Ch. 25 - Investments in Associates

Question 1

Investments in Associates - IAS #

Answer 1

28

Question 2

Investments - ASPE #

Answer 2

3051

Question 3

When to use equity method of accounting for investments

Answer 3

joint control or significant influence

Question 4

Joint Control:

Answer 4

1. contractually sharing control

2. decisions require unanimous consent

Question 5

Significant Influence:

Answer 5

1. between 20-50% of voting shares
2. representation on BOD
3. participate in decision making process
4. material transactions between investor and investee

Question 6

Initial Measurement

Answer 6

measured at cost

Question 7

Subsequent Measurement - Equity Method

Answer 7

1. Investor portion of net income of investee is recorded as a debit to investment and a credit to revenue
2. Investor portion of dividends paid are recorded as a debit to cash and a credit to investment account

Question 8

Acquisition Differential is a result of:

Answer 8

1. The difference in the amount paid and the book value

Question 9

Calculation for:

1. Acquisition Differential
2. Goodwill

Answer 9

Acquisition price
- BV of assets x % owned
= Acquisition Differential
\+/- FV differential x % owned
= Goodwill

Question 10

Intercompany transactions - unrealized profit elimination

Answer 10

eliminate:
sales in ending inventory
x gross profit %
x investor ownership %

Question 11

ASPE - Recording investments in associates

Answer 11

1. ASPE can use Cost or Equity, while IFRS requires Equity.

2. If shares are publicly trades, ASPE requires FV, not cost