On January 1, 2021, April Company purchased 40% of the outstanding shares of another entity for  P5,000,000 when the net assets of the investee amounted to P10,000,000. At the acquisition date, the carrying amount of the identifiable assets and liabilities of the investee were equal to their fair values,  except for equipment for which the fair value was P2,000,000 greater than its carrying amount and inventory whose fair value was P1,000,000 greater than its cost. The equipment has a remaining life of 4 years and the inventory was all sod during 2021. The investee reported a net income of P6,000,000  for 2021 and paid no dividends during 2021.

What is the maximum amount which could be included in April Company’s income before tax to reflect April’s equity in the earnings of the investee?

Answer rating: 100% (QA)

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