Sage, Inc. bought 40% of Adams Corp.'s outstanding common stock on January 2, 20x3 for P400,000. The carrying amount of Adams' net assets at the purchase date totaled P900,000. Fair values and carrying amounts were the same for all' items except for plant and inventory, for which fair values exceeded their carrying amounts by P90,000 and P10,000, respectively. The plant has an eighteen-year life. The inventory was sold during 20x3. During 20x3, Adams reported net income of P120,000 and paid a P20,000 cash dividend. What amount should Sage report in its income statement from its investment in Adams for the year ended December 31, 20x3?
Sage, Inc. bought 40% of Adams Corp.'s outstanding common stock on January 2, 20x3 for P400,000. The carrying amount of Adams' net assets at the purchase date totaled P900,000. Fair values and carrying amounts were the same for all' items except for plant and inventory, for which fair values exceeded their carrying amounts by P90,000 and P10,000, respectively. The plant has an eighteen-year life. The inventory was sold during 20x3. During 20x3, Adams reported net income of P120,000 and paid a P20,000 cash dividend. What amount should Sage report in its income statement from its investment in Adams for the year ended December 31, 20x3?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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