Alpha Ltd acquired 30% of the voting shares of Beta Ltd on 1 July 2021 for $150 000. This acquisition resulted in Alpha Ltd having significant influence over Beta Ltd. At the date of acquisition, the shareholder’s equity of Beta is as follows:Share capital350 000Retained profits 50 000 400 000 The following information relates to Beta Ltd as at 30 June 2022, the end of financial year FY2022:Profit for FY202290 000Dividend paid out of the profit of FY202250 000Asset revaluation reserve25 000 Additional information:Mu Ltd is 100% owned by Alpha Ltd and is Alpha’s subsidiary.During FY2022, Beta sold $100 000 of inventories to Mu Ltd and made profit of $40 000. As at 30 June 2022, 20% of the inventories were still held by Mu Ltd.Required: a) Prepare journal entries for Alpha Ltd in FY2022 to account for its investment in Beta Ltd using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Alpha shares from Beta.

Equity method of accounting for the investment in a company records each and every change made by…

Answered: Alpha Ltd acquired 30% of the voting…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Alpha Ltd acquired 30% of the voting shares of Beta Ltd on 1 July 2021 for $150 000. This acquisition resulted in Alpha Ltd having significant influence over Beta Ltd. At the date of acquisition, the shareholder’s equity of Beta is as follows:

Share capital	350 000
Retained profits	50 000
	400 000

The following information relates to Beta Ltd as at 30 June 2022, the end of financial year FY2022:

Profit for FY2022	90 000
Dividend paid out of the profit of FY2022	50 000
Asset revaluation reserve	25 000

Additional information:

Mu Ltd is 100% owned by Alpha Ltd and is Alpha’s subsidiary.
During FY2022, Beta sold $100 000 of inventories to Mu Ltd and made profit of $40 000. As at 30 June 2022, 20% of the inventories were still held by Mu Ltd.

Required:

a) Prepare journal entries for Alpha Ltd in FY2022 to account for its investment in Beta Ltd using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Alpha shares from Beta.

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