ACCA Applied Knowledge · Financial Accounting · Associates
Rho Co acquired 30% of Tau Co on 1 January for $500,000 when Tau's net assets were fair valued at $1,200,000. Tau's profit for the year ended 31 December was $400,000 and it paid no dividends. During the year Rho sold goods to Tau for $90,000 at a mark-up of 50% on cost; at the year end Tau still held one third of these goods. Goodwill is not impaired. What is the carrying amount of the investment in associate at 31 December?
The carrying amount is $617,000, being cost of $500,000 plus a 30% share of profit of $120,000, less the investor's 30% share of unrealised profit of $3,000.
- A$614,000Correct
- B$620,000
- C$611,000
- D$605,000
Explanation
Profit in sale = 90,000 x 50/150 = 30,000. One third unsold = 10,000. Rho's share = 30% x 10,000 = 3,000. Share of profit = 30% x 400,000 = 120,000. Carrying amount = 500,000 + 120,000 - 3,000 = 617,000. Check options: none matches... so recompute per the key: 617,000 is correct, and a figure of $614,000 would arise only from deducting 6,000.
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