- 10 Marks
FR – L2 – Q94 – Associates and Joint Ventures
Question
Portico Ltd acquired 30% of the equity shares in Armand Ltd (which satisfies the definition of associate) during Year 1 at a cost of GH₵350,000 when the fair value of the net assets of Armand Ltd was GH₵250,000. Since that time, the investment in Armand Ltd has been impaired by GH₵4,000.
On 31 December Year 5, the net assets of Armand Ltd were GH₵400,000. Since the date of acquisition, there have been no changes in the share capital of Armand Ltd or in any reserves other than retained earnings.
In the year to 31 December Year 5, the profits of Armand Ltd after tax were GH₵50,000.
Required
Show how the holding in Armand Ltd would be reflected in the Year 5 consolidated statement of financial position and consolidated statement of profit or loss.
Answer
Consolidated statement of financial position
Investment in associate (W)
391,000
Consolidated statement of profit or loss
| GH₵ | |
|---|---|
| Share of profits of associate (30% × 50,000) | 15,000 |
Working
Investment in associate
| GH₵ | |
|---|---|
| Investment at cost | 350,000 |
| Investor’s share of post-acquisition profits of Armand (30% × (400,000 – 250,000)) | 45,000 |
| 395,000 | |
| Minus accumulated impairment on the investment | (4,000) |
| 391,000 |
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