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Unformatted text preview: 1 B407F Week 9 Tutorial – Investment in associates and joint arrangement Question 1 On 1 January Year 1, Phoenix Ltd, a company with subsidiaries, acquired a 25% holding in Ace Ltd for $600m. On that date, the fair value of net assets of Ace Ltd was $2,000m. For the year ended 31 December Year 1, Ace Ltd reported operating profits of $100m and tax expense of $20m and paid dividends amounting to $12m. Both Phoenix Ltd and Ace Ltd have a 31 December year-end and prepare their accounts in accordance with generally accepted accounting principles in Hong Kong. Extracts from the draft consolidated financial statements of Phoenix Ltd for the year ended 31 December Year 1 relating to Investment in Ace Ltd showed the following: Consolidated Income Statement $m Dividend Income 3 Share of tax of Ace Ltd (5) Consolidated Statement of Financial position Investment in Ace Ltd (at cost) 600 Additional information: It is the group policy to recognize goodwill arising on acquisition as an asset less any accumulated impairment losses. As at 31 December Year 1, there is no foreseeable impairment on goodwill arising on consolidation. Required (a) Briefly discuss what circumstances Phoenix Ltd is required to use the equity method of accounting for its Investment in Ace Ltd under HKAS28 (2011) Investments in Associates and Joint Ventures. (b) Assume HKAS 28 (2011) Investment in Associates and Joint Ventures is applicable to Phoenix Ltd. Comment on the accounting treatment for Investment in Ace Ltd in the draft consolidated financial statements of Phoenix Ltd. (c) Restate the Investment in Ace Ltd carrying amount as shown in Phoenix Ltd’s statement of financial position. statement of financial position....
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- Fall '11
- Balance Sheet, consolidated financial statements, Financial Position, Ace Ltd