Voyager Ltd acquired a 40% interest in Sea Ltd for $60 000. Voyager Ltd is part of a consolidated group. In the financial period immediately following the date on which it became an associate, Sea Ltd generated profits after tax of $32 000 and paid a dividend of $6000. After equity accounting has been applied, the balance in the investor's account 'shares in associate' is:
A) $72 800.
B) $70 400.
C) $60 000.
D) $86 000.

Question

Quizplus · Accepted Answer

The initial investment in Sea Ltd was $60,000 for a 40% interest, which means the total value of Sea Ltd is $150,000 (60,000 / 0.4). After Sea Ltd generated profits after tax of $32,000, Voyager Ltd's share of the profits would be $12,800 (32,000 x 40%). If we deduct the dividend of $6,000 from this, the increase in Voyager Ltd's investment in Sea Ltd after the financial period would be $6,800 (12,800 - 6,000).

Therefore, the new value of Voyager Ltd's investment in Sea Ltd would be $66,800 (60,000 initial investment + 6,800 increase in investment value). Since this is the balance in the investor's account 'shares in associate' after equity accounting has been applied, the correct answer is B) $70,400.

Voyager Ltd Acquired a 40% Interest in Sea Ltd for $60