ltd, inclusive of its...
1. On 1 January 2018, Wu’s Tea Ltd, a bubble milk tea chain, acquired a 20...
1. On 1 January 2018, Wu’s Tea Ltd, a bubble milk tea chain, acquired a 20 percent interest in UnluckyCoffee Ltd for $120,000 in cash. As of the acquisition date, the assets of UnluckyCoffee Ltd were reported at fair value. For the year ending 31 December 2018, UnluckyCoffee Ltd recorded an after-tax loss of $20,000. Wu’s Tea Ltd accounts for its investment in UnluckyCoffee Ltd using the equity method of accounting. • The assets of Wu’s Tea Ltd, inclusive of...
1. On 1 January 2018, Wu’s Tea Ltd, a bubble milk tea chain, acquired a 20...
1. On 1 January 2018, Wu’s Tea Ltd, a bubble milk tea chain, acquired a 20 per cent interest in UnluckyCoffee Ltd for $120,000 in cash. As at the acquisition date, the assets of UnluckyCoffee Ltd were reported at fair value. For the year ending 31 December 2018, UnluckyCoffee Ltd recorded an after-tax loss of $20,000. Wu’s Tea Ltd accounts for its investment in UnluckyCoffee Ltd using the equity method of accounting. • The assets of Wu’s Tea Ltd, inclusive...
Justice Ltd acquired all the assets except cash of League Ltd on 1 July 2018. On...
Justice Ltd acquired all the assets except cash of League Ltd on 1 July 2018. On this date, the statement of financial position contained the following accounts: Assets Current assets Cash 12,000 Accounts receivable 28,840 Inventory 24,880 Non-current assets Buildings 200,000 Accumulated depreciation - building (40,000) Fixtures 60,000 Accumulated depreciation - fixtures (20,000) Plant and equipment 60,000 Accumulated depreciation - plant and equipment (14,200) Goodwill 1,800 Total assets 313,320 Liabilities Current liabilities Accounts payable 32,600 Non-current liabilities Guarantees 31,000 Loans...
Q) Bush Ltd acquired all the shares of Beach Ltd on 1 July 2018. Due diligence...
Q) Bush Ltd acquired all the shares of Beach Ltd on 1 July 2018. Due diligence work conducted by Bush Ltd revealed that all the assets and liabilities of Beach Ltd were carried at fair value at the date of acquisition, except for a contingent liability that has been assessed as a present obligation having a fair value of $80,000. The contingent liability was settled by Beach Ltd for $90,000 on 1 July 2019. Which of the following consolidation adjusting...
On January 1, 2018, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction...
On January 1, 2018, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $400 million cash. At the date of acquisition of the stock, Lake's net assets had a fair value of $700 million. Their book value was $600 million. The difference was attributable to the fair value of Lake's buildings and its land exceeding book value, each accounting for one-half of the difference. Lake’s net income for the year ended December 31, 2018, was...
Bourne, Inc. acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2018. The total...
Bourne, Inc. acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2018. The total fair value and book value of Webb’s identifiable net assets was $8,000,000 on that date. During 2018 Webb recognized net income of $1,000,000 and paid dividends of $1,200,000. Webb had a fair value of $11,000,000 as of December 31, 2018. Required: Determine the amounts that will be associated with the Investment in Webb account and the Goodwill calculated upon the purchase of Webb’s stock,...
Bourne, Inc. acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2018. The total...
Bourne, Inc. acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2018. The total fair value and book value of Webb’s identifiable net assets was $8,000,000 on that date. During 2018 Webb recognized net income of $1,000,000 and paid dividends of $1,200,000. Webb had a fair value of $11,000,000 as of December 31, 20 Required: Determine the amounts that will be associated with the Investment in Webb account and the Goodwill calculated upon the purchase of Webb’s stock,...
On January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company...
On January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,649,200 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $2,100,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $246,000. On January 1, 2018, Palka acquired an additional...
On January 1, 2018, Morey, Inc., exchanged $183,200 for 25 percent of Amsterdam Corporation. Morey appropriately...
On January 1, 2018, Morey, Inc., exchanged $183,200 for 25 percent of Amsterdam Corporation. Morey appropriately applied the equity method to this investment. At January 1, the book values of Amsterdam’s assets and liabilities approximated their fair values. On June 30, 2018, Morey paid $630,000 for an additional 70 percent of Amsterdam, thus increasing its overall ownership to 95 percent. The price paid for the 70 percent acquisition was proportionate to Amsterdam’s total fair value. At June 30, the carrying...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT