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Hi sir,
I came across this question while doing ACCA website CBE revision papersPlow Co purchased 3,500 of the 10,000 $1 equity shares of Styre Co on 1 August 20X4 for $6.50 per share. Styre Co’s profit after tax for the year ended 31 July 20X5 was $7,500. Styre Co paid a dividend of $0.50 per share on 31 December 20X4.
Calculate the carrying amount of the investment in Styre Co in the consolidated statement of financial position of Plow Co as at 31 July 20X5 (to the nearest whole $).
Could you kindly explain me how they are calculating post-acquisition profit and dividend (shouldn’t we calculate it to 35%)?
The correct answer is $23,625
Cost of investment (3,500 x $6.50)= 22,750
Share of post-acquisition profit (35% x $7,000)= 2,625
less dividend received (3,500 x $0.50)= (1,750)
23,625
As we acquired only 35% (3500/10000*100) , we will recieve only 35% profit after tax
So post acquisution profit = 7000
Our share = 7000*35% = 2625For dividend , assosiate is giving dividend 0.50 per shares
We hold 3500 shares
So we will recieve divudend of 1750(3500*0.50)Thank you for this explanation.
I understood the dividend part.
But the profit for the year is $7500, how we are arriving to the figure of post acquisition $7000.
Could you kindly explain me that part please?Hello
That was mistake I wrote 7000
Profit after tax is 7500
And 35% of it = 2625That is printing mistake , it is 7500 not 7000
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