Reference no: EM132470055

On 1 July 2017 F Ltd acquires 25% of the ordinary issued capital of R Ltd for $750 000. Upon acquisition of this financial interest in R Ltd, F Ltd appoints three directors to the twelve-seat board of directors of R Ltd.

All identifiable net assets of R Ltd are stated at fair value except for the following:

Item	Carrying value ($)		Fair value ($)		Difference ($)
Depreciable assets - Land -	1 280 1 500	000 000	1 400 2 000	000 000	120 500	000 000

The depreciable assets are considered to have a further 10 years useful life. The share capital and reserves of R Ltd at 1 July 2017 are:

Share Capital $800 000

Retained earnings $550 000

General reserve $150 000

$1 500 000

	F Ltd ($)			R Ltd ($)
Profit before tax	1	000	000		910	000
Income tax expense		390	000		370	000
Profit after tax		610	000		540	000
Retained earnings - opening		520	000		550	000
	1	130	000	1	090	000
Transfer to reserves			-		50	000
Dividend paid		60	000		180	000
Dividend proposed		140	000		60	000
Retaining earnings - closing		930	000		800	000

 

 

 

 

 

 

 

 

 

Additional Information:

F Ltd has a number of subsidiaries.

• F Ltd recognises dividends only when received.
• R Ltd has a policy of paying dividends out of current year profits before utilising previous years' profit.
• On 30 June 2018, F Ltd holds inventory sold to it by R Ltd at a profit of $15 000. This inventory is sold to F Ltd for $20 000.
• On 30 June 2018, R Ltd holds inventory sold to it by F Ltd at a profit of $5 000. This inventory is sold to R Ltd for $10 000. The tax rate is 39%.

Required:

Question (i) Determine goodwill and record relevant journal entries of acquisition using the 'cost method' of accounting for F Ltd for the year ending 30 June 2018.

Question (ii) Record relevant journal entries using 'equity method' of accounting for F Ltd and its associates R Ltd for the year ending 30 June 2018, in accordance with AASB128.

Question : Also calculate the final amount at which the investment in R Ltd. would be shown in the consolidated worksheet prepared by F Ltd as at 30 June 2018.