intercorporate investments

CFA Level II FRA
#1

Practice Problems for reading 16, question 28, i don’t get how net income under both methods are the same.

2)Also question 30, do not understand how they arrived at the figure for assets under the consolidation method.

  1. Assets under consolidation is 1750(1430+320). if its consolidation, why didn’t they add all of 580(boswells equity).

Thanks.

#2

Net income under all methods are the same. The difference is the allocation between different line items, but you end up with the same net income.

Under consolidation, add the assets of both companies. Cash (asset) is lower since 320 was paid in cash for the company but the purchase price was in excess of the fair value of Boswell assets due to the license, 60, so that needs to be included as well.

#3

thanks a lot. i get it now.