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In: Accounting

Alpha Company acquired 40% interest in an associate, VV Company, for P2,500,000 on January 1, 2019....

Alpha Company acquired 40% interest in an associate, VV Company, for P2,500,000 on January 1, 2019. At the acquisition date, there were no differences between fair value and carrying amount of identifiable assets and liabilities. VV reported net income of P1,000,000 for 2019 and P1,500,000 for 2020. Also, VV paid cash dividend of P400,000 and P500,000 for 2019 and 2020, respectively. The following additional events occurred during 2019 and 2020:

• On January 1, 2019, VV sold an equipment costing P250,000 to HH Company for P400,000. The remaining useful life of the equipment is 10 years.

• On December 2019, VV sold inventory to HH Company for P450,000. The cost of the inventory was P300,000. This inventory remained unsold by HH Company on December 31, 2019.

• On July 1, 2020, VV sold a vehicle for P450,000 to HH Company. The carrying amount of the vehicle is P250,000 at the time of sale. The remaining life of the vehicle is 5 years.

• On December 2020, HH sold the inventory from VV Company.

a) Determine the investor’s share in profit for 2019. __________________________

b) Determine the investor’s share in profit for 2020. __________________________

c) Determine the carrying amount of the investment in associate on December 31, 2019. __________________________

d) Determine the carrying amount of the investment in associate on December 31, 2020. __________________________

Solutions

Expert Solution

Alpha Company acquired $40% interest in an associate, VV company  for P2,500,000 on January 1, 2019.

Particulars 2019 2020
Net Income of VV Company 10,00,000.00 15,00,000.00
Less: Cash dividend paid 400,000.00 500,000.00
Income after deducting dividends 600,000.00 10,00,000.00
Add: Profit on sale of Equipments ($400,000 - $250,000) as on Jan 1,2019 150,000.00 0.00
Add: July 1, Vehical sold ($450,000-250,000) 200,000.00 0.00
Add:Profit on sale of inventory ($450,000-$300,)000 150,000.00 0.00
Income after adjusting profit and loss 11,00,000.00 10,00,000.00
a)Investors share in profit for 2019 (11,00,000.00*40%) 440,000.00
b)Investors share in profit for 2020 (10,00,000.00*40%) 400,000.00

ekkarill92 answered 2 years ago
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