FR- Associate & Disposals of Subsidiaries

On 1 October 20X8, Pacemaker Co acquired 30 million of Vardine Co's 100 million shares in exchange for 75 million of its own shares. The fair value of Pacemaker Co's shares at the date of this share exchange was $1.60 each.

Vardine Co's profit is subject to seasonal variation. Its profit for the year ended 31 March 20X9 was $100 million. $20 million of this profit was made from 1 April 20X8 to 30 September 20X8.

Pacemaker Co has one subsidiary and no other investments apart from Vardine Co.

What amount will be shown as 'investment in associate' in the consolidated statement of financial position of Pacemaker Co as at 31 March 20X9?

• $144 million

• $150 million

• $78 million

• $126 million

Jarvis Co owns 30% of McLintock Co. During the year to 31 December 20X4 McLintock Co sold $2 million of goods to Jarvis Co, of which 40% were still held in inventory by Jarvis at the year end. McLintock Co applies a mark-up of 25% on all goods sold.

What effect would the above transactions have on group inventory at 31 December 20X4?

• Debit group inventory $48,000

• Debit group inventory $160,000

• Credit group inventory $48,000

• No effect on group inventory

Ulysses Co owns 25% of Grant Co, which it purchased on 1 May 20X8 for $5 million. At that date Grant Co had retained earnings of $7.4 million. At the year-end date of 31 October 20X8 Grant Co had retained earnings of $8.5 million after paying out a dividend of $1 million. On 30 September 20X8, Grant Co sold $600,000 of goods to Ulysses Co, on which it made 30% profit. Ulysses Co had not resold these goods by 31 October.

At what amount will Ulysses Co report its investment in Grant Co in its consolidated statement of financial position at 31 October 20X8?

• $5,000,000

• $5,275,000

• $5,230,000

• $4,855,000

On 1 February 20X3, Pinot Co acquired 30% of the equity shares of Noir Co, its only associate, for $10 million in cash. The profit for the year of Noir Co for the year to 30 September 20X3 was $6 million. Profits accrued evenly throughout the year. Noir Co made a dividend payment of $1 million on 1 September 20X3. At 30 September 20X3 Pinot Co decided that an impairment loss of $700,000 should be recognised on its investment in Noir Co.

What amount will be shown as 'investment in associate' in the statement of financial position of Pinot Co as at 30 September 20X3?

• $10,200,000

• $10,300,000

• $10,100,000

• $10,500,000

Ruby Co owns 30% of Emerald Co and exercises significant influence over it. Emerald Co reports a profit of $1,980,000 in its individual financial statements for the year ended 30 September 20X7. During the year, Emerald Co sold goods to Ruby Co for $160,000. Emerald Co applies a one-third mark-up on cost. Ruby Co still had 25% of these goods in inventory at the year end.

What amount should be recognised as the share of profit from the associate in the consolidated statement of profit or loss of Ruby Co for the year ended 30 September 20X7?

• $591,000

• $591,100

• $581,000

• $691,000

Chloe Co owns 40% of Amy Co and exercises significant influence over it. During the year, Chloe Co sold goods to Amy Co, earning a margin of 30% on the sale. Amy Co still had half of these goods in inventory at the year end.

Identify the correct adjustments to eliminate the unrealised profit in inventories.

(1) Cost of sales ....DR

(2) Investment in associate.....CR

(3) Share of profit of associate....DR

(4) Inventories.........CR

• Cost of sales DR

  
  Investment in associate CR

• Share of profit of associate DR

  Inventories CR

• Inventories CR
  
  Cost of sales DR

• Investment in associate CR
  
  Inventories CR

Which of the following is the criterion for the treatment of an investment as an associate?

• Ownership of a majority of the equity shares

• Ability to exercise control

• Existence of significant influence

• Exposure to variable returns from involvement with the investee

How should the customer contract in note (1) be accounted for?

• Should not be recognised as item is internally generated

• Group share of 75% should be recognised and not amortised

• Should be recognised at $1 million and not amortised

• Should be recognised at $1 million and amortised over five years

What amount will be shown in the consolidated statement of financial position at 30 September 20X7 in respect of the investment in Axle Co?

• $10,500,000

• $10,400,000

• $10,600,000

• $10,800,000

On 1 January 20X3, Westbridge Co acquired all of Brookfield Co's 100,000 $1 shares for $300,000. The goodwill acquired in the business combination was $40,000, of which 50% had been written off as impaired by 31 December 20X5. On 31 December 20X5 Westbridge Co sold all of Brookfield Co's shares for $450,000 when Brookfield Co had retained earnings of $185,000.

Using the pull-down list provided, select which is the correct answer for the profit on disposal that should be included in the consolidated financial statements of Westbridge Co?

• $145,000

• $165,000

• $245,000

• $330,000