Homework Answers
Based on information there is negative basis difference :
| Book value of net Assets acquired | 20,000,000.0 |
| 35% Net Asset book Value | 7,000,000.0 |
| Less : Consideration paid | 4,000,000.0 |
| Negative basis difference | -3,000,000.0 |
Negative basis difference is not accounted and investment is accounted at cost.
Calculation of income from investment
| Investment income from investment in Kingsotn Company (600000*35%) | 210000 |
| Less : Unconfirmed profit in ending inventory (312000*20/120*35%) | -18200 |
| Net Investment income from investment in Kingsotn Company | 191800 |
Journal Entries :
| Debit | Credit | ||
| Jan 2, 2017 | Investment in Kingston Company | 400000 | |
| Cash | 400000 | ||
| (35% stake acquired in Kingston Company accounted under equity method) | |||
| Dec 31, 2017 | Investment in Kingston Company A/c | 191800 | |
| Investment income from investment in Kingsotn Company | 191800 | ||
| (Net income of 2017 accounted from investment under equity method) | |||
| Dec 31, 2017 | Cash Account (200000*25%) | 70000 | |
| Investment in Kingston Company A/c | 70000 | ||
| (Being divided income from Investment in Kingston Company for 2017) | |||
| Dec 31, 2017 | Other comprehensive income - Investment in Kingston equity method | 5250 | |
| Investment in Kingston Company A/c | 5250 | ||
| (Unrealised losses on AFS securities accounted by investee in other comprehensive income is accounted) | |||
The unrealised losses on AFS (Available for Sale) Securities would be reported by Kingston company under other comprehensive & accordingly under equity method it needs to be accounted under comprehensive income.
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