Assignment 2.docx - Question 1 a. Cat owns 25% of common...

Question 1
a. Cat owns 25% of common shares of Mouse => Significant Influence => Equity Method .
1st Schedule:
Cost of investment: $1,800,000
Carrying value of Mouse: $6,400,000 * 25% = 1,600,000
=> Acquisition Differential: 1,800,000 – 1,600,000 = 200,000
Allocated: FV-CV FVIs
Machine 700,000-1,000,000 (300,000) *25% = (75,000)
=> Goodwill: 200,000 – (75,000) = 275,000
2nd Schedule:
Balance at Acq date Amortization/ Impairment Balance
Jan 1, Y4 Y4 Y5 Dec 31, Y5
Machine (3y) (75,000) 25,000 25,000 (25,000)
Goodwill 275,000 0 (41,250) 233,750
200,000 25,000 (16,250) 208,750
AD Opening RE Cons IS Cons BS
15%*275,000 = 41,250, 75,000/3 = 25,000
Jan 1, Y4
Investment in Mouse 1,800,000
Cash 1,800,000
Dec 31, Y4
Investment in Mouse 60,000
Equity Income 60,000
25%*240,000
Cash 50,000
Investment in Mouse 50,000
25%200,000
Investment in Mouse 25,000
Equity Income 25,000
75,000/3
Dec 31, Y5
Investment in Mouse 45,000
Equity Income 45,000
25%*180,000
Cash 55,000
Investment in Mouse 55,000
25%220,000

Equity Income 16,250
Investment in Mouse 16,250
41,250-25,000
Jan 1, Y6
Impairment Loss 208,750
Investment in Mouse 208,750
(1,800,000+60,000-50,000+25,000+45,000-55,000-16,250)
- 1,600,000 = 208,750
b. Cat owns 25% of common shares of Mouse. There is only one other shareholder who owns
75% of the Mouse common shares. => No influence & No FV => Cost Method
Jan 1, Y4
Investment in Mouse 1,800,000
Cash 1,800,000
Dec 31, Y4
Cash 50,000
Dividend Income 50,000
25%200,000
Dec 31, Y5
Cash 55,000