Question

Required: Please consider the three independent scenarios provided below. You are required to: 1. Provide the relevant accounting journal entries in the books of the investors to record the investment. 2. Justify each of your journal entries including references to specific paragraphs of relevant accounting standards. Part (A) On the 1st August 2017 Adelaide Ltd purchased 3% of the issued ordinary share capital of Byron Ltd for $235,000 in cash. In addition, Adelaide Ltd incurred brokerage costs of $3,055 which it paid on the same date. Adelaide Ltd's management estimated that the cost of the time spent by Adelaide Ltd's employees in evaluating and transacting the purchase was approximately $750, which was paid as part of the normal salary transactions. As a general accounting policy, the management of Adelaide Ltd have, in accordance with AASB 9, taken changes in the fair value of investments in equity instruments through profit or loss. By 31 December 2017 (Adelaide Ltd's half yearly reporting date) the fair value of the investment in Byron Ltd was determined to be $261,500 based on the current market price of the shares.

Answer 1

1) Investment in Bryon Ltd. A/c Dr. $235000

To Cash A/c. $235000

(Being Investment Cost recorded)

2) Investments in Bryon Ltd. (Brokerage cost)A/c Dr. $3055

To Cash A/c. $3055

(Being direct cost in the form of Brokerage capitalised)

3) Investment in Bryon Ltd. (Direct employee cost)A/c Dr. $750

To Cash A/C. $750

(Same as above entry)

4) Investment in Bryon Ltd. A/c Dr. $22695

To Profit and Loss A/C. $22695

(As per relevant standard investment needs to be revalued at Market price. Such revaluation difference has to be credited / debited in Other comprehensive income or profit or loss A/C depending upon the intension of the entity for purchasing the equity investment.)