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Homework answers / question archive / White purchased 10% of an investee's 100,000 outstanding ordinary 5 points shares on January 1, 2022 for P1,000,000
White purchased 10% of an investee's 100,000 outstanding ordinary 5 points shares on January 1, 2022 for P1,000,000. On October 31, 2022, White company purchased 20,000 additional shares of the investee for P3,000,000. On the same date, the fair value of the 10% interest was P1,400,000. The fair value of the net assets of the investee is equal to carrying amount except for an equipment whose fair value exceeds carrying amount by P640,000. The equipment has a remaining life of 5 years. The investee had not issued any additional shares for the year. The investee reported net income of P8,000,000 for the current year and paid. P500,000 dividends. What amount should be reported on December 31 as investment in associate?
Answer: 4,643,600 Carrying Value of the Investment in Associate
Note: If you have any questions regarding the solution, feel free to ask. Thank you
Step-by-step explanation
October 31, 2021 through the Acquisition of 20,000 additional shares, White gain significant influence in which the company's investment should be recorded as Investment in Associate. The percentage owned by White company is 30%.
Initial Measurement of Investment in Associate is the Acquisition cost on October 31, 2022 + the Fair value of the 10% on October 31, 2022
3,000,000 + 1,400,000 = 4,400,000 Initial Measurement of the Investment in Associate
Investment Income is share in Net Income less the Amortization from the undervalued assets
(8,000,000 Net Income × 30% × 2/12) - (((640,000×30%)/5) × 2/12) = 393,600 Net Investment Income
Carrying Value of the Investment in Associate is Initial Measurement + Net Investment Income - Share in Dividends
4,400,000 + 393,600 - (500,000×30%) = 4,643,600 Carrying Value of the Investment in Associate
