Reference no: EM132766917

Accounting for investments in associates and joint ventures.

Partridge Ltd acquired a 25% interest (enough to constitute a significant influence) in Pear Tree Ltd for $70,000 on 1 July 2017. At acquisition date, all the identifiable assets and liabilities of Pear Tree Ltd were recorded at amounts equal to fair value, except for an item of plant whose fair value was $20,000 higher than its carrying amount. The equity of Pear Tree Ltd at the date of acquisition totalled $210,000.

Additional information:

• A dividend of $10,000 on 1 October 2017 and $15,000 on 1 November 2018 was paid by Pear Tree Ltd.
• In July 2017, Pear Tree Ltd sold inventory to Partridge Ltd for $15,000. This inventory had previously cost Pear Tree Ltd $10,000 and remained unsold by Partridge Ltd at the end of the period. By the end year ended 30 June 2019, this inventory was sold to external parties.
• For the year ended 30 June 2018, Pear Tree Ltd recorded an after-tax profit of $40,000.
• For the year ended 30 June 2019, Pear Tree Ltd recorded an after-tax profit of $60,000.
• The plant has an expected future life of 5 years, the benefits being received evenly over this period.

Required:

Problem 1. Assume Partridge Ltd does not prepare consolidated financial statements. Prepare the journal entries in the records of Partridge Ltd for the years ended 30 June 2018 and 30 June 2019 in relation to the investment in Pear Tree Ltd. Show all workings.

Problem 2. Assume Partridge Ltd does prepare consolidated financial statements. Prepare the consolidated worksheet entries for the year ended 30 June 2019 for the inclusion of the equity-accounted results of Pear Tree Ltd. Show all workings.