Question

what numbers we calculated to get these numbers under lined? ( please explain what numbers exactly we calculated to get these numbers ?

Refrence

Deegan. (2016). Financial Accounting . McGraw-Hill Education, Australia

Adjustments where investor prepares and does not prepare consolidated financial statements Brown Ltd acquired a 30% interest in Bandicoot Ltd for $50 000 cash on 1 July 2018. The directors of Brown Ltd believe this investment represents significant influence over the investee. The equity of Bandicoot Ltd at the acquisition date was as follows. Share capital Retained earnings $ 30 000 120 000 All the identifiable assets and liabilities of Bandicoot Ltd were recorded at fair value. Profits and dividends for the years ended 30 June 2019 to 2021 were as follows. Profit before tax Income tax expense Dividends paid 2019 2020 2021 $80 000 70 000 60 000 $30 000 25 000 20 000 $80 000 20 000 10 000 1. Prepare journal entries in the records of Brown Ltd for each of the years ended 30 June 2019 to 2021 in relation to its investment in the associate, Bandicoot Ltd. (Assume Brown Ltd does not prepare consolidated financial statements.) 2. Prepare the consolidation worksheet entries to account for Brown Ltd's interest in the associate/joint venture, Bandicoot Ltd. (Assume Brown Ltd does prepare consolidated financial statements. I 3. Calculate the carrying amount of the investment in Bandicoot Ltd at 30 June 2021. (LO3, LO4 and LO5)

Answer 1

When an investing entity uses equity method of recording its investment in another entity, we recognize the investor's share of profit earned by the investee entity at the end of the accounting period irrespective of whether any dividend a is distributed by the investee company.

Also, when investee corporation declares dividend, the same is credited to Investment account and not treated as income in the income statement.

In the above passed journal entries the underlined number are taken as follows

• $80,000 is the dividend amount paid by Bandicoot Ltd. for the period ending June 2019. 30% of this amount is the dividend received by Brown Ltd for its share of holding.
• $50,000 is the profit earned by Bandicoot Ltd after tax for the period ending June 2019. 30% of this amount is the share of profit of Brown Ltd. [$80,000 - $30,000= $50,000]
• $20,000 is the dividend amount paid by Bandicoot Ltd. for the period ending June 2020. 30% of this amount is the dividend received by Brown Ltd for its share of holding.
• $45,000 is the profit earned by Bandicoot Ltd after tax for the period ending June 2019. 30% of this amount is the share of profit of Brown Ltd. [$70,000 - $25,000= $45,000]

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