Calculate deacon ltd share of profit after tax

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Reference no: EM132786389

Question - Deacon Ltd owns 30% of the shares of its associate, Clement Ltd. Deacon Ltd applies the equity method in accounting for its investment in Clement Ltd.

Deacon Ltd does not prepare consolidated financial statements.

For 2019-20, Clement Ltd recorded a profit after tax of $210,?000. During this period, Clement Ltd paid a $30,?000 dividend, declared in July 2019, and an interim dividend of $15,000. The tax rate is 30%.

The following transactions have occurred between Deacon Ltd and Clement Ltd:

1. In January 2020, Clement Ltd sold inventories to Deacon Ltd for $60,000. These inventories had previously cost Clement Ltd $30,?000, and remains unsold by Deacon Ltd at the end of the period.

2. In March 2020, Deacon Ltd sold inventories to Clement Ltd at a before-tax profit of $12,000. Clement Ltd sold only 50% of these inventories before 30 June 2020.

3. In June 2019, Clement Ltd sold inventories to Deacon Ltd for $90,000. These inventories had cost Clement Ltd $60,000. At 30 June 2019, these inventories remained unsold by Deacon Ltd. However, it was all sold by Deacon Ltd before 30 June 2020.

4. On 1 July 2018, Clement Ltd sold a non-current asset costing $30,?000 to Deacon Ltd for $39,?000. The annual depreciation was $900.

5. A non-current asset with a carrying amount of $60,?000 was sold by Clement Ltd to Deacon Ltd for $90,?000 on 1 June 2020. Deacon Ltd regarded the item as inventories and still had the item on hand at 30 June 2020.

Required -

1. Calculate Deacon Ltd share of profit after tax for the year ended 30 June 2020 in relation to its investment in Clement Ltd.

2. Prepare the necessary journal entries in Deacon Ltd on the receipts of dividend and the share of profit or loss of its associate.

Reference no: EM132786389

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