Reference no: EM133185359
Question - At the beginning of current year, SME acquired 20% of the equity of Entity A and Entity B for P2,000,000 and P6,000,000 respectively. Transaction costs of 10% of the purchase price of the shares were incurred by SME.
On January 15, Entity A declared and paid dividend of P1,500,000.
Entity A recognized profit of P2,500,000 and Entity B recognized a loss of P4,000,000 for that year.
At year-end, SME determined the fair value of the investments in A and B at P3,000,000 and P4,000,000 respectively. Costs of disposal are estimated at 10% of the fair value of the investments.
Published price quotations do not exist for the shares of entities A and B.
1. Under the cost model, what is the total carrying amount of the investments in associates at year-end?
a. P5,800,000
b. P6,300,000
c. P7,000,000
d. P6,200,000
2. Under the equity method, what is the total carrying amount of the investments in associates at year-end?
a. P8,200,000
b. P6,000,000
c. P8,800,000
d. P8,500,000
3. What is the impairment loss under the equity method?
a. P1,900,000
b. P1,800,000
c. P2,200,000
d. P0
4. Under the fair value model, what is the total carrying amount of the investments in associates at year-end?
a. P8,000,000
b. P6,300,000
c. P7,000,000
d. P6,000,000
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