Question

Silvia Company acquires a 30% interest in Small Company. The fair value of Small's inventory exceeds its carrying value by $100,000. During the subsequent year, the inventory is sold. As a result of the sale of inventory, investment revenue would _______.

Answer 1

Answer:

The revenue that the investment in the company would increase by $100,000.

Explanation:

Though the International Accounting Standard IAS 2 Inventories says that the inventory must be recorded at lower of:

• Cost
• Net Realizable Value (Fair Value less Cost to Sell)

This means though the Net realizable value increases but the cost remains the lower. This means their must not be any changes made to inventory account.

The profit earned from the increase in inventory value will be reflected in the income which will increase the net worth of the investment. So the increase in investment revenue would be by $100,000.