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Dixie Ltd Acquired a 20 Per Cent Interest in Jazz

question 8

Multiple Choice

Dixie Ltd acquired a 20 per cent interest in Jazz Ltd on 1 July 2003 for a cash consideration of $366,000. It has a sufficient balance of voting rights in Jazz Ltd to give it significant influence in its operating and financing decisions. Jazz's assets and liabilities were recorded at fair value at the time of purchase and were represented by equity as follows:

During the period ended 30 June 2004 the following events occurreD.
Jazz had an after-tax profit of $348,000.
Jazz proposed a dividend out of pre-acquisition profits of $25,000.
Later in the period Jazz paid the $25,000 dividend and declared a further $25,000 dividend out of post-acquisition profits. This dividend will not be paid until the following period.
Dixie Ltd accrues the dividends of associates as revenue when they are proposed. What is the amount of the investment in Jazz Ltd and income that will be recorded in the books of Dixie Ltd as at 30 June 2004 under (i) the cost method and (ii) the equity method?

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