ACCA Applied Knowledge · Financial Accounting · Associates
On 1 January, Pine Co bought 30% of Oak Co's equity shares for $450,000. For the year to 31 December, Oak reported profit after tax of $200,000 and paid dividends of $80,000. What is the carrying amount of the investment in the associate in Pine's consolidated statement of financial position at 31 December?
The carrying amount is $486,000. Cost of $450,000 is increased by Pine's 30% share of Oak's profit ($60,000) and reduced by its 30% share of dividends ($24,000). Dividends received are a return of investment under the equity method, not income.
- A$450,000
- B$486,000Correct
- C$426,000
- D$510,000
Explanation
Share of profit = 30% × $200,000 = $60,000. Dividend received = 30% × $80,000 = $24,000, which reduces the carrying amount. Carrying amount = $450,000 + $60,000 − $24,000 = $486,000. $510,000 ignores the dividend deduction and $426,000 deducts the profit share rather than adding it.
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