Answer:
Investment balance is $742,000
Explanation:
The treatment of associates will be in-accordance with equity method:
The equity method says that the investment must reflect its fair value.
The fair value of the investment = Cost of shares - Dividend's share Received + Share of Profit invested
Value of Investment = $800,000 - $32000 ($80,000 Total Dividend * 40%) + Reinvestment through Net Income $80,000 ($200,000 * 40%) = $848,000
The value of the investment after sale of shares will fall by 5000 share out of 40000 shares, this means the fall in value is:
Fall in value of investment = 5,000 / 40,000 × $848,000 Value of investment = $106,000
New Value = $848,000 - $106,000 = $742,000
