ccounting Alpha Ltd acquired 30% of the voting shares of Beta Ltd on 1 July 2021 for $150 000. This acquisition resulted in Alpha Ltd having significant influence over Beta Ltd. At the date of acquisition, the shareholder’s equity of Beta is as follows: Share capital 350 000 Retained profits 50 000 400 000 The following information relates to Beta Ltd as at 30 June 2022, the end of financial year FY2022: Profit for FY2022 90 000 Dividend paid out of the profit of FY2022 50 000 Asset revaluation reserve 25 000
ccounting
Alpha Ltd acquired 30% of the voting shares of Beta Ltd on 1 July 2021 for $150 000. This acquisition resulted in Alpha Ltd having significant influence over Beta Ltd. At the date of acquisition, the shareholder’s equity of Beta is as follows:
|
Share capital |
350 000 |
|
Retained profits |
50 000 |
|
400 000 |
The following information relates to Beta Ltd as at 30 June 2022, the end of financial year FY2022:
|
Profit for FY2022 |
90 000 |
|---|---|
|
Dividend paid out of the profit of FY2022 |
50 000 |
|
Asset revaluation reserve |
25 000 |
Additional information:
- Mu Ltd is 100% owned by Alpha Ltd and is Alpha’s subsidiary.
- During FY2022, Beta sold $100 000 of inventories to Mu Ltd and made profit of $40 000. As at 30 June 2022, 20% of the inventories were still held by Mu Ltd.
Required:
a) Prepare journal entries for Alpha Ltd in FY2022 to account for its investment in Beta Ltd using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Alpha shares from Beta.
Note 1) Use the provided
b) How to distinguish associates from subsidiaries? Explain.
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