On 1 January 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 30 June 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 30 June 20X7,Emborough Ltd recognised its equity in the dividend. In the consolidated balance sheet at 30 June 20X7 of the group controlled by Emborough Ltd,the investment in the associate would be reported at an amount of:

Question

Quizplus · Accepted Answer

The investment in the associate is initially recognized at cost ($4,500,000). The share of post-acquisition profits is added (20% of $400,000 = $80,000). The share of the revaluation increment is also added (20% of $500,000 = $100,000). The share of the dividend is deducted (20% of $200,000 = $40,000). Therefore, the investment is reported at $4,500,000 + $80,000 + $100,000 - $40,000 = $4,640,000. However, since $4,620,000 is the closest option, it seems there might be a slight error in the options provided.

On 1 January 20X7,a Parent Entity,Emborough Ltd,acquired 20% of the Share