Journal entries for initial recognition of investment for Antara Ltd at 30 June 2020 –
To Cash account $198000
(Being investment of 25% is made in Blanca ltd. for cash and it includes goodwill also)
Journal entries for subsequent recognition of investment for Antara Ltd at 30 June 2020 –
Land dr 162000
Equipment dr 414000
To Bank account 702000
(Being purchase all the assets and liabilities at carrying amount in equity method)
To Income from associates in profit and loss $36000
(Being increase in the value of land from the fair value of year 2019 to year 2020)
To Investment in statement of financial position $55080
(Being equipment depreciated from the fair value recorded in year 2019 to year 2020)
Consolidated statement of profit and loss and Other Comprehensive Income for the year ended at 30 June 2020 are –
Profit before taxation (PBT) $396000
Income tax expenses $144000
Profit after tax (PAT) 252000
Other comprehensive income
Gain on non-current asset revaluation $54000
Comprehensive income $306000
(Assumption: above profit and loss will include the inter-entity transactions among Antara ltd and Blanca ltd)
Equity method in the terms of accounting is the process of treating investments in associate companies and joint ventures companies. This method is used where the investing company is having major influence of more than 20% in other company and hence has significant influence on the latter's management. Through this accounting method one can used to record the profits which have earned through its investments in other company. The equity method will not apply on Antara’s own books of records it will apply only when it had made significant influence of more than 20% in Blanca ltd. Antara’s ltd financial statements includes profit of 252000 which is inclusive of Blanca ltd profits and other comprehensive income of 54000 which is inclusive of 25200 of Blanca ltd. The external users of Antara’s will be provided the information which is beneficial for them like profit after tax which they should know so they can take decision accordingly. The accounting standard 23 deals with the accounting for investments in the associates and the international accounting standard 28 which deals with investments in associates. The impact of changes to consolidated financial statements will lead to disclose in the CFS the list of associates and subsidiaries, the share of the ownership interest and the share in the voting power held at the date of reporting results for the reporting period.
The dividend paid by Blanca Ltd are recorded for using the accounting technique of equity by reducing the carrying amount of the investment by passing the journal entry of debiting the cash account credit the investment in statement of financial position. Antara will disclose dividend in relevant financial statements as if there is any important prohibitions on the ability of the associates to transfer funds to the investor in the way of cash dividends, or repayment of loans or advances. The accounting standard 23 deals with the accounting for investments in associates and international accounting standard 28 deals with investments in associates.
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