Company PPP has a share investment in, and controls Company PPP (Owns 70% of the shares, purchased in 20X1) with a carrying amount of $200 000 at year end 20X4.Company QQQ reports an increase in owner's equity of $100 000 for the year ended 20X5 pays a cash dividend of $80 000 from this, of which Company PPP receives $56 000.Which journal entry will Company PPP process in respect of this investment, assuming that AASB 127.38A was not in effect during the period?
A)Debit to cash, credit to investment, $126 000
B)Debit to cash, credit to share of associate's profit or loss, $26 000
C)Debit to cash, credit to dividend revenue, $56 000
D)Debit to cash, $126 000, credit to investment, $56 000, credit to share of associate's profit or loss, $70 000.

Question

Quizplus · Accepted Answer

According to AASB 127.38A, as at year end 20X4, an investor in an associate shall include its share of accumulated profits/losses of the associate in the carrying amount of its investment. However, assuming that AASB 127.38A was not in effect during the period, the best option is to record the cash received as dividend revenue, and not adjust the carrying amount of the investment. Hence, the correct journal entry is Debit to cash, credit to dividend revenue, $56 000.

Company PPP Has a Share Investment In, and Controls Company