Reference no: EM132613846
On 1 July 2015, Spring Ltd acquired a 25% interest in Field Ltd for a cash consideration of $400 000. On the date of the acquisition, the assets of Field Ltd are reported at fair value, and the share capital and reserves are:
Share capital $1 000 000
Retained earnings $ 500 000
Total shareholders' equity $1 500 000
Additional information
On 1 April 2020, Field Ltd paid an interim dividend of $10 000.
On 30 June 2020, Field Ltd declared a final dividend of $20 000.
For the year ending 30 June 2020, Field Ltd records an after-tax profit of $80 000
On 30 June 2020, Field Ltd revalues its land upwards by $70 000.
Tax rate is 30%.
Problem (a) Assuming Spring Ltd does not own shares in any other company, prepare any necessary journal entries for the year ending 30 June 2020 to be recorded in Spring Ltd's books using the equity method.
Problem (b)
i. Spring Ltd classifies Field Ltd as an associate. What is the primary criterion for determ
ii. In addition to Spring Ltd owning 25% of the shares of Field Ltd, identify two other elements that could signal the primary criterion identified in (b)(i) above is present?
iii. Assume Spring Ltd also owns 80% of the shares of Burns Ltd. What is the implication of this for the way Spring Ltd accounts for its investment in Field Ltd compared to the way the investment was accounted for in part (a)? Be sure to fully explain your answer