ACCA Applied Knowledge · Financial Accounting · Associates
On 1 January, Alpha acquired 30% of the equity shares of Beta for $240,000. For the year ended 31 December, Beta reported profit after tax of $100,000 and paid a dividend of $40,000. Using the equity method, what is the carrying amount of the investment in the associate in Alpha's consolidated statement of financial position at 31 December?
The carrying amount is $258,000. Start with cost of $240,000, add the 30% share of profit of $30,000, and deduct the 30% share of the dividend of $12,000, because dividends received are a return of the investment rather than group income under the equity method.
- A$258,000Correct
- B$240,000
- C$270,000
- D$228,000
Explanation
Cost $240,000 plus share of profit 30% x $100,000 = $30,000 gives $270,000. Deduct share of dividend received 30% x $40,000 = $12,000, giving $258,000. Option $270,000 ignores the dividend, which reduces the investment's carrying amount.
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