Question

John Inc and Victor Inc. formed a joint venture on January 1, 2020. John invested plant and equipment with a book value of $500,000 and a fair value of $800,000 for a 30% interest in the venture which was to be called Jinxtor Ltd. Victor contributed assets with a fair value of $2,000,000 (including $200,000 in cash) for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2020. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. The transactions set out above were considered to have commercial substance. At what amount would John record its initial investment in Jinxtor?

Answer 1

John's initial investment in Jinxtor = $800,000

Initial investment = Fair value

Fair value = $800,000

Therefore,

Initial investment = $800000