Question 1

(a) Marie acquired 19.9% of the equity share capital of Rex at the start of the
financial year. As part of the investment Marie has two out of the eight seats on the
board of directors.
Advise Marie how it should account for the investment in Rex in its financial
statements.

(b) X acquired 600 $1 shares in Y at a price of $1.50 per share on 31 December

20X1 at which point the statement of comprehensive income of Y had a credit
balance of $2 000.

31 December 20X2 X Y
$ $
Net current assets 1,000 1,800
Property, plant and equipment 15,000 3,200
Investment in Y 900
16,900 5,000
Common shares $ 1 8,000 2,000
Reserves 8,900 3,000
16,900 5,000
Required:
Draft the consolidated financial statements of X as at December 20X2, assuming first
that Y is a joint venture and second that Y was an associate of X.
Question 2
Little Plc has a 40% share of a joint operation, a natural gas station. The following
information relates to the joint arrangement activities:
i. The natural gas station cost £15 million to construct and was completed on 1
January 2015. Its useful life is estimated at 10 years.
ii. In the year, gas with a direct cost of £22 million was sold for £30 million.
Additionally, the joint arrangement incurred operating costs of £1.5 million during
the year.
iii. Assets, liabilities, revenue and costs are apportioned on the basis of the
shareholding.
Little Plc has only contributed and accounted for its share of the construction cost, paying £6
million. The revenue and costs are receivable and payable by the other joint operator who
settles amounts outstanding with Little Plc after the year-end (31 December 2015)
Show how Little Plc would account for the above in its consolidated financial statements for
the year ended 31 December 2015.

Question 3
A joint venture, Gamma company, is set up between A, B, and C companies. All venturers
share equally in the joint venture.
After establishment of the joint venture A sells to Gamma for cash some items of equipment,
carrying value in A’s books £1m, for £1.6m.
Required:
Show the adjustments to be made in A’s consolidated financial statements in respect of the
above transaction.

Question 4
Identify whether an associate relationship exists in the following examples in accordance
with IAS 28.
a) Entity A owns 20% of entity B and appoints one out of the seven directors. The remaining
shares are held equally by two entities that both appoint three of the seven directors. A
board meeting is quorate if four directors attend. In the event of tied decisions the Chair of
the board who is appointed by one of the other entities has a casting vote.
b) Entity A owns 15% of B and appoints two of six directors to the board. Each director has
one vote at meetings and the Chair who is from entity A has a casting vote. The other four
directors do not represent a shareholding of more than 5%.
c) Entity A manufactures gadgets for retailer B. B designs the gadgets and normally 90% of
A’s sales are made to B. B owns 12% of the shares of A.
d) Entity A has a 16% holding in B. B retails software packages developed by A who holds
the licence to the software. B retails no other software packages.
Question 5
Andy, a public limited company, operates in the retail sector.
The draft statements of financial position at 31 December 2015 are as follows:
Andy Bush
£ £
Asset:
Non-current assets
Property, plant and equipment 1,560 1,250
Investments 1,540
3,100 1,250
Current assets:
Inventory 450 580
Receivables 380 390
Cash 190 230
1,020 1,200
Total Assets 4,120 2,450
Equity and Liabilities:
Share capital 1,700 1,000
Retained earnings 1,450 800
Total equity 3,150 1,800
Non-current liabilities 520 350
Current liabilities
Trade payable 300 190
Tax payable 150 110
450 300
Total liabilities 970 650
Total equity and liabilities 4,120 2,450
The following information is relevant to the preparation of the group financial
statements:
On 1 January 2014, Andy acquired 70% of the equity interest of Bush for a cash
consideration of £1,340 million. At 1 January 2014, the identifiable net assets of
Bush had a fair value of £1,850 million, and retained earnings were £450 million. The
excess in fair value is due to an item of property, plant and equipment that has a
remaining useful life of 10 years.
It is the group policy to measure the non-controlling interest at acquisition at is
proportionate share of the fair value of the subsidiary’s net assets.
On 1 July 2015, Andy acquired 25% of the equity interest of Best for a cash
consideration of £200 million. Best’s profits for the year were £80 million, out of
which a dividend of £20 million was paid on 31 December 2015. The 25% holding
gives Andy the power to participate in the operating and financing decisions of Best.
Prepare the group consolidated statement of financial position of Andy as at 31
December 2015.