Question

Q1. On Jan, 1, 2021, entity A and entity B incorporated entity C which has its fiscal and operational autonomy. The contractual agreement of the incorporating entities provides that the decisions on relevant activities of entity C will require the unanimous consent of both entities. Entity A and B will have right to the net assets of entity C. Entity A and B invested Br.1,000,000 and Br.1,500,000, respectively. Equivalent to 40:60 capital interest of entity C. The financial statements of entity C provide the following data for its three year operation:
Year-2021 Year-2022 Year-2023

Net income (loss) Br.200, 000 (Br.3, 000,000) Br.5, 000,000
Dividends declared 100,000 - 1,000,000
Require: compute;
1,The balance of investment in entity C to be reported by entity A in its statement of financial position on Dec, 31, 2021.
2,The investment loss to be reported by entity B concerning its interest in entity C for the year ended Dec, 31, 2022.
3,The investment to be reported by entity A concerning it interest in entity C for the year ended Dec 31, 2023

Answer 1

Summary (equity-method accounting; A = 40%, B = 60%):

Q1 — A's investment balance at 31 Dec 2021
- Initial investment = Br 1,000,000
- A's share of 2021 profit = 40% × 200,000 = 80,000
- A's share of 2021 dividends = 40% × 100,000 = (40,000)
Carrying amount = 1,000,000 + 80,000 − 40,000 = Br 1,040,000

Answer Q1: Br 1,040,000

Q2 — Investment loss to be reported by B for year ended 31 Dec 2022
- B's share of 2022 loss = 60% × 3,000,000 = Br 1,800,000 (its share)
- Carrying amount of B at 1/1/2022 = 1,500,000 + 120,000 − 60,000 = Br 1,560,000
Under IAS 28 the investor’s loss recognition is limited to its carrying amount unless it has a legal/constructive obligation to fund further losses. Thus B can recognize only Br 1,560,000 in 2022 (the remaining Br 240,000 of its share of loss is unrecognized unless B has an obligation).

Answer Q2: Br 1,560,000 (note: B’s full share would be Br 1,800,000, but Br 240,000 is unrecognized absent an obligation)

Q3 — A’s investment to be reported at 31 Dec 2023
Stepwise:
- Carrying at 31/12/2021 = Br 1,040,000 (from Q1)
- A’s share of 2022 loss = 40% × 3,000,000 = Br 1,200,000. Recognized only up to carrying amount (1,040,000); unrecognized = Br 160,000 → carrying becomes Br 0 at end-2022.
- A’s share of 2023 profit = 40% × 5,000,000 = Br 2,000,000. Per IAS 28, A recognizes 2023 profit only after its share of profits equals previously unrecognized losses (Br 160,000). Thus recognized 2023 profit = 2,000,000 − 160,000 = 1,840,000.
- A’s share of 2023 dividends = 40% × 1,000,000 = (400,000)
Carrying at 31/12/2023 = 1,840,000 − 400,000 = Br 1,440,000

Answer Q3: Br 1,440,000

If you want, I can show a one-line tabular roll‑forward for each investor.