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ACCA Applied Skills · Financial Reporting · Preparation of consolidated financial statements for a simple group

On 1 January Pace Co paid $90,000 for 30% of Quill Co's shares, giving it significant influence. For the year to 31 December Quill reported profit after tax of $50,000 and paid dividends of $20,000. What is the carrying amount of the investment in the associate in Pace's consolidated statement of financial position at 31 December?

The carrying amount is $99,000. Start with cost of $90,000, add the 30% share of profit of $15,000, and deduct the 30% share of dividends of $6,000. Dividends are deducted because they reduce the associate's net assets and convert part of the investment into cash.

  1. A$105,000
  2. B$99,000Correct
  3. C$96,000
  4. D$84,000

Explanation

Carrying amount = cost $90,000 + 30% × $50,000 profit ($15,000) − 30% × $20,000 dividends ($6,000) = $99,000. Dividends received reduce the investment because they are a return of the associate's profits already recognised. $105,000 ignores the dividend deduction.

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