P6.4
1. Prepare the equity accounting entries for 20x5
EA1: Recognize share of post-acq RE of A
Dr Investment in A
Cr Opening RE
RE of A as at 1 Jan 20x5
RE of A as at date of acquisition
Change in RE
21,000
21,000
100,000
30,000
70,000
Share of A's change in RE (30%)
21,000
EA2: Recognize share of impairment loss on intangible asset
Dr Opening RE
4,800
Cr Investment in A [=30%*50%*80%*40,000]
4,800
EA3: Adjustment of after-tax unrealized profit on sale of inventory from 20x4.
Dr Opening RE [=30%*80%*5,000]
1,200
Cr Investment in A
1,200
EA4: Reclassify dividend income as a reduction of investment
Dr Dividend income [=30%*20,000]
6,000
Cr Investment in A
EA5: Recognize share of current profit after tax of A
Dr Investment in A
Cr Share of profit after tax of A
49,200
Net profit after tax
Add: realized profit in current year
Less: tax on realized profit
Adjusted profit after tax
Investor’s share of adjusted profit (30%)
160,000
5,000
(1,000)
164,000
49,200
6,000
49,200
2. Analytical check of Investment in A:
Book value of shareholders' equity of A
Unimpaired balance of intangible asset (after-tax)
P's share of A's identifiable net assets (30%)
Implicit goodwill in investment in A:
Investment in A
BV of net assets of A at acq
Unrecognized intangible (after-tax)
FV of net assets of A at acq
Less Share of FV of net assets of A at acq
Goodwill in A implicit in the investment in A
Investment in A as at 31 Dec 20x5
Investment in A, at cost
EA1: Share of post-acq RE
EA2:Share of impairment loss
EA3:Adjustment for unrealized profit (after-tax)
EA4:Dividend received
EA5:Share of current profit after tax
Investment in A as at 31 Dec 20x5
340,000
16,000
356,000
106,800
200,000
130,000
32,000
162,000
48,600
151,400
258,200
200,000
21,000
(4,800)
(1,200)
(6,000)
49,200
258,200