Good day again...please assist me with the attached question. I. On January 1, 2

Question

Good day again...please assist me with the attached question.

I. On January 1, 2007 A acquired a 20% shareholding in B at a cost of $40,000. On January 1, 2009, A acquired a further 40% shareholding in B at a cost of $150,000. At this time it was determined that the fair value of A's 20% shareholding in B was $50,000. Between January 1, 2007 and January 1, 2009 B made a profit of $30,000 Required a. Calculate the cost of investment that will be used in computing goodwill b. Calculate the goodwill arising on this transaction c. Calculate the gain arising that will be recognized in the income statement assuming that A's 20% shareholding did NOT allow it to exercise significant influence over EB d. Calculate the gain arising that will be recognized in the income statement assuming that A's 20% shareholding did allow it to exercise significant influence over B 2. In 2006, A acquired a 100% equity interest in B for cash consideration of $125,000. B's identifiable net assets at fair value were $100,000. Goodwill of $5,000 was identified and recognized In the subsequent years, B increased net assets by $20,000 to $120,000. This is reflected in equity attributable to the parent. A then disposed of 30% of its equity interest to non-controlling interests for $40,000 Required Calculate the increase or decrease to be recorded in equity

Explanation / Answer

Answer: (a)

Calculation of cost of acquestion

Total Cost incurred (150000+40000) =                190000

Less:   Pre acquestion profit (30000*40%)             12000

Cost of Investment                                               178000

Answer: (b)

Answer: ( c)

Calculation of gain

Fair market Value         50000

Less: Cost incurred     40000

Profit                         100000

Answer (d0

Calculation of profit

Profit as given                            30000

Increase in fair market value        10000

Total Increased                         40000

20% of Increased will be profit     8000

Answer: 2

Calculation of Goodwill Fair value of equity 150000 Less: Cost of investment 178000 Goddwill 28000

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