ACCA Applied Knowledge · Financial Accounting · Associates
Parent P acquired 30% of the equity of Associate A on 1 January 20X4 for $240,000. At that date A's net assets were $700,000. In the year to 31 December 20X4, A made a profit after tax of $100,000 and paid no dividends. What is the carrying amount of the investment in associate in P's consolidated statement of financial position at 31 December 20X4?
The investment is carried at $270,000. Under the equity method it starts at cost of $240,000 and is increased by the investor's 30% share of the associate's post-acquisition profit of $100,000, which is $30,000. No dividends were paid, so no reduction applies.
- A$240,000
- B$270,000Correct
- C$300,000
- D$210,000
Explanation
Equity method: cost $240,000 plus share of post-acquisition profit 30% x $100,000 = $30,000, giving $270,000. $240,000 ignores the profit. $300,000 wrongly adds 100% of profit. $210,000 subtracts the profit instead of adding it.
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