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P Co Purchased 25% shares of A Co For 12000 on 1st January 2013 and gained significant influence. At 1 November 2013 P Co Purchased further 15% shares of A Co For 12000 plus broker fee 500. A Co’s profit after tax for the year ended 31 December 13 of 6000.
At which value should the investment be recorded at 31 December 13?In P’s accounts, the investment will be shown at cost
In a consolidation, if there IS a consolidation, it would be shown at 25%*10/12*6,000 + 40%*2/12*6,000 = 1,650
But why aren’t you asking your friend for the solution?
Haha actually he is asking from me to answer it. Will the investment not be added to the share of the profit to recognise it as asset? Will the broker fee not be capitalised? Here it seems the broker fee is specifically incurring for getting further interest in associate.
One reason to consult you is also that the friend’s answer will not be reliable for the exam so it is necessary to ask you to be confident in the exam 🙂I believe that the broker’s fee should be expensed.
At the date of the further acquisition, the original investment will be deemed to be sold and repurchased. Heaven knows why I missed the original costs of BOTH investments but, yes, the two lots of $12,000 should be included with the calculated $1,650 shown above
If this is a question from your friend’s employment, I deny all responsibility if that advice is incorrect and used in the preparation of any financial statements !
🙂
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