Warriors Limited acquired a 20% share in Tomkins Limited for $36 000.Warriors Limited has no other investments.At the date on which it became an associate,Tomkins Limited had the following equity:
- share capital $100 000
- retained earnings $80 000.
At the end of the financial year following the investment,Tomkins Limited generated a profit after tax of $12 000.After applying the equity method of accounting,Warriors Limited will have which of the following carrying amounts for the investment?
A)$38 400
B)$36 000
C)$33 600
D)$18 400

Question

Quizplus · Accepted Answer

Warriors Limited's share of Tomkins Limited's profit is 20% of $12,000, which is $2,400. Adding this to the initial investment of $36,000 gives a carrying amount of $38,400.

Warriors Limited Acquired a 20% Share in Tomkins Limited for $36