The following information relates to questions
On 1 July 20X3 Alpha Ltd acquired a 25% share of Beta Ltd. At that date the following assets had carrying amounts different to their fair values in Beta's books:
$$\begin{array} { | l | c | l | }
\hline \text { Asset } & \begin{array} { c }
\text { Carying } \
\text { amount }
\end{array} & \text { Fair value } \
\hline \text { Inventory } & \text { €12 000 } & \text { €15 000 } \
\hline \text { Machinery } & \text { €24 DOQ } & \text { €30 000 } \
\hline
\end{array}$$
All inventory was sold to third parties by 30 June 20X4. On 1 July 20X3, 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 20X4 in relation to the above assets is:

Question

The following information relates to questions
On 1 July 20X3 Alpha Ltd acquired a 25% share of Beta Ltd. At that date the following assets had carrying amounts different to their fair values in Beta's books:
 $$\begin{array} { | l | c | l | } 
\hline \text { Asset } & \begin{array} { c } 
\text { Carying } \
\text { amount }
\end{array} & \text { Fair value } \
\hline \text { Inventory } & \text { €12 000 } & \text { €15 000 } \
\hline \text { Machinery } & \text { €24 DOQ } & \text { €30 000 } \
\hline
\end{array}$$ 
All inventory was sold to third parties by 30 June 20X4. On 1 July 20X3, 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 20X4 in relation to the above assets is:

Quizplus · Accepted Answer

The adjustment required to the investment in associate account at 30 June 20X4 involves considering the fair value adjustments for both inventory and machinery and their tax effects. For inventory, the fair value adjustment is €3,000 (€15,000 - €12,000). Since all inventory was sold by 30 June 20X4, this entire adjustment would be realized within the year, and Alpha Ltd's share (25%) would be €750 (€3,000 * 25%). There is no tax effect on the inventory adjustment since it's fully realized.For machinery, the fair value adjustment is €6,000 (€30,000 - €24,000). This adjustment is depreciated over the remaining useful life of 3 years, so the annual depreciation adjustment is €2,000 (€6,000 / 3 years). Alpha Ltd's share of the annual depreciation adjustment is €500 (€2,000 * 25%). The tax effect on this depreciation adjustment reduces the impact on the investment in associate account. The tax saving is €150 (€500 * 30%), so the net adjustment for machinery for the year is €350 (€500 - €150).The total adjustment to the investment in associate account at 30 June 20X4 is the sum of the inventory adjustment and the net machinery adjustment, which is €1,100 (€750 + €350). However, given the options provided and the calculation, it seems there might be a misunderstanding or misinterpretation in the calculation process. The correct approach focuses on the share of profit adjustment due to fair value increments and their depreciation, including tax effects. Given the options and typical accounting treatment, the closest correct answer based on the provided calculation method would be to select the option that aligns with the standard approach to such adjustments, considering the error in the final summing up.

The Following Information Relates to Questions on 1 July 20X3

The Following Information Relates to Questions
on 1 July 20X3