On 1 July 2016 Titans Ltd acquired a 25% share of Taylor Ltd. At that date, the following assets had carrying amounts different to their fair values in Taylor's books. $$\begin{array} { | l | c | l | }
\hline \text { Asset } & \begin{array} { c }
\text { Carrying } \
\text { amount }
\end{array} & \text { Fair value } \
\hline \text { Inventories } & \$ 24000 & \$ 30000 \
\hline \text { Machinery } & \$ 48000 & \$ 60000 \
\hline
\end{array}$$ All inventories were sold to third parties by 30 June 2017. On 1 July 2016, the machinery had a remaining useful life of 3 years.
The tax rate is 30%.
The adjustment required to the investment in associate account at 30 June 2018 in relation to the above assets is:

Question

On 1 July 2016 Titans Ltd acquired a 25% share of Taylor Ltd. At that date, the following assets had carrying amounts different to their fair values in Taylor's books. $$\begin{array} { | l | c | l | } 
\hline \text { Asset } & \begin{array} { c } 
\text { Carrying } \
\text { amount }
\end{array} & \text { Fair value } \
\hline \text { Inventories } & \$ 24000 & \$ 30000 \
\hline \text { Machinery } & \$ 48000 & \$ 60000 \
\hline
\end{array}$$ All inventories were sold to third parties by 30 June 2017. On 1 July 2016, the machinery had a remaining useful life of 3 years.
The tax rate is 30%.
The adjustment required to the investment in associate account at 30 June 2018 in relation to the above assets is:

Quizplus · Accepted Answer

The adjustment for the investment in associate account includes the share of the post-acquisition profits related to the fair value adjustments of the assets. For the inventories, the adjustment is the difference between the fair value and the carrying amount, which is $6,000 ($30,000 - $24,000), and since Titans Ltd owns 25% of Taylor Ltd, the share is 25% of $6,000 = $1,500. This adjustment would have been recognized in the year the inventories were sold (by 30 June 2017).For the machinery, the fair value adjustment is $12,000 ($60,000 - $48,000). The depreciation on the fair value adjustment over its remaining useful life (3 years) is $12,000 / 3 = $4,000 per year. Titans Ltd's share is 25% of $4,000 = $1,000 per year. By 30 June 2018, two years of depreciation would have been recognized, so the total adjustment for machinery is 2 * $1,000 = $2,000.The total adjustment to the investment in associate account at 30 June 2018 is the sum of the adjustments for inventories and machinery, which is $1,500 + $2,000 = $3,500. However, we must also consider the tax effect. The tax effect on the fair value adjustment for the machinery (since the inventories were already sold and realized by 30 June 2017, their tax effect would have been realized as well) is 30% of $2,000 = $600. Therefore, the net adjustment is $3,500 - $600 = $2,900.However, given the options provided and the calculation process, it seems there might have been a misunderstanding in the tax effect application or a mistake in the calculation explanation. The correct approach without considering a tax effect mistake would lead to an answer closest to the provided options, focusing on the direct share of profit adjustments without subtracting tax effects directly from the fair value adjustments, leading to the selection of option B as the closest correct choice based on the initial calculation without the tax adjustment error.

On 1 July 2016 Titans Ltd Acquired a 25% Share