Exam 15: Investments in New Assets; Introduction to Business Combinations and Associates

Viola Ltd has significant influence over the operations of Drum Ltd from a 18% ownership.Viola Ltd prepares consolidated financial statements.Drum Ltd reported a profit of $5 000 000 and paid a cash dividend from post-acquisition profits of $180 000 to Viola Ltd.What is the difference between the balances of the account 'Investment in Drum Ltd' in Viola Ltd's own financial statements when compared with that balance in its consolidated financial statements for this year? The account balance in Viola Ltd's consolidated financial statements would be:

Mozart Ltd acquired 25% and significant influence over the operations of Liszt Ltd on 1 January 20X0.Both companies have financial years ending 31 December.Liszt Ltd reported a profit of $80 000 and paid a cash dividend of $0.04 per share.Liszt Ltd has issued 1 million ordinary shares.Under equity accounting, by how much would the 'Investment in Liszt Ltd' account change for the year ended 31 December 20X0?

Goodwill is defined as future economic benefits arising from assets that are not capable of being individually identified and separately recognised.

On 1 January 20X0, John Ltd acquired 100 % of the share capital of Paul Ltd for $400 000 cash.At that date, the equity section of Paul Ltd's balance sheet was as follows: Share capital Retained profits $\quad$ $\quad$$\quad$ 100000 Asset revaluation reserve Assuming all assets and liabilities were recorded at their fair values what was the difference on acquisition?

Company J has a share investment (owns 60% of the shares, purchased in 20X1) and controls Company T, with a carrying amount of $200 000 at year end 20X4.Company T reports no increase in owner's equity between 20X0 and 20X5 but for the year ended 20X5 pays a cash dividend of $60 000, of which Company J receives $36 000.Which journal entry will Company J process in respect of this investment, assuming that AASB 127.38A is in effect during the period?

Company PPP has a share investment in, and controls Company PPP (Owns 70% of the shares, purchased in 20X1) with a carrying amount of $200 000 at year end 20X4.Company QQQ reports an increase in owner's equity of $100 000 for the year ended 20X5 pays a cash dividend of $80 000 from this, of which Company PPP receives $56 000.Which journal entry will Company PPP process in respect of this investment, assuming that AASB 127.38A was not in effect during the period?

Singer Ltd has significant influence over the operations of Opera Ltd from a 16% ownership.Singer Ltd prepares consolidated financial statements.Opera Ltd paid a total cash dividend of $1 000 000 and reported a profit of $2 000 000 for the current year.Under the cost method how much revenue would be reported by Singer Ltd for this investment?

On 1 January 20X0, Ringo Ltd acquired 100 % of the share capital of George Ltd for $1 000 000 cash.At that date, the equity section of George Ltd's balance sheet was as follows: \ Share capital 800000 Retained profits 100000 Asset revaluation reserve 100000\ Assuming all assets and liabilities were recorded at their fair values what will be the effect of the acquisition on Ringo's account balances in its separate financial statements?

Return of post-acquisition equity for an investment in an associate may be regarded as a dividend revenue or a return of the initial investment depending on the operation of AASB 127.38A.

When asset(s) are acquired, those assets must initially be recorded at the:

Billy Ltd owns 19% of Guyatts Ltd and has significant influence over the operations of Guyatts Ltd.For the year ended 31 December 20X1, Guyatts Ltd reported a profit of $900 000 and paid a total cash dividend of $100 000.What is the difference between the total revenue reported by Billy Ltd under the equity method in AASB 128 versus that revenue which would be reported under the cost method? The AASB 128 net revenue would be higher by:

Company A owns 25% of the voting shares and has significant influence over Company B. Which method(s) of accounting for the investment in B might be permissible under Australian accounting standards?

For all asset acquisitions, acquired goodwill is recognised when the cost of acquisition is:

An investor can purchase up to 49% of shares in a public listed company without any special requirements being imposed on the purchases.

Which of the following are conceptually possible ways of accounting for share investments where significant influence is held over the investee?

Under AASB 3, if goodwill is present in a transferred set of activities and assets, the transferred set shall be presumed to be a business.

DD Ltd buys a block of land from BB Ltd by paying $95 000 cash and transferring a piece of equipment to BB Ltd.The equipment is recorded in DD Ltd's at $45 000 and it has a fair value of $55 000.DD Ltd pays $25 000 in estate agent's fees to arrange the transfer.Show the journal entries to record this transaction.

Brown Ltd acquired 21% of the issued share capital of Dockers Ltd.Brown Ltd does not have significant influence or control over the operating policies of Dockers Ltd, but it does have significant influence over the financial policies of Dockers Ltd.Dockers Ltd is a/an _________________ of Brown Ltd.

GIJ Ltd acquired some assets from FUG Ltd for less than their fair value.The assets do not comprise a business.After allocating the discount to the non-monetary assets there was some discount remaining because the non-monetary assets had been written down to zero.How should GIJ Ltd account for this remaining amount?

Lie Ltd acquired 30% of and significant influence over the operations of Land Ltd on 1 July 20X0.During the financial year ended 30 June 20X1, Land Ltd earned a profit of $60 000.Lie Ltd does not control any entities.What is the journal entry to record the share of Land Ltd's profit in the accounts of Lie Ltd for the year ended 30 June 20X1 using the equity method?