ACCA Applied Knowledge · Financial Accounting · Associates
Quill acquired 25% of Rowan, an associate, on 1 April. Rowan's profit after tax for the year ended 31 December was $360,000, accruing evenly through the year. What share of profit of associate should Quill include for the year?
Quill includes $67,500. Only profit earned after acquisition counts, so nine months of Rowan's $360,000 profit, which is $270,000, is multiplied by the 25% holding. Using the full year would give $90,000, which overstates the result.
- A$90,000
- B$67,500Correct
- C$120,000
- D$270,000
Explanation
Only post-acquisition profit counts: 9 months from 1 April to 31 December. $360,000 x 9/12 = $270,000, and 25% of that is $67,500. $90,000 uses the full year. $270,000 is the time-apportioned profit without applying the 25% share.
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