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ACCA Strategic Professional · Strategic Business Reporting (International) · Associates and joint arrangements

On 1 January 20X1 Delta acquired 30% of Echo for $90m, when Echo's net assets had a fair value of $260m. Echo reported profit for 20X1 of $40m and paid a dividend of $10m on 31 December 20X1. Delta has no other transactions with Echo. What is the carrying amount of the investment in Echo in Delta's consolidated statement of financial position at 31 December 20X1?

The carrying amount is $99m. Start with cost of $90m, add Delta's 30% share of Echo's profit of $12m, and deduct the $3m dividend received because it reduces the investee's net assets. Goodwill is included in the carrying amount and is not shown separately.

  1. A$99mCorrect
  2. B$102m
  3. C$96m
  4. D$87m

Explanation

Cost of $90m includes goodwill of $90m - 30% x $260m = $12m, which stays within the carrying amount. Add share of profit 30% x $40m = $12m, giving $102m. Deduct dividend received 30% x $10m = $3m, giving $99m. Option $102m forgets to deduct the dividend.

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