Dixie Ltd acquired a 20 per cent interest in Jazz Ltd on 1 July 2013 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: $$\begin{array} { | l | r | }
\hline \text { Share capital } & 1000000 \
\hline \text { Retained earnings } & \underline { 830000 } \
\hline \text { Total shareholders' funds } & \underline {1830000} \
\hline
\end{array}$$ During the period ended 30 June 2014 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 2014 under (i)the cost method and (ii)the equity method?

Question

Dixie Ltd acquired a 20 per cent interest in Jazz Ltd on 1 July 2013 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: $$\begin{array} { | l | r | } 
\hline \text { Share capital } & 1000000 \
\hline \text { Retained earnings } & \underline { 830000 } \
\hline \text { Total shareholders' funds } & \underline {1830000} \
\hline
\end{array}$$ During the period ended 30 June 2014 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 2014 under (i)the cost method and (ii)the equity method?

Quizplus · Accepted Answer

The Answer of Dixie Ltd acquired a 20 per cent interest in Jazz Ltd on 1 July 2013 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: $$\begin{array} { | l | r | } 
\hline \text { Share capital } & 1000000 \
\hline \text { Retained earnings } & \underline { 830000 } \
\hline \text { Total shareholders' funds } & \underline {1830000} \
\hline
\end{array}$$ During the period ended 30 June 2014 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 2014 under (i)the cost method and (ii)the equity method?

Dixie Ltd Acquired a 20 Per Cent Interest in Jazz