Question 13

On 1 July 2018, Parent Entity acquired 70 per cent of the share capital of Subsidiary Ltd for $800 000, which represented the fair value of the consideration paid, when the share capital and reserves of Subsidiary Ltd were:

Share capital                     $70,0000

Revaluation surplus     $20,0000

Retained earnings     $10,0000

                                    $1,000,000

All assets of Subsidiary Ltd were recorded at fair value at acquisition date, except for some plant that had a fair value $50 000 greater than its carrying amount. The cost of the plant was $250 000, and it had accumulated depreciation of $180 000. The tax rate is 30 per cent.

REQUIRED

Prepare the consolidation eliminations and adjustments to recognise the pre-acquisition capital and reserves of Subsidiary Ltd, assuming that the non-controlling interest was measured at the proportionate share of the acquiree’s identifiable net assets. 

Workshop 10 Accounting for Equity Investments

Question 14

On 1 July 2022 Ma Ltd acquires a 25 per cent interest in Pa Ltd for a cash consideration of $375,000. On the date of the acquisition, the assets of Pa Ltd are reported at fair value. The share capital and reserves of Pa Ltd at the date of acquisition are:

Share capital             $1,000,000

Retained earnings     $500,000

Total shareholders’ equity      $1,500,000

Additional information:

• For the year ending 30 June 2023, Pa Ltd record an after-tax profit of $80,000, from which it pays a dividend of $30,000.

• For the year ending 30 June 2024, Pa Ltd records an after-tax profit of $100,000, from which it pays a dividend of $50,000

REQUIRED

Prepare the journal entries for the investment in Pa Ltd for the year ending 30 June 2023 and 2024 where:

Ma Ltd has a number of subsidiaries and therefore prepares consolidated financial statements.

Workshop 11 Accounting for Joint Ventures

Question 15

(a) Does the required accounting treatment for a venture’s interest in a jointly controlled operation differ from the requirements for an interest in a jointly controlled entity and, if so, how do these requirements differ?

(b) On 1 July 2018 Mineral Ltd enters into a joint venture arrangement with Ore Ltd. Both venturers commit themselves to a contractual arrangement in which Mineral Ltd contributes machinery and Ore Ltd contributes cash of $2 million and Land that has a carrying amount of $600,000 and a fair value of $500,000. The joint venture is not undertaken through a separate entity and is considered to be a jointly controlled operation. The machinery contributed by Mineral Ltd has a carrying value of $2 million (cost of $2.2 million, and accumulated depreciation of $200,000)   and a fair value of $2.5 million.

All current and future contributions are to be based on a 50:50 split, as are the future distributions of output. Ignore tax effect.

Required:

Provide the journal entries to account for the ventures’ contributions. 

Question 16

Simon Ltd has acquired a mining lease in Torquay that the managing directors Simon believes contains valuable oil reserves. However, Simon is a surfer and has no knowledge of the oil exploration and development. As a result, Simon Ltd enters a joint arrangement with Anderson Ltd pursuant to which Anderson Ltd will perform the exploration, evaluation and development of the Torquay site for which Anderson Ltd will receive a 50% interest in the mining lease and a 50% share of any oil produced. The contractual terms of the arrangement require both Simon Ltd and Anderson Ltd to jointly make all decisions in relation to the joint arrangement. 

a) How should Simon Ltd classify the joint arrangement with Anderson Ltd in accordance with AASB 11?

b) How should Simon Ltd account for its investment in the joint arrangement in accordance with AASB 11?