On July 1, 2019, CaviteCorporation purchased 40% of the outstanding ordinary shares of another entity for P500,000 when the net assets of the investee amounted to P1,000,000. At acquisition date, the carrying amounts of the identifiable assets and liabilities of the investee were equal to their fair value, except for equipment for which the fair value was P200,000 greater than carrying amount and inventory whose fair value was P100,000 greater than the cost. The equipment has a remaining life of 5 years and the inventory was all sold during 2019. The investee reported net income of P550,000 for 2019 and paid dividends amounting to P800,000. Required: What is the maximum amount which could be included in income before tax to reflect the investor’s equity in earnings of the investee for 2019?
On July 1, 2019, CaviteCorporation purchased 40% of the outstanding ordinary shares of another entity for P500,000 when the net assets of the investee amounted to P1,000,000. At acquisition date, the carrying amounts of the identifiable assets and liabilities of the investee were equal to their fair value, except for equipment for which the fair value was P200,000 greater than carrying amount and inventory whose fair value was P100,000 greater than the cost. The equipment has a remaining life of 5 years and the inventory was all sold during 2019. The investee reported net income of P550,000 for 2019 and paid dividends amounting to P800,000. Required: What is the maximum amount which could be included in income before tax to reflect the investor’s equity in earnings of the investee for 2019?
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