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SOLUTION

Calculation of Investor Ltd.’s investment in XYZ Ltd. under equity method:

Rs. Rs.
Acquisition of investment in XYZ Ltd.

A. Cost of investment 47,50,000
less: Share in book value of XYZ Ltd.’s net assets (35% of Rs. 31,50,000
90,00,000)
less: Share in fair valuation of XYZ Ltd.’s net assets [35% of (Rs.

1,10,00,000 – Rs. 90,00,000)] 7,00,000
Goodwill on investment in XYZ Ltd.
9,00,000

B. Profit during the year
Share in the profit reported by XYZ Ltd. (35% of Rs. 8,00,000) 2,80,000

Adjustment to reflect effect of fair valuation [35% of (Rs. 20,00,000/10
years)] - depreciation on the increased value (70,000)

Share of profit in XYZ Ltd. recognised in income by Investor Ltd. 2,10,000

C. Long term equity investment
FVTOCI gain recognised in OCI (35% of Rs. 2,00,000) 70,000

D. Dividend received by Investor Ltd. during the year [35% of Rs. (4,20,000
12,00,000] )

Closing balance of Investor Ltd.’s investment in XYZ Ltd. 46,10,000
(A+B+C+D)

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