On January 1, 2011, Vairvais acquired 30% of the shares of Clarys for $60,000. At this date, the equity of Clarys consisted of:
Share capital (100,000 shares) ......... $100,000
Cumulative other comprehensive income .... 50,000
Retained earnings .............. 20,000
At this date, all the identifiable assets and liabilities of Clarys were recorded at fair value. The fair value of the investment at December 31, 2011 was $62,000 and at December 31, 2012 it was $66,000.
On January 1, 2013, the ownership interest of 30%, together with board representation and a diverse spread of remaining shareholders, was sufficient for the company to demonstrate significant influence, and accordingly to begin accounting for the investment as an associate. At this date, the equity of Clarys consisted of:
The machinery was expected to have a further five-year life, benefits being received evenly over this period. The inventory was all sold by December 31, 2013. Dividends declared and paid by Clarys in 2011 were $10,000, and $12,000 was paid in 2012. In December 2012, Clarys declared a dividend of $10,000. Dividend revenue is recognized when dividends are declared. During the period ending December 31, 2013, the following events occurred:
1. Clarys sold to Vairvais some inventory, which had previously cost Clarys $8,000, for $10,000. Vairvais still had one quarter of these items on hand at December 31, 2013.
2. On July 1, 2013, Vairvais sold a non-current asset to Clarys for $50,000, giving a profit before tax of $10,000 to Vairvais. Clarys applied a 12% p.a. on cost straight-line depreciation method to this asset.
3. On June 30, 2013, Clarys paid an interim dividend of $5,000.
4. At December 31, 2013, Clarys calculated that it had earned net income of $32,000, after an income tax expense of $8,000. Clarys then declared a $5,000 dividend, to be paid in March 2014.
5. The tax rate is 30%.
(a) Calculate the share of profit or loss from Clarys for the year ended December 31, 2013.
(b) Calculate the balance in the Investment in Clarys account at December 31, 2013.

  • CreatedJune 09, 2015
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