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    Unit 4 - Topic 4

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    Sage paid $400,000 for a 40% investment in Adams when Adams' net assets were $900,000, resulting in a book value of $360,000 for Sage's share. This left an excess of $40,000 that was attributed to Adams' assets - $36,000 to plant assets and $4,000 to inventory. The $36,000 attributed to plant assets would be amortized over 18 years, while the $4,000 for inventory was expensed in year 1. Sage's investment income for the first year was $42,000, calculated as its 40% share of Adams' $120,000 income minus the excess amortization of $6,000.

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    Unit 4 - Topic 4

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    yza
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    Sage paid $400,000 for a 40% investment in Adams when Adams' net assets were $900,000, resulting in a book value of $360,000 for Sage's share. This left an excess of $40,000 that was attributed to Adams' assets - $36,000 to plant assets and $4,000 to inventory. The $36,000 attributed to plant assets would be amortized over 18 years, while the $4,000 for inventory was expensed in year 1. Sage's investment income for the first year was $42,000, calculated as its 40% share of Adams' $120,000 income minus the excess amortization of $6,000.

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    Sage paid $400,000 for a 40% investment in Adams when Adams' net assets were $900,000, resulting in a book value of $360,000 for Sage's share. This left an excess of $40,000 that was attributed to Adams' assets - $36,000 to plant assets and $4,000 to inventory. The $36,000 attributed to plant assets would be amortized over 18 years, while the $4,000 for inventory was expensed in year 1. Sage's investment income for the first year was $42,000, calculated as its 40% share of Adams' $120,000 income minus the excess amortization of $6,000.

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    Unit 4 - Topic 4

    Uploaded by

    yza
    Sage paid $400,000 for a 40% investment in Adams when Adams' net assets were $900,000, resulting in a book value of $360,000 for Sage's share. This left an excess of $40,000 that was attributed to Adams' assets - $36,000 to plant assets and $4,000 to inventory. The $36,000 attributed to plant assets would be amortized over 18 years, while the $4,000 for inventory was expensed in year 1. Sage's investment income for the first year was $42,000, calculated as its 40% share of Adams' $120,000 income minus the excess amortization of $6,000.

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    UNIT 4 - TOPIC 4 Investment in associate

    ACTIVITY 2 - PROB 4 NO. 5

    (b) Sage paid $400,000 for its 40% investment in Adams when Adams net assets had a carrying amount
    of $900,000. Therefore, the book value Sage purchased is $360,000 (40% $900,000), resulting in an
    excess of cost over book value of $40,000 ($400,000 $360,000). This excess must be attributed to
    specific assets of Adams; any amount not attributed to specific assets is attributed to goodwill. In this
    case, the excess is attributed to plant assets (40% $90,000 = $36,000) and inventory (40% $10,000 =
    $4,000). The portion attributed to plant assets is amortized over eighteen years, while the portion
    attributed to inventory is expensed immediately (since all inventory was sold during year 1). Therefore,
    Sages investment income is $42,000, as computed below. Share of income (40% $120,000) $48,000
    Excess amortization [($36,000/18) + $4,000] (6,000) $42,000

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