On January 1 20X7,a parent entity Emborough Ltd acquired 20% of the share capital of Bernborough Ltd and the power to significantly influence the operating and financial policies of that company for $4,500,000 cash.In the period from the date of acquisition to June 30 20X7,Bernborough Ltd earned a profit for the period of $400,000 (after tax of $200,000),recognised a post-acquisition asset revaluation increment of $500,000 (deferred tax liability $100,000)and declared a dividend of $200,000.At June 30 20X7,Emborough Ltd recognised its equity in the dividend. In the consolidated balance sheet as at June 30 20X7 of the group controlled by Emborough Ltd,the investment in the associate would be reported at an amount of:
A) $4,620,000
B) $4,500,000
C) $4,680,000
D) None of the above.

Question

Quizplus · Accepted Answer

The investment in the associate is initially recognized at cost ($4,500,000). The share of post-acquisition profits is 20% of $400,000, which is $80,000. The share of the revaluation increment is 20% of $500,000, which is $100,000. The share of the dividend is 20% of $200,000, which is $40,000. The investment is reported at $4,500,000 + $80,000 + $100,000 - $40,000 = $4,620,000.

On January 1 20X7,a Parent Entity Emborough Ltd Acquired 20