Reference no: EM132990154

On 1 July 2019, Cordon Ltd (CL) acquired a 20 per cent interest in Bleu Ltd (BL) for a cash consideration of $250,000. CL is considered to have significant influence over BL. On the date of the acquisition, the assets of BL were reported at fair value.

The share capital and reserves of BL at the date of acquisition were:

Share capital 800,000
Retained earnings 150,000
Total shareholders' equity $950,000

Additional information

1. For the year ending 30 June 2020, BL recorded an after-tax profit of $140,000, from which it paid a dividend of $80,000.
2. On 30 June 2020, BL revalued its PPE upwards by $10,000. Before revaluation, this PPE had a cost of $40,000 and accumulated depreciation of $15,000.
3. The tax rate is 30 per cent.
4. CL has a number of subsidiaries, and is listed on the New Zealand Stock Exchange.

Required:

Problem i. What does it mean that CL is considered to have significant influence over BL?

Problem ii. Provide all required journal entries to account for CL's investment in BL as at 30 June 2020.