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Problem - On 1 July 2020, G Ltd purchased 30% of the shares of H Ltd for a consideration of $165,000. The directors of G Ltd believe they exert "significant influence" over H Ltd.
At the acquisition date, the equity of H Ltd was $530,000. All identifiable assets and liabilities of H Ltd were recorded at amounts equal to their fair value except for plant which was undervalued by $5,000 and Inventory which was understated by $7,000. The plant has an expected future life of 5 years with benefits expected to be received evenly over this period. The inventories was all sold by 30 June 2021. Dividend revenue is recognised by G Ltd when it is declared by H Ltd. Assume the tax rate to be 30%.
The results of H Ltd for the next 3 years were:
30-Jun-21
30-Jun-22
30-Jun-23
Profit (after tax) for the year
100,000
75,000
50,000
Dividend paid
25,000
15,000
6,000
Dividend declared
20,000
3,000
Assume that G Ltd prepares consolidated financial statements. Prepare the consolidation worksheet entries for the year ending 30 June 2023 to account for G Ltd's investment in H Ltd under the equity method.
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