Question

On 1 July 20X3 Alpha Ltd acquired a 25% share of Beta Ltd. At that date the following assets had carrying amounts different to their fair values in Beta’s books:

Asset	Carrying amount	Fair value
Inventories	$12 000	$15 000
Machinery	$24 000	$30 000

All inventories were sold to third parties by 30 June 20X4. On 1 July 20X3, the machinery had a remaining useful life of 3 years.

The tax rate is 30%.

The adjustment required to the Investment in Associate account at 30 June 20X4 in relation to the above assets is:

	a.	$875
	b.	$1250
	c.	$3500
	d.	$5000

Investor Limited acquired a 30% interest in Investee Limited for $27 000. Investor holds other equity investments but does not prepare consolidated financial statements. Investee Limited revalued its buildings class of assets by $10 000 during the current financial period. The balance of the Investment in Associate account at the end of the current financial period is:

	a.	$11 100.
	b.	$18 100.
	c.	$27 000.
	d.	$30 000.

When goodwill is acquired by an investor in an associate, the amortisation of goodwill is:

	a.	spread evenly across the useful life of the investment.
	b.	not permitted.
	c.	included in the determination of the investor’s share of the associate’s profit or loss.
	d.	included in the revaluation of the investment.

The following item is classified as part of ‘investing activities’ in the statement of cash flows:

	a.	depreciation of non-current assets.
	b.	gain on sale of investments.
	c.	acquisition of non-current assets.
	d.	proceeds from an issue of shares.

Answer 1

1	Asset	Carrying amount	Fair value	Difference	useful life	Differential expense
	Inventories	12000	15000	3000	1	3000
	Machinery	24000	30000	6000	3	2000
						5000
	Parent's share 25%					1250
	Ans: b 1250

2	The assets and liabilities are acquired at fair market value as on the date of acquisition any revalution post the same is not considered
	Ans: C 27000
	If the same is revlauted through fair value OCI there would be increase in other comprehensive income of 10000 I,e 3000 for parents share increasing its value to 30000
3	The amortisation of goodwill is the amortisation differential on acquisition which is adjusted to income from investee
	Ans: C included in determination of the investor's share of associate's profit or loss
4	Depreciation and gai on sale of assets are non-cash activities, also proceeds from issue of shares are financing activitis
	Ans: C acquisition of non-current assets