Reference no: EM132887349

Vivo Ltd acquired a 40% interest in Drum Ltd in which it invested $175 000 on 1 July 2018. Vivo Ltd has signed a joint venture agreement with the other investors in Drum Ltd providing joint control to all investors.

The share capital, reserves and retained earnings of Drum Ltd at the investment date and at 30 June 2019 were as follows:

                                        1 July 2018               30 June 2019
Share capital                       $300 000                   $300 000
Asset revaluation surplus           -                        $100 000
General reserve                      -                      $15 000
Retained earnings                $100 000                 $109 000

At 1 July 2018, all the identifiable assets and liabilities of Drum Ltd were recorded at amounts equal to their fair values.

The following is applicable to Drum Ltd for the year to 30 June 2019:

(a) Profit (after income tax expense of $11 000): $45 000
(b) Increase in reserves

• General (transferred from retained earnings): $15 000
• Asset revaluation (revaluation of freehold land and buildings at 30 June 2019): $100 000

(c) Dividends paid to shareholders: $15 000.

Vivo Ltd does not prepare consolidated financial statements.

Required

Problem 1: make the journal entries in the records of Vivo Ltd for the year ended 30 June 2019 in relation to its investment in the joint venture, Drum Ltd.