Describe the equity method and the cost method of investor accounting for acquisitions. (5 marks) 2. a)
Question:
- Describe the equity method and the cost method of investor accounting for acquisitions. (5 marks)
2. a) What is significant influence as defined by IAS 28 and give four examples of how significant influence is established? (5 marks)
b) Stattgrue Ltd obtains control of Naonite Ltd through two cash acquisitions. At July 1, 2018 purchased 25% for $205,000 when the 100% fair value of Naonite Ltd was $820,000 book value $600,000 and on July 1, 2020 purchased 50% for $525,000, 100% fair value $1,050,000 and book value $750,000. A customer base with a 20-year life represented the initial excess payment.
Naonite Ltd Income and Dividends for 2019-2021:
Income Dividend
June 30, 2019 90,000 30,000
June 30, 2020 120,000 30,000
June 30, 2021 150,000 60,000
Calculate the Investment in Naonite Ltd at July 1, 2020 (before purchase of the additional 50%) and June 30, 2021 (before consolidation). Show all workings (10 marks)
