- 5 Marks
Question
Abuja Plc, a company with a subsidiary, acquired 7,500,000 shares out of the 30 million ₦1 ordinary shares in Abaji Ltd for ₦15 million on 1 January 2018. In the year to 31 December 2018, Abaji Ltd earned a profit after tax of ₦6 million, from which it declared a dividend of ₦1,500,000.
Required:
Explain how Abaji Limited’s result should be accounted for in the separate and consolidated accounts of Abuja Plc for the year ended 31 December 2018.
Answer
Explanation of the treatment of results of associates in Abuja Plc‟s
separate and consolidated financial statements.
Treatment in separate account
- In the separate financial statement of Abuja Ltd. investment in
Abaji Ltd will be stated at cost or cost less any impairment (fair
value) i.e. – Also N15,000,000 investment will be recognised in the
separate statement of financial position of Abuja Plc. - Also in statement of profit or loss of Abuja Plc. dividend received of
(N1,500,000 x 25%) N375,000 will recognised as income from
shares in associates.
Treatment in consolidated account
In the consolidated financial statements of the Abuja Plc.,
investment in associates will be accounted for using equity method
as follows
Therefore investment in associates in Abuja Plc. statement of
financial position will be N16,500,000 and consolidated statement
of profit or loss will show income from associates as N1,500,000.
- Tags: associate company, consolidated accounts, Equity Accounting, separate accounts
- Level: Level 2
- Topic: Associates and joint ventures
- Series: MAY 2019
- Uploader: Kwame Aikins