ACCA paper joint ventures (1)

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Section 5 Introducing associates and joint ventures
Question 1 Spider
The parent company of a group holds a direct interest of 30% in the equity in Spider which enables
the parent to exercise significant influence over the operating and financial activities of Spider.
Accordingly, Spider is an associate and consolidated in the group accounts using equity accounting.
The parent's original investment in Spider was $200,000 and since the date of investment Spider's
post-acquisition profits have been $150,000 of which $50,000 have been generated in the current
year.
Impairment reviews of the investment have never revealed any impairment loss on the investment in
Spider.
Just prior to the year-end the parent sold goods to Spider for $20,000 which the parent had originally
purchased for $10,000. At the year-end all these goods remain unsold and therefore in the inventory
of Spider.
Required
a) Calculate the carrying value of the investment in the associate Spider in the group statement of
financial position.
b) Calculate the income from the associate Spider in the group statement of profit or loss.

A student's guide to Group Accounts by Tom Clendon, Second Edition, published by Kaplan
Publishing


www.kaplanpublishing.co.uk
Section 5 Introducing associates and joint ventures
Question 2 Fly
On the first day of the current accounting period the parent company of a group acquired, for
$300,000, a direct interest of 40% in the equity in Fly. This investment enables the parent to exercise
significant influence over the operating and financial activities of Fly. Accordingly, Spider is an
associate and consolidated in the group accounts using equity accounting.
In the current period Fly has recognised a profit for the year of $50,000 as well as gains in other

comprehensive income of $40,000.
At the year-end an impairment review of the investment revealed an impairment loss of $10,000 on
the investment in Spider.
Required
a) Calculate the carrying value of the investment in the associate Spider in the group statement of
financial position.
b) Calculate the income from the associate Spider in the group statement of profit or loss and
other comprehensive income.

A student's guide to Group Accounts by Tom Clendon, Second Edition, published by Kaplan
Publishing