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 20X5 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 20X5 in relation to the above assets is:

Quizplus · Accepted Answer

The adjustment to the investment in associate account at 30 June 20X5 relates to the fair value adjustments for the inventory and machinery at the time of acquisition and their subsequent accounting treatment over time. For inventory:- The fair value adjustment is €3,000 (€15,000 - €12,000).- Since all inventory was sold by 30 June 20X4, this adjustment would have fully impacted the profits (and thus the investment in associate) by 30 June 20X4. There's no further adjustment needed at 30 June 20X5 for inventory.For machinery:- The fair value adjustment is €6,000 (€30,000 - €24,000).- This is depreciated over 3 years, so annual depreciation is €2,000.- By 30 June 20X5, two years of depreciation have occurred, totaling €4,000.- Alpha Ltd owns 25% of Beta Ltd, so the impact on Alpha's investment account is 25% of €4,000 = €1,000.- There's also a deferred tax impact. The increase in depreciation reduces taxable income, so the deferred tax asset (or reduction in liability) is 30% of €4,000 = €1,200. Alpha's share is 25% of €1,200 = €300.- The net adjustment is the depreciation impact (€1,000) minus the deferred tax impact (€300) = €700.The total adjustment at 30 June 20X5 is therefore €700 (from machinery), as the inventory adjustment would have been fully accounted for by 30 June 20X4. However, given the options provided and the context of the question, it seems there might be a misunderstanding or misinterpretation in the calculation process, as none of the options directly match the calculated figure. The closest provided option based on typical adjustments for such scenarios is €1,225, which might consider other factors not detailed in the provided information or a different interpretation of the tax impact and its timing.

The Following Information Relates to Questions on 1 July 20X3

The Following Information Relates to Questions
on 1 July 20X3