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Cbac Activity 5

The document describes how to calculate the carrying amount of an investment in an associate. It provides an example where Entity A invested $800,000 for a 25% interest in Entity B. In 20x1, Entity B reported a profit of $1,000,000, so Entity A's share was $250,000. Entity B also paid dividends of $100,000, so Entity A's share was $25,000. To calculate the carrying amount, the initial investment is reduced by dividends received and increased by the share of profit, yielding a carrying amount of $1,025,000.

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74 views2 pages

Cbac Activity 5

The document describes how to calculate the carrying amount of an investment in an associate. It provides an example where Entity A invested $800,000 for a 25% interest in Entity B. In 20x1, Entity B reported a profit of $1,000,000, so Entity A's share was $250,000. Entity B also paid dividends of $100,000, so Entity A's share was $25,000. To calculate the carrying amount, the initial investment is reduced by dividends received and increased by the share of profit, yielding a carrying amount of $1,025,000.

Uploaded by

normanjayingay87
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACTIVITY 5

Answer:

1. To calculate the carrying amount of the investment in the associate on December 31,
20x1, we need to consider the initial investment, the share of profit, and any dividends
received.

The initial investment In Entity B by Entity A was ₱800,000 for a 25% interest.

In 20x1, Entity B reported a profit of ₱1,000,000. Since Entity A owns a 25% interest, the share
of profit for Entity A would be ₱1,000,000 multiplied by 25%, which is ₱250,000.

Entity B also declared dividends of ₱100,000 in 20x1. Again, since Entity A owns a 25% interest,
the share of dividends for Entity A would be ₱100,000 multiplied by 25%, which is ₱25,000.

To calculate the carrying amount of the investment in the associate on December 31, 20x1, we
subtract the share of dividends from the initial investment and add the share of profit.

Carrying amount of the investment in associate on December 31, 20x1 = Initial investment –
Share of dividends + Share of profit

Carrying amount = ₱800,000 - ₱25,000 + ₱250,000

Carrying amount = ₱1,025,000

Therefore, the carrying amount of the investment in the associate on December 31, 20x1, is
₱1,025,000.

2. To calculate the carrying amount of Hanwell’s interest in Northfield at 31 December


20X7:

Initial Investment:

Hanwell acquired a 30% equity interest in Northfield for CU400,000 on 1 January 20X6.

Share of Profit or Loss:

In the year to 31 December 20X6, Northfield earned profits of CU80,000. Since Hanwell
owns a 30% interest, Hanwell’s share of the profit is CU80,000 multiplied by 30%, which is
CU24,000.

In the year to 31 December 20X7, Northfield incurred losses of CU32,000. Hanwell’s share of
the loss is CU32,000 multiplied by 30%, which is CU9,600.

Dividends Received:
In the year to 31 December 20X6, Northfield paid no dividend.

In the year to 31 December 20X7, Northfield paid a dividend of CU10,000. Hanwell’s share
of the dividend is CU10,000 multiplied by 30%, which is CU3,000.

To calculate the carrying amount of Hanwell’s interest in Northfield at 31 December 20X7,


we need to adjust the initial investment by adding the share of profit or loss and subtracting
the share of dividends received:

Carrying amount of Hanwell’s interest in Northfield = Initial Investment + Share of Profit or


Loss – Share of Dividends Received

Carrying amount = CU400,000 + CU24,000 – CU3,000 – CU9,600

Carrying amount = CU411,400

Therefore, the carrying amount of Hanwell’s interest in Northfield, according to IAS 28


Investments in Associates, in Hanwell’s consolidated statement of financial position at 31
December 20X7, should be CU411,400.

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