On January 1, 20Y1, Joshua Company purchased 10% of the outstanding ordinary shares of Aaron Corporation for P400,000, when the fair value of Aaron's net assets was P4,000,000. Another purchased was made representing additional 10% interest on July 1, 20Y1 for P420,000. The following data concerning Aaron are available for 20Y1:
Net income
Dividends declared and paid
12 months ended Dec. 31, 20Y1 6 months ended Dec. 31, 20Y1
P600,000 380,000
P320,000
180,000 If Joshua Company uses the fair value (IFRS) based approach when the investee became an associate, what total amount of income from investment should be disclosed in its December 31, 20Y1 in relation to its investment in Aaron Company?
P 82,000
P 84,000
P 64,000
P120,000

To solve this problem, we need to determine the total amount of income from investment that Joshua Company should disclose for its investment in Aaron Corporation by applying the fair value (IFRS) approach.

### Step 1: Calculate Joshua's share of Aaron's net income before the investment became an associate.
- **Initial purchase (January 1, 20Y1):** Joshua purchased 10% of Aaron Corporation's shares for P400,000.
- **Net income of Aaron for the first 6 months (Jan 1 to Jun 30, 20Y1):** P600,000

Joshua’s share of this income:
\[
10\% \times P600,000 = P60,000
\]

### Step 2: Calculate Joshua's share of Aaron's net income after the second purchase (when Aaron became an associate).
- **Second purchase (July 1, 20Y1):** Joshua purchased an additional 10% of Aaron’s shares for P420,000, making the total ownership 20%.
- **Net income of Aaron for the second 6 months (July 1 to Dec 31, 20Y1):** P380,000

Joshua’s share of this income:
\[
20\% \times P380,000 = P76,000
\]

### Step 3: Calculate the total income from the investment to be disclosed.
Joshua’s total share of income from the investment in Aaron Corporation for the year 20Y1:
\[
P60,000 + P76,000 = P136,000
\]

### Step 4: Adjust the income to reflect the correct accounting treatment.
However, the question asks for the income to be recognized under the **fair value approach** when the investee became an associate. In this case:
- The income from the second purchase (when it became an associate) should be considered under the equity method from July 1 onwards, not just as a percentage of the net income.

Since Joshua uses the fair value approach, it will consider only the equity income after it becomes an associate (July 1, 20Y1). The initial investment from January to June should be recorded at fair value, which does not include recognizing share of net income.

### Final Calculation:
The relevant income from the investment (under the equity method) starts from July 1, 20Y1:
- **Joshua’s share from July 1 to Dec 31:** P76,000

Thus, the total amount of income from investment to be disclosed by Joshua Company in relation to its investment in Aaron Company for the year ending December 31, 20Y1, is **P76,000**.

### None of the provided choices match P76,000, which suggests there may be an interpretation error in the problem. However, based on the given information, the correct approach yields P76,000. If the assumption on the fair value approach differs, the correct choice closest to calculated value might be **P64,000** or **P84,000** depending on other adjustments which weren't explicitly detailed.

### Would you like to further explore this discrepancy or do you have any other questions?

---

**Follow-up Questions:**

1. What is the impact of fair value adjustments on the income from investment in the first 6 months?
2. How would the income calculation differ if Joshua used a different accounting method?
3. What specific IFRS standard applies to the fair value measurement in this context?
4. How would the investment be reported on Joshua’s balance sheet?
5. What journal entries would Joshua Company record for the purchases and income recognition?
6. How does dividend income factor into the total income from investment?
7. What if Aaron Corporation had a net loss in the first 6 months instead of a net income?
8. How would changes in the fair value of Aaron's shares affect the income reported?

**Tip:** In IFRS, it's important to distinguish between investments that are classified as financial instruments, associates, or subsidiaries, as each has different reporting requirements.

Explore how to calculate income from an investment using the fair value approach in accounting. This example problem involves Joshua Company's investment in Aaron Corporation, detailing net income and dividend data for the year. Learn step-by-step calculations and adjustments required under IFRS standards.

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