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Practical caseIAS 28L3 · Advanced

Upstream and downstream eliminations, losses evidencing impairment, contribution of assets and interaction with IFRS 11 joint ventures

6 documents14 tasks≈ 90 min
0 / 20 items completed
Standards
IAS 28 — Investments in Associates and Joint Ventures
Assistance levelNo help · reduced assistance
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Merdane SA (fictitious entity) accounts for Tavlin SA (30 %) under the equity method and trades with it in both directions, contributed land to it and holds 50 % of Joint Alpha. You prepare the 20X6 year-end eliminations and the note on their effect.

Your assignment

For each transaction with Tavlin, determine the direction and compute the profit eliminated to the extent of the interest; assess the contribution of land and the losses; compute Tavlin’s adjusted profit, the share before eliminations, the carrying amount and the share after eliminations; place Joint Alpha; record the three entries, present their effect and conclude. One document is not useful.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Advanced level: no help, the work is grouped by kind.

Documents

File documents

6 documents: open each one to read it.

Document 1Memo

Group profile and case conventions

Merdane SA (fictitious entity) closes its accounts on 31 December 20X6 and accounts for Tavlin SA under the equity method. Case conventions: amounts in EUR; case convention (pedagogical assumption, not attributed to IAS 28): margins, lives and policy adjustments are case data; the associate’s adjusted profit is computed by hand; the 2014 amendments on the contribution of land are not applied; the loss evidencing impairment is not eliminated; the entries are illustrative.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Merdane’s share of Tavlin30%
Carrying amount of the investment before eliminations€2,000,000.00
Tavlin’s profit for 20X6€700,000.00
Tavlin policy adjustment€30,000.00
Fair value excess on the equipment€160,000.00
Remaining useful life8 years
Inventory bought from Tavlin still held, at transfer price€500,000.00
Tavlin’s margin40%
Inventory bought from Merdane still held, at transfer price€300,000.00
Merdane’s margin30%
Tavlin’s loss on the sale of a batch€80,000.00
Merdane’s loss on the sale of equipment€100,000.00
Carrying amount of the land contributed€600,000.00
Fair value of the land contributed€900,000.00
Merdane’s share of Joint Alpha50%
Communication plan€65,000.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort6

  • Group profile and case conventions

  • Tavlin SA: interest, profit and adjustments

  • Sales between Merdane and Tavlin

  • Contribution of land to Tavlin

  • Joint Alpha SAS: joint control

  • Merdane communication plan

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      14 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Analysis

        Identify the direction of each transaction (upstream, downstream, contribution) and compute the unrealised profits in the assets still held.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Identify the direction of each transaction (upstream, downstream, contribution) and compute the unrealised profits in the assets still held.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Unrealised profit of Merdane in Tavlin’s inventory (300,000 × 30 %)

      2. Task 2Calculation

        Upstream transaction: compute the unrealised profit eliminated to the extent of Merdane’s interest.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Upstream transaction: compute the unrealised profit eliminated to the extent of Merdane’s interest.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Calculation

        Downstream transaction: compute the unrealised profit eliminated to the extent of Merdane’s interest.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Downstream transaction: compute the unrealised profit eliminated to the extent of Merdane’s interest.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Professional judgement

        Contribution of land: how is its gain treated? Compute the gain eliminated and place the 2014 amendments.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Contribution of land: how is its gain treated? Compute the gain eliminated and place the 2014 amendments.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Gain on the contribution eliminated (30 % × 300,000)

      5. Task 5Professional judgement

        Do the losses on the sales of batches and equipment evidence impairment? What share is recognised for the upstream transaction?

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Do the losses on the sales of batches and equipment evidence impairment? What share is recognised for the upstream transaction?

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Analysis

        Tavlin: apply uniform policies and the extra depreciation of the fair value excess to obtain the adjusted profit, and place the goodwill.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Tavlin: apply uniform policies and the extra depreciation of the fair value excess to obtain the adjusted profit, and place the goodwill.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Tavlin’s adjusted profit (700,000 − 30,000 − 20,000)

      7. Task 7Calculation

        Tavlin: compute the share of the adjusted profit before eliminations.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Tavlin: compute the share of the adjusted profit before eliminations.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      8. Task 8Calculation

        Compute the carrying amount of the investment after eliminations and the share of profit recognised.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the carrying amount of the investment after eliminations and the share of profit recognised.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Share of profit recognised after eliminations (195,000 − 60,000 − 27,000 − 90,000)

      9. Task 9Analysis

        Joint Alpha: is it a joint venture? Do the same eliminations apply?

      10. Task 10Journal entries

        Record the elimination of unrealised profit on the upstream transaction.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      11. Task 11Journal entries

        Record the elimination of unrealised profit on the downstream transaction.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      12. Task 12Journal entries

        Record the elimination of the gain on the contribution of land.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      13. Task 13Effects on the financial statements

        What is the cumulative effect of the three entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      14. Task 14Conclusion

        Write the conclusion.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 20).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IAS 28 §28
      • IAS 28 §29
      • IAS 28 §32
      • IAS 28 §35