David Limited acquired a 20% share in Tennant Limited for $52 000. David Limited has no other investments. At the date on which it became an associate, Tennant Limited had the following equity (which reflected the fair value of net assets on that date):
Share capital $155 000
Retained earnings $110 000
At the end of the financial year following the investment, Tennant Limited generated a profit of $96 000. After applying the equity method of accounting, David Limited will have the following carrying amount for the investment:

Question

David Limited acquired a 20% share in Tennant Limited for $52 000. David Limited has no other investments. At the date on which it became an associate, Tennant Limited had the following equity (which reflected the fair value of net assets on that date):
 Share capital $155 000
Retained earnings $110 000
At the end of the financial year following the investment, Tennant Limited generated a profit of $96 000. After applying the equity method of accounting, David Limited will have the following carrying amount for the investment:

Quizplus · Accepted Answer

David Limited's share of Tennant Limited's profit is 20% of $96,000, which is $19,200. Adding this to the initial investment of $52,000 gives a carrying amount of $71,200.

David Limited Acquired a 20% Share in Tennant Limited for $52