Viola Ltd has significant influence over the operations of Drum Ltd from a 18% ownership.Viola Ltd prepares consolidated financial statements.Drum Ltd reported a profit of $5 000 000 and paid a cash dividend from post-acquisition profits of $180 000 to Viola Ltd.What is the difference between the balances of the account 'Investment in Drum Ltd' in Viola Ltd's own financial statements when compared with that balance in its consolidated financial statements for this year? The account balance in Viola Ltd's consolidated financial statements would be:
A)higher by $867 600
B)lower by $867 600
C)higher by $720 000
D)lower by $720 000

Question

Quizplus · Accepted Answer

The difference between the balances of the account 'Investment in Drum Ltd' in Viola Ltd's own financial statements when compared with that balance in its consolidated financial statements for this year is $867 600 higher. This is because the consolidated financial statements include the post-acquisition profits of Drum Ltd, which are not reflected in Viola Ltd's own financial statements.

Viola Ltd Has Significant Influence Over the Operations of Drum