question archive On December 31, 2020, Luffy Company's investment in subsidiary account showed a balance of P400,000
On December 31, 2020, Luffy Company's investment in subsidiary account showed a balance of P400,000
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On December 31, 2020, Luffy Company's investment in subsidiary account showed a balance of P400,000. This account is related to an acquisition entered at the beginning of 2020 of which Luffy acquired 80% controlling interest of an acquiree for a total consideration of P400,000, including acquisition related costs amounting to P50,000. Total comprehensive income of the acquiree at year-end amounted P1,000,000, and dividend received from the acquiree amounted to P700,000. The fair value of the investment at year-end is P600,000 and the estimated cost to sell amounted to P150,000. What should be the balance of the investment as at December 31, 2020 under cost model?
a.400.000
b 500,000
? 450.000
d. 600,000
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Under the cost model, the balance of the investment as at 31 December 2020 should be P400,000.
Under the cost model, the total comprehensive income for the acquiree and the dividends received from the acquiree does not affect the investment balance. Also, the fair value less cost to sell amounting to P450,000 (P600,000 - P150,000) is higher than the P400,000 investment cost, hence, no impairment is required.
