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Chapter 19

Example 1

Investment in associate

Papa purchased 30% of Alpha’s share capital at a total cost of $8 million on 1
April 20X7, at which date the balance on Alpha’s retained earnings was $4
million.

At 31 March 20X9 the balance on Alpha’s retained earnings was $6 million
and Papa’s investment in Alpha had become impaired by $200,000.

Required:

Calculate the figure for investment in associate to be shown on Papa’s
consolidated statement of financial position as at 31 March 20X9.

Solution:

$000
Cost of investment 8,000

1
Papa’s share of Alpha post-acquisition reserves 600
($6m – $4m) × 30%
1
Impairment (200)
———
Investment in associate 8,400

———

1
Note that the other side of the entry is to group retained earnings (W5).
Note also that impairment in the investment is charged in full. It is the
parent’s investment that is being impaired, rather than the associate in which
the parent holds a 30% investment.

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