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Hi, Sir from PYQ Q4 ii)
Guidance co had purchased 25% interest in associate for cash, investment had cost $15m and made profit of $32m, and acounted for the purchase of associate correctly.
Ans: no need to adjust for the original $15m investment in associate because one asset is merely replaced by another but the total assets remain the same.
My question is which asset being used to replace the investment of $15m?
I’m very sorry – I have no idea what you are asking me.
But I will guess:
If you spend cash on an investment in an associate – cash down investment up – so one asset is replaced by another.
Don’t forget to use the tutorial advice you will find in your revision kit.