QUESTION $2($Uptown Ltd and Downtown Ltd$,$ investment in associates, IAS $28)$

On $1$ Jan $2020,$ Uptown Ltd acquired a $40\%$ stake in Downtown Ltd for $$220,000$ cash. At

the time of the acquisition, Downtown's share capital was $$300,000,$ its retained earnings

were $$200,000,$ and all its assets and liabilities were fairly valued.

Below are the summarized financial statements of Downtown Ltd for the years ended $31$ Dec

$2020$ and $2021.$ Downtown did not pay any dividends during $2020$ and $2021.$

FYE $31$ Dec $($$$\text{'}000)$

$2020$

$2021$

Profit & Loss Statement:

Revenues

Expenses

Net Profit $($Loss$)$ after tax

Balance Sheet:

Required:

Compute the Goodwill implicit in the acquisition of Downtown Ltd$.$ Is this Goodwill

amount separately reported under the equity method of accounting for investments in

associates?

Compute the carrying amount of the investment in Downtown that would be reflected

in Uptown's books as at $31$ Dec $2020$ and $2021$ under the equity method of

accounting for investments in associates.

You may consider the following paragraphs of IAS $28$ for requirement $2.$

IAS $28$: para $38"$If an entity's share of losses of an associate or a joint venture equals or

exceeds its interest in the associate or joint venture, the entity discontinues recognising its

share of further losses. The interest in an associate or a joint venture is the carrying amount

of the investment in the associate or joint venture determined using the equity method

together with any long$-$term interests that, in substance, form part of the entity's net

investment in the associate or joint venture......"

IAS $28$: para $39$ "After the entity's interest is reduced to zero, additional losses are provided

for, and a liability is recognised, only to the extent that the entity has incurred legal or

constructive obligations or made payments on behalf of the associate or joint venture. If the

associate or joint venture subsequently reports profits, the entity resumes recognising its

share of those profits only after its share of the profits equals the share of losses not

recognised."