Warriors Limited acquired a 20% share in Tomkins Limited for $36 000. Warriors Limited has no other investments. At the date on which it became an associate, Tomkins Limited had the following equity:
-share capital $100 000
-retained earnings $80 000.
At the end of the financial year following the investment, Tomkins Limited generated a profit after tax of $12 000. After applying the equity method of accounting, Warriors Limited will have which of the following carrying amounts for the investment?

Question

Warriors Limited acquired a 20% share in Tomkins Limited for $36 000. Warriors Limited has no other investments. At the date on which it became an associate, Tomkins Limited had the following equity:
 -share capital $100 000
-retained earnings $80 000.
At the end of the financial year following the investment, Tomkins Limited generated a profit after tax of $12 000. After applying the equity method of accounting, Warriors Limited will have which of the following carrying amounts for the investment?

Quizplus · Accepted Answer

Warriors Limited's share of Tomkins Limited's profit is 20% of $12,000, which is $2,400. Adding this to the initial investment of $36,000 gives a new carrying amount of $38,400.

Warriors Limited Acquired a 20% Share in Tomkins Limited for $36