Reference no: EM132628741
Blackbooks Ltd is a large bookseller with various inter-company investments. On 1 July 2019, the entity acquired 35% of the issued shares in The Little Shop Around the Corner Ltd for a purchase consideration of $65,000. In that same accounting period, Blackbooks Ltd - in conjunction with Once Upon a Book Ltd - acquired joint control of A Novel Idea Ltd.
As a member of the financial accounting team you are tasked with determining how to account for this investment.
Additional information:
(i) For the reporting period ending 30 June 2020, The Little Shop Around the Corner Ltd reports a net profit for the year of $200,000 from which it paid a dividend on 30 June 2020 to shareholders of $45,000. The entity also revalued land upwards by $50,000.
(ii) The tax rate is 30 per cent.
Required:
Problem (a) Blackbooks Ltd has determined that The Little Shop Around the Corner Ltd is an "associate" and that its joint control of A Novel Idea Ltd constitutes a "joint arrangement". Explain the key differences between associates and joint arrangements, and how they are accounted for.
Problem (b) Prepare the accounting journal entries that Blackbooks Ltd would recognise for its investment in The Little Shop Around the Corner Ltd (its associate), for the reporting period ending 30 June 2020