Skip to content

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

On 1 January 20X5 Gamma Group paid $6,000,000 for 30% of Delta Ltd, whose identifiable net assets had a fair value of $18,000,000. For the year ended 31 December 20X5 Delta reported profit of $2,000,000 and paid dividends of $500,000 in the year. Gamma has no other transactions with Delta. What is the carrying amount of the associate in Gamma's consolidated statement of financial position at 31 December 20X5?

The carrying amount is $6,450,000. Start with cost of $6,000,000, which includes notional goodwill, add the 30% share of profit of $600,000, and deduct the 30% share of dividends of $150,000, because dividends reduce the investment under the equity method.

  1. A$6,450,000Correct
  2. B$6,600,000
  3. C$6,000,000
  4. D$6,150,000

Explanation

Cost $6,000,000 (30% x 18,000,000 = 5,400,000, so goodwill of $600,000 is included in the carrying amount and not amortised). Add share of profit 30% x 2,000,000 = 600,000, and deduct dividend received 30% x 500,000 = 150,000. Result is 6,450,000. Distractor $6,600,000 forgets the dividend deduction.

Did you get it right without looking?

One question tells you little. A timed set on Associates and joint arrangements shows your real accuracy, how long you take and where you lose marks.

Practise Associates and joint arrangementsFree diagnostic mock

More Associates and joint arrangements questions