Question：Clementine Co has owned 21% of the ordinary shares of Tangerine Co for several years. Clementine Co does not have any investments in any other companies.
How should the investment in Tangerine Co be reflected in the financial statements of Clementine Co?
A. The revenues and costs and assets and liabilities of Tangerine Co are added to the revenues and costs and assets and liabilities of Clementine Co on a line by line basis.
B. An amount is shown in the statement of financial position for ‘investment in associate’ being the original cost paid for the investment plus Clementine Co’s share of the profit after tax of Tangerine Co. 21% of the profit after tax of Tangerine Co should be added to Clementine Co’s profit before tax in the income statement each year.
C. An amount is shown in the statement of financial position under ‘investments’ being the original cost paid for the investment, this amount does not change. Dividends received from Tangerine are recognised in the income statement of Clementine Co.
D. An amount is shown in the statement of financial position under ‘investments’ being the original cost paid for the investment, this amount does not change. 21% of the profit after tax of Tangerine Co should be added to Clementine Co’s profit after tax in the income statement each year.
The correct answer is:An amount is shown in the statement of financial position under ‘investments’ being the original cost paid for the investment, this amount does not change. Dividends received from Tangerine are recognised in the income statement of Clementine Co.
解析：Tangerine is an associate of Clementine, however because Clementine has no other investments in other companies, it will not produce consolidated accounts. Therefore the investment will appear in the single company accounts of Clementine as a simple investment. The statement of financial position will show an investment at cost and the income statement will show dividends received from Tangerine. If Clementine instead did produce consolidated accounts, Tangerine would be accounted for using the equity method and option "An amount is shown in the statement of financial position for 'investment in associate' being the original cost paid for the investment plus Clementine's share of the profit after tax of Tangerine. 21% of the profit after tax of Tangerine should be added to Clementine's profit after tax in the income statement each year." would instead be correct.
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