Reference no: EM132771365

Deacon Ltd owns 30% of the shares of its associate, Clement Ltd. Deacon Ltd applies the equity method in accounting for its investment in Clement Ltd.

• Deacon Ltd does not prepare consolidated financial statements.
• For 2019-20, Clement Ltd recorded a profit after tax of $210,?000. During this period, Clement Ltd paid a $30,?000 dividend, declared in July 2019, and an interim dividend of $15,000. The tax rate is 30%.

The following transactions have occurred between Deacon Ltd and Clement Ltd:

• In January 2020, Clement Ltd sold inventories to Deacon Ltd for $60,000. These inventories had previously cost Clement Ltd $30,?000, and remains unsold by Deacon Ltd at the end of the period.
• In March 2020, Deacon Ltd sold inventories to Clement Ltd at a before-tax profit of $12,000. Clement Ltd sold only 50% of these inventories before 30 June 2020.
• In June 2019, Clement Ltd sold inventories to Deacon Ltd for $90,000. These inventories had cost Clement Ltd $60,000. At 30 June 2019, these inventories remained unsold by Deacon Ltd. However, it was all sold by Deacon Ltd before 30 June 2020.
• On 1 July 2018, Clement Ltd sold a non-current asset costing $30,?000 to Deacon Ltd for $39,?000. The annual depreciation was $900. 
• A non-current asset with a carrying amount of $60,?000 was sold by Clement Ltd to Deacon Ltd for $90,?000 on 1 June 2020. Deacon Ltd regarded the item as inventories and still had the item on hand at 30 June 2020.

Required:

Problem 1: Calculate Deacon Ltd share of profit after tax for the year ended 30 June 2020 in relation to its investment in Clement Ltd.

Problem 2: Prepare the necessary journal entries in Deacon Ltd on the receipts of dividend and the share of profit or loss of its associate.