CERTYNEX IFRS ACADEMY

Alba SA holds 40% of Cime SA, an associate whose profit is 280,000. At acquisition, the fair value excess on an item of equipment was 240,000, with 8 years remaining. A colleague recognises a share of 112,000, i.e. 40% of 280,000. What is the error?

It should have applied 40% to Cime's profit after deducting the dividends it paid, without regard to the fair value excess or the depreciation that follows from it.

It ignores the additional depreciation on the fair value excess, i.e. 30,000 per year: the correct share is 40% × 250,000 = 100,000.

It should have added the additional depreciation of 30,000 to profit before applying 40%, giving a share of 124,000.

It should have put the whole fair value excess of 240,000 into the share for the year, without spreading it over the remaining life.