Page 268 - FR Integrated Workbook 2018-19

Chapter 19

Example 2

Investment in associate

Pan purchased 40% of Apollo’s share capital at a total cost of $5 million on
1 January 20X6, at which date the balance on Apollo’s retained earnings was
$3.6 million.

At 30 June 20X6 the balance on Apollo’s retained earnings was $4.2 million
and Pan’s investment in Apollo had become impaired by $150,000.

During June 20X6 Pan sold goods to Apollo for $600,000 on which it made a
mark-up of 20%. At 30 June 20X6 one quarter of these goods remained in
Apollo’s inventory.

Required:

Calculate the figure for investment in associate to be shown on Pan’s
consolidated statement of financial position as at 30 June 20X6.

Solution:
$000

Cost of investment 5,000
1
Pan’s share of Apollo post-acquisition reserves 240
($4.2m – $3.6m) × 40%
1
Impairment as above (150)
1
PUP adjustment (10)
20
($600,000 × / 120 × ¼ × 40%)
———
Investment in associate 5,080

———
1
Note that the other side of the entry is to group retained earnings (W5).

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