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Tutorial questions_Ch.C_ExC.7

acct

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ACCT4104_Advanance financial accounting

Tutorial question for online Ch.C: Ex C.7

Exercise C.7 Adjustments for consolidated financial statements for associates

On 1 July 2014, Zara Ltd acquired a 30% interest in one of its suppliers, Eva Ltd, at a cost of $13 650. The
directors of Zara Ltd believe they exert ‘significant influence’ over Eva Ltd.

The equity of Eva Ltd at acquisition date was:


Share capital (20 000 shares) $20 000
Retained earnings 10 000 opening 2014

All the identifiable assets and liabilities of Eva Ltd at 1 July 2014 were recorded at fair values except for some
depreciable non-current assets with a fair value of $10 500 greater than carrying amount. These depreciable
assets are expected to have a further 5-year life.

Additional information
a. At 30 June 2016, Zara Ltd had inventory costing $100 000 (2015: $60 000) on hand which had been
purchased from Eva Ltd. A profit before tax of $30 000 (2015: $10 000) had been made on the sale.
b. Information about income and changes in equity of Eva Ltd as at 30 June 2016 is:

Profit before tax $360 000


Income tax expense 180 000
Profit 180 000
Retained earnings at 1/7/15 opening 16 = closing 15 50 000
230 000
Dividend paid $50 000
Dividend declared 50 000 100 000
Retained earnings at 30/6/16 $130 000

c. All dividends may be assumed to be out of the profit for the current year. Dividend revenue is
recognised when declared by directors.
d. The equity of Eva Ltd at 30 June 2016 was:

Share capital $ 20 000


Asset revaluation surplus 30 000
General reserve 5 000
Retained earnings 130 000
The asset revaluation surplus arose from a revaluation of freehold land made at 30 June 2016. The general
reserve arose from a transfer from retained earnings in June 2015.

Required
Prepare the consolidated worksheet entries for the year ended 30 June 2016 for inclusion of the equity-
accounted results of Eva Ltd.

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