Sbr (int/UK) Strategic Business Reporting

 

3 

1 BETH 

 

Key answer tips 

Part (a) of this question deals with some key aspects of group accounting. Each 

requirement asks you to ‘discuss’ the correct treatment – your answer must not consist of 

just a series of calculations. 

Part (b) of the question requires knowledge and application of IFRS 5 Non-current Assets 

Held for Sale and Discontinued Operations. Part (b) (i) should be a source of easy marks, as 

long as you write enough. A seven mark question requires seven separate well-developed 

points. 

(a)  

(i) 

Acquisition of Lose 

Step acquisition 

As at 1 December 20X6, Beth owned 80% (21% + 59%) of Lose’s ordinary 

shares and so obtained control over Lose in stages (through a step acquisition). 

On the date that control was achieved, the previous investment in Lose should 

have been remeasured to fair value and a gain recognised in profit or loss. 

 

  

(1 mark) 

The original 21% holding gave Beth significant influence over Lose. Lose was 

therefore an associate and should have been accounted for using the equity 

method. 

(1 mark) 

On 1 December 20X5, Lose would have been recognised at cost of $40 million. 

Beth would subsequently have accounted for 21% of Lose’s profits from that 

date, amounting to $14.7 million (21% × ($150m – $80m).  

(1 mark) 

The carrying amount of the investment in Lose on the date control was 

achieved was therefore $54.7 million ($40m + $14.7m). 

(1 mark) 

On 1 December 20X6, this 21% investment in Lose should have been included 

in the goodwill calculation at $70 million and a resulting gain of $15.3 million 

($70m – $54.7m) recognised in profit or loss. 

(1 mark) 

The correcting entry is: 

Dr Goodwill $15.3m 

Cr Profit or loss $15.3m (1