On 1 January 2020, Investor Ltd paid $1,100,000 for a 25% interest in Associate Ltd when the equity of Associate Ltd consisted of $3,000,000 share capital and $1,200,000 retained earnings. There has been no change in share capital of Associate Ltd since then. Both firms' accounting period is from 1 January to 31 December and their income tax rate is 30%. On this date, all the identifiable net assets of Associate Ltd were recorded at fair value except for the following:

Fair value Carrying amount Status

Inventory $ 400,000 $ 600,000 Sold in 2020

Machinery (net) 900,000 500,000 5-year life

Equipment (net) 70,000 150,000 4-year life

Additional information:

1. Associate Ltd has no dividend declared or paid during 2020.
2. Associate Ltd's financial statements show that retained earnings were $1,500,000 as at 1
3. January 2021, and profit and dividend were $190,000 and $10,000, respectively, for 2021.
4. On 15 November 2021, Associate Ltd sold inventory to Investor Ltd at a profit before income tax of $20,000. Investor Ltd sold 60% of this inventory by 31 December 2021.
5. On 1 January 2020, Associate Ltd sold some furniture to Investor Ltd for $300,000, with Associate Ltd recording a profit before income tax of $50,000. The furniture had a further 5-year life.
6. On 10 December 2021, Investor Ltd sold inventory to Associate Ltd for $100,000 with a profit before income tax of $20,000. Associate Ltd still has this inventory on hand by 31 December 2021.

Required:

1) Calculate the amount of goodwill arising from investment in Associate Ltd.

2) Determine the amount of "Profit from investment in Associate" for 2020 and provide a journal

entry to record this amount on the books of Investor Ltd.

3) Determine the balance of "Investment in Associate" as at 31 December 2021.

Answer rating: 100% (QA)

Solution Given that On 01012020 Investor Ltd Paid purchase co... View the full answer