Question

how we get 0.7 after adjustment, what is this adjustment, what numbers we calculated to get it ? ( clearlyful ...How we get 0.7 ? where'd how exactly it came from ?

Refrence

Deegan. (2016). Financial Accounting . McGraw-Hill Education, Australia

Prepare the journal entries under both the cost and the equity method of accounting for the investment in Pa Ltd for the year ending 30 June 2020 (that is, two years after acquisition). LO 32.7 20. On 1 July 2018 Stokes Ltd acquires 25 per cent of the issued capital of Cotter Ltd for a cash consideration of $120 000. At the date of acquisition, the shareholders' equity of Cotter Ltd is: Share capital $150 000 Retained earnings $100 000 Total shareholders' equity $250000 Additional information • On the date of acquisition, buildings have a carrying amount in the accounts of Cotter Ltd of $80 000 and a fair value of $100 000. The buildings have an estimated useful life of 10 years after 1 July 2018. • For the year ending 30 June 2019 Cotter Ltd records an after-tax profit of $30 000, from which it pays a dividend of $10 000. For the year ending 30 June 2020 Cotter Ltd records an after-tax profit of $100 000, from which it pays a dividend of $50 000. Stokes Ltd has a number of subsidiaries. The tax rate equals 30 per cent REQUIRED Calculate the amount of goodwill at the date of acquisition, and prepare the journal entries for the year ending 30 June 2019 and 30 June 2020, applying the equity method of accounting. LO 32.3 Identifiable net assets of the associate as at 1 July 2018 $250 000 Adjustment to fair value for buildings after related tax effect (20 000 x 0.7) $14 000 Fair value of Cotter Ltd's identifiable net assets as at 1 July 2018 $264 000 Stokes Ltd's equity interest x 25% Fair value of assets acquired by Stokes Ltd as at 1 July 2018 $66 000 Acquisition cost $120 000 Goodwill acquired $54 000 As there has been no impairment of goodwill, no adjustments will need to be made to reduce the value of the investment to account for goodwill impairment. Adjustments to recognise additional depreciation expenses Extra depreciation expense pertaining to buildings: ($20 000 = life of the buildings) x Stokes Ltd's ownership interest = ($20 000 - 10) x 25% = $500. The after-tax effect of this is $500 x (1 – 0.30) = $350.

Answer 1

0.70 represents after tax effect i.e to give effects to the income after deducting 30% of tax
Example : when income is 100,
	Tax is 30% i.e 0.30
	To calculate income after tax we generally do 100*(1-0.30) = 100*(0.70) = 70
	directly calculating after tax 0.7 is used.
	Please see last line of question it is given tax rate 30%
In question where you marked in red, it says it is the adjustment for fair value of building after related tax effects.
fair value of building = $100000
Carrying amount of building = $80000
Difference = $100000 - $80000 = $20000
After deducting tax i.e			20000
		Less:Tax	6000	(20000*30%)
			14000	to directly get this they used 20000*0.70