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Hi mike could you help me with this please?
Associate is 25% owned by parent.
Associate sells investment to parent for 12 making a profit of 2.According to boo the correct treatment in the parents records is
Debit retained earnings 0.5
Credit investments (just purchased) 0.5Why is the credit to the new investments rather than the value of associate?
Many thanks
The value of the associate is calculated per working W5A as:
Cost (or value) at date of acquisition, +
Share of post-acq retained earnings, –
Any impairment in the value of the investment
That debit entry reduces the associate’s post-acq retained so the value of the investment IS reduced by the entry that you have posted!
Ok?
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