Reference no: EM133184507
Question - On January 1, 2021, Sachou Inc. acquired a 15% interest in Day-a Inc. for P2,250,000. This investment was accounted as investments measured at fair value through profit or loss. On June 30, 2022, Sachou acquired further 10% interest in Danda Inc. for P2,750,000. On this date, the carrying value of the net assets of Danda Inc. was P25,000,000. It was noted that depreciable assets with average remaining useful life of 8 years was understated.
Additional information was provided as follows:
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December 31, 2021
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December 31,2022
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Reported net income
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18,000,000
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20,000,000
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Fair value of investments
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2,100,000
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7,500,000
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Details on dividends paid by Danda Inc. were as follows:
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Date
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Total cash dividends declared and paid
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June 15, 2021
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P1,200,000
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December 15, 2021
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800,000
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June 15,2022
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1,500,000
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December 15, 2022
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1,200,000
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All dividends were recorded as debit to cash and credit to dividend income. Determine the following as a result of your audit:
1. How much is the carrying value of the investment on December 31, 2022?
2. How much is the total investment income recognized by Corporal Inc. for the year ended December 31, 2022?
3. How much is the initial cost of investment in associate on June 30, 2022?
4. When Sachou Inc. has less than 50% interest in an investee company, which of the following applies?
a. Sachou Inc. may use neither fair value or equity method to account for the investment.
b. Only fair value method may be used to account for the investment.
c. Only equity method may be used to account for the investment.
d. Sachou Inc. may use either fair value or equity method to account for the investment.
e. Answer not given.
5. If Sachou Inc. used the fair value method to account for investments in Danda Inc, which of the following will affect the investment account?
a. Reported losses of Danda Inc.
b. Dividend payments of Danda Inc.
c. Change in share price of Danda Inc.
d. All of the given choices.
e. Answer not given.