Question 27 of Practice Problems - Reading 17 Intercorporate Investments

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Ernest Seow

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Question 27, CFA Curriulum Reading 17 - Intercorporate Investments (page 168)
Hi all,
I was having some difficulties understanding the explanation for question 27 pertaining to amount of 2009 depreciation and amortizatrion expense that NinMount recongise.
The answer is C- 204.
The answer states that excess purchase price over the fair value of net assets of Boswell is allocated to previously unrecorded licenses which have a remaining life of 6 years.Since NinMount only own 50% of Boswell, isn’t the amortization expensed should be halved i.e. 0.5(60/6)= 5? Or this will be correct if the accounting method used is equity method? It will be 10 under acquisition method (which the question states clearing that NinMount deems it has acquired control of Boswell)?
Thank you.
Cheers,
Ernest
 
i just did this reading. there is only equity method and acquisition method to remember.
for this vignette there is no goodwill (partial goodwill out of play) so it’s a straight choice equity or acquisition - control/influence.
 
Thanks darshanP and onlysimon!
I have a follow on question.
Equity Method
If there is residual amount (purchase price after allocation to identifable net assets), that amount will be recorded as goodwill. In which case the goodwill be part of the investment account (a non-current asset)? Or reported seperately under non-current asset? In addition, the additional expense that results from the assigned amounts will be part of the investment account or reported as a seperate expense in the P&L?
Acquisition Method
Goodwill will be reported on the investor’s balance sheet under non-current asset. No investment account in this case. Additional expenses arising out of the assigned amounts will be reported as an additional line of expense in the P&L?
Thank you.
 
hi ernest,
equity method - you have a single line item for income, and one for equity. there is no goodwill. you record exactly what you paid for it (in first year, then deduct dividends)
acquisition - i think you have this correcty.
 
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