Question 1

**Section A**

AeroSpace acquired 30% of the equity shares of OrbitTech on 1 January 20X5 for $4 million, giving it significant influence. For the year ended 31 December 20X5, OrbitTech reported a profit after tax of $1.5 million and paid a total dividend of $500,000. During the year, AeroSpace sold goods to OrbitTech for $800,000, making a markup of 25%. Half of these goods remained in OrbitTech's inventory at year-end.

What is the carrying amount of the investment in associate in AeroSpace's Consolidated Statement of Financial Position as at 31 December 20X5?

Accepted Answer

Use the equity method formula: Initial Cost + Share of Post-Acquisition Profit - Share of Dividends - Share of PUP. Be careful with markup vs margin when calculating the unrealized profit.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Treating markup as margin (multiplying by 25% instead of 25/125), forgetting to deduct dividends, or deducting 100% of the PUP instead of the investor's share.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 5

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