Equity method

27. Investments accounted for under the equity method are initially recognized at
a. cost
b. fair value
c. fair value plus direct acquisition cost
d. cost plus or minus share in profit or loss of associate

28. Which of the following does not correctly relate to the application of the equity method?
a. the investor recognizes its proportionate share in the profit or loss, other
comprehensive income, and discontinued operations of the associate
b. dividends received are accounted for as reduction in the investment balance
c. share dividends are not accounted for
d. the investor accounts only its proportionate share in the profit or loss of the
associate but not in other comprehensive income and discontinued operations.

29. Under the equity method, which of the following does not decrease the investment
account?
a. share in associate’s loss
b. amortization of undervaluation of asset
c. amortization of overvaluation of asset
d. share in dividends declared by the associate

30. For investments in associates, the investor shall not

a. recognize a share in the associate’s other comprehensive income
b. recognize a share in the associate’s discontinued operations
c. recognize a share in the associate’s profit or loss
d. recognize a share in the associate’s revenue, expenses and profit before tax

31. When computing for its share in the associate’s profit or loss, the investor should
I. deduct one year dividends on cumulative preference shares of the associate held by
other parties and classified as equity, whether declared or not.
II. deduct one year dividends on noncumulative preference shares of the associate
held by other parties and classified as equity, whether declared or not.
III. deduct all dividends in arrears on cumulative preference shares of the associate
held by other parties and classified as equity, whether declared or not.
IV. deduct dividends on noncumulative preference shares of the associate held by
other parties and classified as equity only when declared.
V. not deduct from profit or loss any dividends on ordinary shares before computing
for the share in the associate’s profit or loss.
a. I, IV, V b. I, IV c. II, III, V d. II, III