The equity section of East Ltd's on 1 April 2015 was extracted as follows: Ordinary shares $ 10,000 Revaluation Reserves Retained Loss 5,000 (260) On 1 April 2015, HK Ltd purchased 25% of the ordinary shares of East Ltd at the cost of $4,080. In January 2016, HK Ltd transferred one of its senior staff to take up the position of the Managing Director of East Ltd. After this personnel appointment, HK Ltd has been substantially involved in new product innovation with East Ltd by the provision of technical information. In February 2016, East Ltd sold inventory to HK Ltd for $3,000 at a profit of $600 to East Ltd. One third of this inventory remained in HK Ltd's warehouse at the year-end. On 31 March 2016, East Ltd's ending inventory included goods purchased from HK Ltd at a loss of $80 to HK Ltd. These goods had good quality, so they were popular and fully sold out shortly in April. In March 2016, East Ltd paid dividends of $400 to all eligible ordinary shareholders out of the profit earned in the financial year 2015/16. HK Ltd accounted for the receipt as investment income. After taking into account the dividends paid in the current financial year, East Ltd's retained earnings has a credit balance of $340 on 31 March 2016. The recoverable amount of East Ltd and the revaluation reserves' balance on 31 March 2016 were $12,000 and $4,000, respectively. Required: c) Prepare all journals needed for the consolidated financial statements of HK Ltd at 31 March 2016, assuming East Ltd is an associate of HK Ltd. d) Based on the answer from c) above, provide notes of disclosure for the investment in East Ltd on HK Ltd's consolidated financial statements for the year ended 31 March 2016.

Financial Accounting
14th Edition
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Carl Warren, Jim Reeve, Jonathan Duchac
Chapter15: Investments And Fair Value Accounting
Section: Chapter Questions
Problem 28E
Question
The equity section of East Ltd's on 1 April 2015 was extracted as follows:
Ordinary shares
$
10,000
Revaluation Reserves
Retained Loss
5,000
(260)
On 1 April 2015, HK Ltd purchased 25% of the ordinary shares of East Ltd at the cost of $4,080.
In January 2016, HK Ltd transferred one of its senior staff to take up the position of the
Managing Director of East Ltd. After this personnel appointment, HK Ltd has been substantially
involved in new product innovation with East Ltd by the provision of technical information.
In February 2016, East Ltd sold inventory to HK Ltd for $3,000 at a profit of $600 to East Ltd.
One third of this inventory remained in HK Ltd's warehouse at the year-end. On 31 March 2016,
East Ltd's ending inventory included goods purchased from HK Ltd at a loss of $80 to HK Ltd.
These goods had good quality, so they were popular and fully sold out shortly in April.
In March 2016, East Ltd paid dividends of $400 to all eligible ordinary shareholders out of the
profit earned in the financial year 2015/16. HK Ltd accounted for the receipt as investment
income.
After taking into account the dividends paid in the current financial year, East Ltd's retained
earnings has a credit balance of $340 on 31 March 2016. The recoverable amount of East Ltd
and the revaluation reserves' balance on 31 March 2016 were $12,000 and $4,000, respectively.
Required:
c) Prepare all journals needed for the consolidated financial statements of HK Ltd at 31 March
2016, assuming East Ltd is an associate of HK Ltd.
d) Based on the answer from c) above, provide notes of disclosure for the investment in East
Ltd on HK Ltd's consolidated financial statements for the year ended 31 March 2016.
Transcribed Image Text:The equity section of East Ltd's on 1 April 2015 was extracted as follows: Ordinary shares $ 10,000 Revaluation Reserves Retained Loss 5,000 (260) On 1 April 2015, HK Ltd purchased 25% of the ordinary shares of East Ltd at the cost of $4,080. In January 2016, HK Ltd transferred one of its senior staff to take up the position of the Managing Director of East Ltd. After this personnel appointment, HK Ltd has been substantially involved in new product innovation with East Ltd by the provision of technical information. In February 2016, East Ltd sold inventory to HK Ltd for $3,000 at a profit of $600 to East Ltd. One third of this inventory remained in HK Ltd's warehouse at the year-end. On 31 March 2016, East Ltd's ending inventory included goods purchased from HK Ltd at a loss of $80 to HK Ltd. These goods had good quality, so they were popular and fully sold out shortly in April. In March 2016, East Ltd paid dividends of $400 to all eligible ordinary shareholders out of the profit earned in the financial year 2015/16. HK Ltd accounted for the receipt as investment income. After taking into account the dividends paid in the current financial year, East Ltd's retained earnings has a credit balance of $340 on 31 March 2016. The recoverable amount of East Ltd and the revaluation reserves' balance on 31 March 2016 were $12,000 and $4,000, respectively. Required: c) Prepare all journals needed for the consolidated financial statements of HK Ltd at 31 March 2016, assuming East Ltd is an associate of HK Ltd. d) Based on the answer from c) above, provide notes of disclosure for the investment in East Ltd on HK Ltd's consolidated financial statements for the year ended 31 March 2016.
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