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F2: Advanced Financial Reporting

12.5 B

The dividend would not have affected Simon’s statement of profit or loss.
Dividends paid are taken out of retained earnings and do not impact profits. No
adjustment needs to be made for the dividend paid from Paul’s share of
Simon’s profits.

The profit needs to be time-apportioned for the six months of ownership, with
the impairment of $15,000 then deducted.

Share of profits from associate = 40% x ($450,000 x 6/12) – $15,000 = $75,000

12.6 C

Poppy owns 30% of Sunflower’s shares, which is 60,000 shares (30% of
Sunflower’s 200,000 shares).

As Poppy gave 1 share away for every 4 purchased, Poppy gave 15,000 shares
away. These had a market value of $5 and were worth $75,000.

After that Poppy must include 30% of Sunflower’s post acquisition movement in
net assets. Sunflower has made a post-acquisition loss of $50,000 (net assets
at acquisition were $600,000 [$200,000 share capital plus $400,000 retained
earnings] and net assets at 31 December 20X6 were $550,000). Therefore
Poppy’s share is a $15,000 loss (30%).

Investment in associate

Cost of investment (15,000 × 5) 75,000
P’s % of A’s movement in net assets (15,000)
(30% × (550 – (200+400)) = 30% × (50) ––––––––

60,000
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