Prepare journal entries under both cost and equity method

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Question - On first of July 2018 ABC ltd acquires 30 per cent of issued capital of XYZ Ltd for a cash consideration of $25 000. At the date of the acquisition, the shareholders' equity of XYZ Ltd is: Share capital $15 000 and Retained earnings $60 000.

Additional information:

XYZ Ltd reports following profits and dividends for the years ended 30 June 2019 to 2020 were as follows.

Year Profit before tax Income tax expense Profit for the year Dividend paid

2019 40 000 15 000 25 000 40 000

2020 35 000 12 500 22 500 10 000

ABC Ltd has a number of subsidiaries.

Required -

1. Prepare journal entries under both the cost and equity method of accounting for the investment in XYZ Ltd for each of the years ended 30 June 2019 to 2020.

2. Calculate the carrying amount of the investment in XYZ Ltd at 30 June 2020.

Reference no: EM132567651

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