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b.GoodwillIf the assets of the investee are fairly valued, accountants frequently attribute the excess of cost over the carrying amount of the underlying net assets to goodwill.If the excess is attributable to undervaluation of depreciable asset,it is amortized over the remaining life of the depreciable asset.If the excess is attributable to land, it is not amortized because the land is nondepreciable.If the excess is attributable to inventory, the amount is expensed when the inventory is already sold.If the excess is attributable to goodwill, it is not amortizedbut the entire investment in associate is tested for impairment at the end of the reporting period.31. On January 1, 2013, Mighty Company acquired 20% of the outstanding ordinary shares of aninvestee for P7,000,000. This investment gave Mighty Company the ability to exercise significant influence over the investee. The carrying amount of the acquired net assets was P6,000,000. The excess of cost over the carrying amount was attributed to an identifiable intangible asset which was undervalued on investee’s statement of financial position and which had a remaining useful life of ten years. For the year ended December 31, 2013, the investee reported net income of P1,800,000 and paid cash dividend of P600,000 on its ordinary shares. On December 31, 2013, what is the carrying amount of the investment in associate?Note:When depreciable and intangible assets of the investee are undervalued, depreciation and amortization are naturally understated resulting to overstatement of the investee’s net income. Thus, the investor should decrease investment income.32. On January 1, 2013, Courteous Company purchased 30% of the outstanding ordinary shares of an investee for P5,160,000. At the date of acquisition, the investee’s net assets had a carrying amount of P11,800,000. Depreciable assets with an average remaining life of 4 years have a current fair value that is P2,600,000 in excess of carrying amount. The remaining difference cannot be attributed to any identifiable tangible or intangible asset. At the end of 2013, the investee reported net income of P3,600,000 and paid cash dividends of P400,000. What amount should be reported as investment in associate on December 31, 2013?11
33. On January 1, 2013, Magic Company purchased 40% of the outstanding ordinary shares of an investee paying P2,560,000 when the carrying amount of the net assets of the investee equaled P5,000,000. The difference was attributed to equipment which had the carrying amount of P1,200,000 and a fair market value of P2,000,000, and to building with a carrying amount of P1,000,000 and a fair market of P1,600,000. The remaining useful life of the equipment and building was 4 years and 12 years, respectively. During the current year, the investee reported net income of P1,600,000 and paid dividends of P1,000,000. What amount is the carrying amount of the investment in associate on December 31, 2013?34. On January 1, 2013, Lopez Company purchased 40% of the ordinary shares outstanding of aninvestee for P1,500,000 when the net assets of the investee amounted to P3,000,000.