Jay Ltd Acquired a 25 Per Cent Interest in Low

question 66

Multiple Choice

Jay Ltd acquired a 25 per cent interest in Low Ltd on 1 July 2013 for a cash consideration of $177 500.Low Ltd's equity at the time of purchase was as follows: $$\begin{array} { | l | r | } \hline \text { Share capital } & 540000 \\\hline \text { Retained earnings } & \underline { 90000 } \\\hline \text { Total shareholders' funds } & \underline { 630000} \\\hline\end{array}$$ Additional information:
On 1 July 2013 Low's plant and equipment had a carrying value of $120 000 but a fair value of $140 000.The remaining expected useful life of the plant and equipment at this date was 10 years.Low did not revalue the plant and equipment in its books.
For the period ending 30 June 2014 Low Ltd recorded an after-tax profit of $70 000,out of which dividends of $30 000 were proposed in the 2013/2014 period and paid in the 2014/2015 period.
For the year ended 30 June 2015 Low Ltd had an after-tax profit of $90 000 out of which it provided for a dividend of $40 000,which has not been paid.
Jay Ltd does not accrue the dividends of associates as revenue when they are proposed.The investment has been recorded in Jay's books in accordance with the cost method.What consolidation journal entries are required to apply the equity accounting method for the period ended 30 June 2015?

• A)
• \(\begin{array}{|c|l|r|r|}
• \hline \mathrm{Dr} & \text { Investment in Low Ltd } & 16000 & \\
• \hline \mathrm{Cr} & \text { Retained earnings, beginning } & & 16000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Investment in Low Ltd } & 21000 & \\
• \hline \mathrm{Cr} & \text { Share of associate's profit } & & 21000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Dividend revenue } & 10000 & \\
• \hline \mathrm{Cr} & \text { Investment in Low Ltd } & & 10000 \\
• \hline
• \end{array}\)
• B)
• \[\begin{array} { | l | l | r | r | }
• \hline \mathrm { Dr } & \text { Investment in Low Ltd } & 177500 & \\
• \hline \mathrm { Dr } & \text { Goodwill } & 15000 & \\
• \hline \mathrm { Cr } & \text { Asset revaluation reserve } & & 5000 \\
• \hline \mathrm { Cr } & \text { Share capital } & & 135000 \\
• \hline \mathrm { Cr } & \text { Retained earnings } & & 22500 \\
• \hline \mathrm { } & & & \\
• \hline \mathrm{Dr} & \text { Depreciation expense } & 500 & \\
• \hline \mathrm{Cr} & \begin{array}{l}
• \text { Accumulated depreciation-plant and } \\
• \text { equipment }
• \end{array} & & 500\\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend revenue } & 10000 & \\
• \hline \mathrm { Cr } & \text { Investment in Low Ltd } & &10000 \\
• \hline
• \end{array}\]
• C)
• \(\begin{array}{|c|l|r|r|}
• \hline \mathrm{Dr} & \text { Investment in Low Ltd } & 17000 & \\
• \hline \mathrm{Cr} & \text { Retained earnings, beginning } & & 17000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Investment in Low Ltd } & 22000 & \\
• \hline \mathrm{Cr} & \text { Share of associate's profit } & & 22000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Dividend revenue } & 7500 & \\
• \hline \mathrm{Cr} & \text { Investment in Low Ltd } & & 7500 \\
• \hline
• \end{array}\)
• D)
• \[\begin{array} { | l | l | r | r | }
• \hline \mathrm { Dr } & \text { Investment in Low Ltd } & 177500 & \\
• \hline \mathrm { Dr } & \text { Goodwill } & 20000 & \\
• \hline \mathrm { Cr } & \text { Share capital } & & 135000 \\
• \hline \mathrm { Cr } & \text { Retained earnings } & & 22500 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Depreciation expense } & 500 & \\
• \hline \mathrm { Cr } & \begin{array} { l }
• \text { Accumulated depreciation—plant and } \\
• \text { equipment }
• \end{array} & & 500 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend revenue } & 10000 & \\
• \hline \mathrm { Cr } & \text { Investment in Low Ltd } & & 10000\\
• \hline
• \end{array}\]

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