Capricorn Corporation decided to purchase 35% of the outstanding shares of Aquarius Ltd. Capricorn’s CFO conducted an extensive evaluation of the financial statements of Aquarius and reported his findings to the board of directors in the following memo:

Dear Board of Directors,

Following your request, I conducted a detailed analysis of Aquarius Ltd. I found out that the liabilities reported in its books at December 31, 2019 in the amount of $ 20M fairly represent their economic values. As for the assets, their book value is $ 45M. The company owns an office building in downtown Toronto where its headquarters are located. The net book value of this building, including the land, is $ 10M. Aquarius purchased the land for $ 6M some 20 years ago and then constructed the building. I consulted with real estate experts and currently the fair value of the land is $ 9M and the fair value of the building is $ 8M. The remaining useful life of the building in Aquarius’s books is 20 years and I find this estimate realistic.

The firm has developed a patent. According to my analysis, the fair value of the patent is $ 12M. Given future advances in technology, I expect the value of the patent to decline and become worthless 6 years from now. The patent was developed by the company and all the related costs were recorded as research and development expenses.

Sincerely,

Jake Connor, CPA

The board of directors of Capricorn Corporation adopted the report by Mr. Connor and on January 1, 2020, purchased 35% of the shares of Aquarius, based on its fair value according to Mr. Connor’s analysis. After the acquisition of the shares, Capricorn was able to exercise significant influence over Aquarius.

In 2020, Aquarius reported net income of $ 10M and distributed 40% of it as cash dividends.

Assuming Capricorn accounts for this investment using the method required under IFRS, at December 31, 2020, the balance in the investment account should be

		$ 16.73M.
		$ 18.76M.
		$ 17.43M.
		$ 15.4M.