Reference no: EM132589399
Question - On June 30, 2016, Gab Company purchased 25% of the outstanding ordinary shares of IB Co. at a total cost of P2,100,000. The book value of IB Co.'s net assets on acquisition date was P7,200,000. For the following reasons, Gab was willing to pay more than book value for the IB Co. shares:
- IB Co. has depreciable assets with a current fair value of P180,000 more than their book value. These assets have a remaining useful life of 10 years.
- IB Co. owns a tract of land with a current fair value of P900,000 more than its carrying amount.
- All other identifiable tangible and intangible assets of IB Co. have current fair values that are equal to their carrying amounts.
IB Co. reported net income of P1,620,000, earned evenly during the current year ended December 31, 2016. Also in the current year, it declared and paid cash dividends of P315,000 to its ordinary shareholders. Market value of IB Co.'s ordinary shares at December 31, 2016 is P9 million. Cabbage Company's financial year-end is December 31.
1. What amount of investment income should Gab Company report in the income statement for the year ended December 31, 2016, under the fair value method?
P 228,750
P 71,250
P 202,500
P 78,750
Answer not given
2. What amount should Gab Company report in its December 31, 2016, statement of financial position as its investments in IB Co. under the fair value method?
P 2,250,000
P 2,070,000
P 2,221,500
P 2,100,000