Journal entries in the records of saltwater ltd

Reference no: EM132916829

Question

Adjustments where investor does and does not prepare consolidated financial statements On 1 July 2021, Saltwater Ltd acquired a 30% interest in one of its suppliers, Crocodile Ltd, at a cost of $13 650. The directors of Saltwater Ltd believe they exert 'significant influence' over Crocodile Ltd.

The equity of Crocodile Ltd at acquisition date was as follows.

All the identifiable assets and liabilities of Crocodile Ltd at 1 July 2021 were recorded at fair values except for some depreciable non-current assets with a fair value of $15 000 greater than carrying amount. These depreciable assets are expected to have a further 5-year life.

Additional information

· At 30 June 2022, Saltwater Ltd had inventories costing $60 000 on hand which had been purchased from Crocodile Ltd. A profit before tax of $10 000 had been made on the sale.

· At 30 June 2023, Saltwater Ltd had inventories costing $100 000 on hand which had been purchased from Crocodile Ltd. A profit before tax of $30 000 had been made on the sale.

· All companies adopt the recommendations of AASB 112 regarding tax-effect accounting. Assume a tax rate of 30% applies.

· Information about income and changes in equity of Crocodile Ltd as at 30 June 2023 is as follows.

Profit before tax $ 360 000 Income tax expense 180 000

Profit 180 000 Retained earnings at 1/7/22

50 000 230 000

Dividend paid $ 50 000

Dividend declared 50 000

100 000

Retained earnings at 30/6/23

$ 130 000

· All dividends may be assumed to be out of the profit for the current year. Dividend revenue is recognised when declared by investees.

· The equity of Crocodile Ltd at 30 June 2023 was as follows.

The asset revaluation surplus arose from a revaluation of freehold land made at 30 June 2023. The general reserve arose from a transfer from retained earnings in June 2022.

Required

Assume Saltwater Ltd does NOT prepare consolidated financial statements. Prepare the journal entries in the records of Saltwater Ltd for the year ended 30 June 2023 in relation to the investment in Crocodile Ltd. (The calculation of goodwill is NOT required. Please show all workings.)

Reference no: EM132916829

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