Homework Answers
Ans. i) Journal Entries
situation 1) Investor plan to sell the inventory in short term, As the investment in equity is financial asset and for trading therefore profit and loss is recognize though FVTPL
Date Particulars Debit ($) Credit( $)
year 1
1.Jan Investment A/c Dr. 198,000
To Bank A/c 198,000
( Being equity share purchased of SS. Inc.)
31. Dec Investment A/c Dr. 9,000
To FVTPL 9000
( Being investment valued through FVTPL)
Year 2
1. Jan Bank A/c Dr. 11250
To Dividend Received 11,250
(being dividend received from SS. Inc.)
31. Dec
Investment A/c Dr. 12,600
To FVTPL 12,600
( Being investment valued through FVTPL)
Dividend received A/c Dr. 11,250
To P&L A/c 11,250
( Being Dividend transferred to P/L A/c)
Year 3
1 Jan Bank A/c Dr. 6,000
To Dividend Received A/c 6,000
(being dividend received from SS. Inc.)
1. Jan Bank A/c Dr. 240,000
To Investment A/c 219,600
To P& L A/c 20,400
(being Investment in SS. Inc. sold )
Situation 2: Elect to use FVTOCI
Date Particulars Debit ($) Credit( $)
year 1
1.Jan Investment A/c Dr. 198,000
To Bank A/c 198,000
( Being equity share purchased of SS. Inc.)
31. Dec Investment A/c Dr. 9,000
To FVTOCI 9000
( Being investment valued through FVTPL)
Year 2
1. Jan Bank A/c Dr. 11250
To Dividend Received 11,250
(being dividend received from SS. Inc.)
31. Dec
Investment A/c Dr. 12,600
To FVOCI 12,600
( Being investment valued through FVTOCI)
Dividend received A/c Dr. 11,250
To P&L A/c 11,250
( Being Dividend transferred to P/L A/c)
Year 3
1 Jan Bank A/c Dr. 6,000
To Dividend Received A/c 6,000
(being dividend received from SS. Inc.)
1. Jan Bank A/c Dr. 240,000
To Investment A/c 219,600
To P& L A/c 20,400
(being Investment in SS. Inc. sold )
Situation 3 Company has Significant influence over SS. Inc. means SS. Inc is associate of RR Company Assume company follows equity Model.
Date Particulars Debit ($) Credit( $)
1.Jan Investment A/c Dr. 198,000
To Bank A/c 198,000
( Being equity share purchased of SS. Inc.)
31. Dec Investment A/c Dr. 9,000
To P&L 9000
( Being investment valued through P&L)
Year 2
1. Jan Bank A/c Dr. 11250
To Dividend Received 11,250
(being dividend received from SS. Inc.)
31. Dec
Investment A/c Dr. 12,600
To P&L 12,600
( Being investment valued through P&L)
Dividend received A/c Dr. 11,250
To P&L A/c 11,250
( Being Dividend transferred to P/L A/c)
Year 3
1 Jan Bank A/c Dr. 6,000
To Dividend Received A/c 6,000
(being dividend received from SS. Inc.)
1. Jan Bank A/c Dr. 240,000
To Investment A/c 219,600
To P& L A/c 20,400
(being Investment in SS. Inc. sold )
Working Notes
1) Holding in SS Inc. = 12,000/ 80,000
= 15%
ii) Changes in the retained Earning in all scenario
| Particulars | Year 1 ($) | year 2 ($) | year 3 ($) |
| Opening Retained Earnings | 300,000 | 45,000 | |
| Add | |||
| Profit\ (Loss) earned during the year | 300,000 | (180,000) | |
| less | |||
| Dividend declare during the year | (75,000) | 40,000 | |
| Closing Retained Earning | 300,000 | 45,000 | 5,000 |
It is assumed that Dividend of year 1 is declared on 1 Jan of Year 2 and Dividend of year 2 is declared on 1 Jan of Year 3.
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