Answer to Question #205978 in Accounting for Kkkk

Question

On January 4,2021, Tamara Bakery paid ₱30 million for 1 million shares of jade Company ordinary shares. The investment represents a 20% interest in the net assets of jade and gave Tamara the ability to exercise significant influence over Jade’s operations. Tamara received dividends of ₱1.00 per share on December 15,2021 and jade reported net income of ₱8 million for the year ended December 31,2021. The market value of Jade’s ordinary shares at December 31,2021 was ₱32 per share, on the purchase date, the book value of Jade’s net assets was ₱120 million and the fair market value of Jade’s depreciable assets with an average remaining useful life of six years exceeded their book value by ₱6 million. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.

5. What amount should Tamara Company report on its December 31,2021, statement of financial position as its investment in Jade Co. Under fair value method?

Answer 1

Solution:

The amount Tamara Company should report on its December 31, 2021, statement of financial position as its investment in Jade Co. under the fair value method is ₱32 million.

 

This is calculated as follows:

At the time of purchase:

Dr. Investment in Jade’s Co. shares                               30M

                   Cr. Cash                                                                                      30M

(Being purchase of investment in Jade’s shares)

 

Perform fair value adjustment of the increase in Jade’s shares:

Fair value adjustment = 32M - 30M = 2M

Dr. Fair value adjustment                                                 2M

                   Cr. Unrealized gain or loss                                                           2M

(Being unrealized gain on share price increase)

 

The amount Tamara Company should report on its December 31, 2021, statement of financial position as its investment in Jade Co. under the fair value method is = 30M + 2M = 32M