QUESTION THREE(20 MARKS)

Question

P Limited acquired a 60% interest in S Limited at 1 January 2015,

Analyse the Equity of S Ltd
When analysing the equity of the subsidiary at the acquisition date, the fair value adjustment for the land would be ‘replaced’ by the revaluation surplus; draw up the proforma journal entries to record the elimination of the cost of the land.

Answer 1

To record the elimination of the cost of land in the subsidiary's equity, the following proforma journal entries can be made:

1) Debit: Land (Asset)
Credit: Revaluation Surplus (Equity)

This entry records the revaluation of the land asset, which should be recognized in equity.

2) Debit: Retained Earnings (Equity)
Credit: Land (Asset)

This entry eliminates the cost of the land from the subsidiary's equity by transferring it to retained earnings.

Please note that the specific amounts for the above journal entries should be obtained from the given information or financial statements of S Limited.