Question

Lennon Ltd acquired 40% of the issued ordinary shares of Assunta Ltd for $130,000 on 1 July 2019.

During the year ended 30 June 2020, Assunta Ltd recorded a profit after tax of $51,000 and paid dividends amounted to $21,000. Assunta Ltd had also recorded a revaluation gain of $23,000 on a parcel of land for the same year.

At 30 June 2020, Lennon Ltd had inventory costing $50,000 on hand which had been purchased from Assunta Ltd. A profit before tax of $20,000 had been made on the sale.

The tax rate is 30%.

Required: Calculate the carrying amount of the investment in associate account for the year ended 30 June 2020 after taking into consideration all the information above.

Answer 1

	Particulars		$
	Investment in Asuna Ltd		130,000
Less	Pre- acquistion profits Note 1
	Dividends	21000	8400
	Reveluation Reserves	23000	9200
Less	Inventory
Add	Post Acquistion Profits Note 1		0
	Carrying amount as on 30 June 2020		112,400

Note 1	Pre- Acquistions Dividend	40% of 21000
	Pre- Acquistions Revalution Reserves	40% 0f 23000
Note 2	Profit Before Tax	20,000
	Less Inventory Cost	20000
	Profit After Tax	0
	40%	0