POINTS ON ADDITIONAL INFORMATION 3 TO THE QUESTION



Now to the third additional information in the question; 

a.    Summary of additional information 3:
Here, in the additional information 3 of the question, we have a piece-meal investment by Barewa in Calamari. Barewa acquired 10% interest in Calamari on 1 June 2011 for N80million. Finally on 1 June 2012, it acquired another stake of 15% in Calamari for N110million and with this calamari became an associate of Barewa.
We were also told that Calamari’s profits after dividends for years to 31 May 2012 and 31 May 2013 were N60million and N100milion respectively.

b.    Explanation on what to do about additional information 3:

With this take a breather and quickly skimmed through the financial statements especially the portion or item “associate Calamari”. The value for associate in the statement of financial position is given as N200million. This indicates that the investment in an associate by Barewa was valued at the fair value of available for sale of N90million as at 31 May 2012 plus the cost of purchase of additional 15% interest in Calamari of N110million on 1 June 2012. What then is the position of IAS 28, Investment in Associates on this?

IAS 28 posits that equity method should be applied. With equity method, an investment is initially carried at cost (which is the fair value at which the investment in the associate was acquired) and subsequently adjusted by adding the share of the profit of the associate to it.

In the case of investment in the associate, Calamari, the cost (or more precisely, the fair value) of the acquisition of the interest in the associate on 1 June 2012 is N200million (i.e. N90million + N110million). The value of the investment in associate as at 31 May 2013 will be N200million plus 25% of N100million which is the profit of calamari for the year ending 31 May 2013.

c.     Working note on additional information 3:

NOTE 9: Calculation of the value of investment in associate as at 31 May 2013 using equity method:
=N= 'Million
COST AS AT 31 MAY 2012
200.00
ADD: SHARE OF PROFIT OF CALAMARI AS AT 31 MAY 2013 (25% X 100million)
25.00


225.00



 
                                    PREVIOUS PAGE                 NEXT PAGE

Comments

Post a Comment

Popular posts from this blog

Nigerian Withholding Tax (WHT) Explained: Key Rules on Base Amount, Timing Rules, and Exemptions

Image
  If you’re a business owner or an accountant in Nigeria, understanding Withholding Tax (WHT) is crucial for staying compliant with tax regulations. One of the most common questions is: On what base amount should the WHT rate be applied? Equally important is: When should you deduct WHT? And last but not least: Are there exe mpted transactions under the new WHT regulations? Get reliable & affordable domain name and web hosting in Nigeria! Click here for fast, secure cloud hosting 👉 TrueHost Let’s go right on to provide answers with practical examples to these germane questions. Check this video on 10 Red Flags to Avoid Investment Scams On What Base Amount Should WHT Rate Be Applied? You must deduct WHT from payments to suppliers, as mentioned in my earlier post— New Withholding Tax Regulations: Do All Businesses Need to Deduct? However, one of the most common questions about WHT is: On what base amount should the WHT rate be applied? This happens to be one of the qu...
Read more

Commencement Rules: Subtle Changes Section 12 of the Finance Act 2019 Make in Section 29 of the Company Income Tax Act 1990

Image
  In Nigeria, taxation laws are crucial for businesses to understand and comply with. One of the key laws governing company income tax is the Company Income Tax Act (CITA) 1990. However, like any legal framework, CITA has undergone amendments to address changing economic realities and improve clarity. A significant update came with the Finance Act 2019, particularly in Section 12, which amends Section 29 of the CITA. Check out the amazing cloud hosting services offered by Truehost  here ! In this article, let’s highlight the subtle modifications section 12 of the Finance Act 2019 make in the CITA 1990, focusing on the computation of assessable profits for a company just commencing business or trade—commencement rules—in Nigeria. Assessable Profit of Companies Commencing Business: The Old Rules Originally, under the old rules, Section 29 of the CITA 1990 detailed how the profits for the first three years of a new trade or business in Nigeria should be assessed. The rules ...
Read more

Understanding Nigeria's Digital Services Tax (DST)

Image
  Digital services have made life easier for everyone, but they’ve also created new challenges for tax systems around the world. In Nigeria, the Digital Services Tax (DST) was brought into its tax landscape by the insertion of paragraph (c) into section 13 (2) of the CompanyIncome Tax (CITA) by section 4 of the Finance Act 2019 to ensure that companies making money from Nigerians through the internet contribute their fair share to the country’s revenue. Whether you’re a local or foreign business, understanding DST is crucial. Let’s take you through it in quick session.   Check out the amazing cloud hosting services offered by Truehost  here ! 1. What is DST? DST is a tax on income made from providing digital services to Nigerians. If a company is operating online and earning from Nigerian customers without a physical office in the country, they must pay DST. For example, Netflix, which streams movies to Nigerians, and Google, which runs ads for Nigerian businesses...
Read more