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Exercise - Accounting for an associate/joint venture by an investor
On 1 July 2019 Pygmy Ltd issued ordinary shares to acquire a 40% interest in Possum Ltd. On this date, these issued shares had a fair value of $170 ?000. The directors of Pygmy Ltd be- lieve that they have significant influence over the financial and operating policy decisions of Possum Ltd. The share capital, reserves and retained earnings of Possum Ltd at the acquisi- tion date and at 30 June 2020 were as follows.
At 1 July 2019, all the identifiable assets and liabilities of Possum Ltd were recorded at fair value.
The following is applicable to Possum Ltd for the year to 30 June 2020.
• Profit (after income tax expense of $11 ?000): $39 ?000.• Increase in reserves:- General (transferred from retained earnings): $15 ?000.- Asset revaluation (revaluation of freehold land and buildings at 30 June 2020): $100 ?000.• Dividends paid to shareholders: $15 ?000.• The tax rate is 30%.• Pygmy Ltd does not prepare consolidated financial statements.
RequiredPrepare the journal entries in the records of Pygmy Ltd for the year ended 30 June 2020 in relation to its investment in the associate, Possum Ltd.
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