Bee Ltd Acquired a 40 Per Cent Interest in Bop

question 55

Multiple Choice

Bee Ltd acquired a 40 per cent interest in Bop Ltd on 1 July 2014 for a cash consideration of $772 000.Bop Ltd's equity at the time of purchase was as follows: $$\begin{array} { | l | r | } \hline \text { Share capital } & 1360000 \\\hline \text { Retained earnings } & \underline { 430000 } \\\hline \text { Total shareholders' funds } & \underline {1790000} \\\hline\end{array}$$ Additional information:
On 1 July 2014 Bop's plant and equipment had a carrying value of $600 000 but a fair value of $650 000.The carrying value of land was $560 000 while the fair value was $600 000.The remaining expected useful life of the plant and equipment at 1 July 2014 was 8 years.Bop did not revalue either asset in its books.
For the period ending 30 June 2014 Bop Ltd recorded an after-tax profit of $470 000,out of which dividends of $60 000 were proposed in the 2014/2015 period and paid in the 2015/2016 period.
For the year ended 30 June 2016 Bop Ltd had an after-tax loss of $60 000.Bop Ltd proposed a dividend of $120 000,which has not been paid this period.
Also during the year ended 30 June 2016,Bop Ltd revalued the land to $610 000.
Bee Ltd accrues dividends of associates as revenue when they are proposed.The investment has been recorded in Bee Ltd'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 2016?

• A)
• \[\begin{array} { | l | l | r | r | }
• \hline \mathrm { Dr } & \text { Investment in Bop Ltd } & 150750 & \\
• \hline \mathrm { Cr } & \text { Retained earnings, beginning } & & 150750 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Investment in Bop Ltd } & 32250 & \\
• \hline \mathrm { Cr } & \text { Share of associate's loss } & & 32250 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend revenue } & 48000 & \\
• \hline \mathrm { Cr } & \text { Investment in Bop Ltd } & & 48000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Investment in Bop Ltd } & 20000 & \\
• \hline \mathrm { Cr } & \text { Asset revaluation reserve } & & 20000 \\
• \hline
• \end{array}\]
• B)
• \(\begin{array}{|c|l|r|r|}
• \hline \mathrm{Dr} & \text { Investment in Bop Ltd } & 772000 & \\
• \hline \mathrm{Dr} & \text { Goodwill } & 56000 & \\
• \hline \mathrm{Cr} & \text { Share capital } & & 544000 \\
• \hline \mathrm{Cr} & \text { Retained earnings } & & 172000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Depreciation expense } & 6250 & \\
• \hline \mathrm{Cr} & \begin{array}{l}
• \text { Accumulated depreciation-plant and } \\
• \text { equipment }
• \end{array} & & 6250\\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Dividend revenue } & 48000 & \\
• \hline \mathrm{Cr} & \text { Investment in Bop Ltd } & & 48000 \\
• \hline
• \end{array}\)
• C)
• \[\begin{array} { | l | l | r | r | }
• \hline \mathrm { Dr } & \text { Investment in Bop Ltd } & 772000 & \\
• \hline \mathrm { Dr } & \text { Goodwill } & 20000 & \\
• \hline \mathrm { Cr } & \text { Asset revaluation reserve } & & 36000 \\
• \hline \mathrm { Cr } & \text { Share capital } & & 544000 \\
• \hline \mathrm { Cr } & \text { Retained earnings } & & 172000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend revenue } & 10000 & \\
• \hline \mathrm { Cr } & \text { Investment in Bop Ltd } & & 10000 \\
• \hline
• \end{array}\]
• D)
• \[\begin{array} { | l | l | r | r | }
• \hline \mathrm { Dr } & \text { Investment in Bop Ltd } & 155750 & \\
• \hline \mathrm { Cr } & \text { Retained earnings, beginning } & & 155750 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Share of associate's loss } & 32250 & \\
• \hline \mathrm { Cr } & \text { Investment in Bop Ltd } & & 32250 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Dividend revenue } & 48000 & \\
• \hline \mathrm { Cr } & \text { Investment in Bop Ltd } & & 48000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Investment in Bop Ltd } & 4000 & \\
• \hline \mathrm { Cr } & \text { Asset revaluation reserve } & & 4000 \\
• \hline
• \end{array}\]

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