Question

Chen Group acquired 25% of the outstanding ordinary shares of Cho Ltd. on December 31, 2019. The purchase price was ¥165000000 for 50000 shares. Cho declared and paid an ¥80 per share cash dividend on June 30 and on December 31, 2020. Cho reported net income of ¥73000000 for 2020. The fair value of Cho's shares was X3550 per share at December 31, 2020. At what amount is the investment reported on the statement of financial position under each of these methods at December 31, 2020? What is the effect on net income reported in 2020 under each of these methods? Fair Value Method Equity Method \ Investment amount (statement of financial position) Dividend revenue (income statement) Unrealized holding gain (income statement) Revenue from investment (income statement)

Answer 1

Working as follows:

Fair value/Unrealized gain or loss calculation:
Fair value (50000 shares × 3550 per share)	177500000
Cost	165000000
Unrealized gain or (Loss)	12500000

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Investment amount under Equity method:
Date		Amount
Dec. 31, 2019	Equity investment	165000000
June 30, 2020	Dividend revenue	-4000000
Dec. 31, 2020	Dividend revenue	-4000000
Dec. 31, 2020	Equity investment (73000000 × 25%)	18250000
		175250000

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	Fair value Method	Equity Method
Investment Amount (Statement of financial position)	177500000	175250000
Dividend revenue(Income statement) (50000 shares × 80 per shares)	4000000	-
Unrealized holding gain (Income statement)	12500000	-
Revenue from investment (Income statement)	-	18250000