Cases
Practical case
Veltor Group SA (fictitious entity) is a joint operator of the Ormel terminal (40 %, by contract), acquires an interest in the Granit quarry and holds 25 % of Karval SAS. You prepare the 20X6 year-end note on the transactions with the joint operation, the acquisition, the separate financial statements and the classification.
Your assignment
Compute the gain recognised and not recognised on the sale of an item of equipment to the joint operation and record the entry; assess the acquisition of the interest in Granit (business or not) and the treatment of the interest held before; compute the carrying amount of Karval under the equity method; decide the treatment of Ormel and Karval in the separate financial statements; compare the classification of Ormel and Karval; say what a sale of a subsidiary to the joint operation would change; present the effect on the financial statements 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.
Autonomous professional situation
As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.
6 documents: open each one to read it.
Document 1Memo
Veltor Group SA (fictitious entity) closes its accounts on 31 December 20X6. Case conventions: amounts in EUR; case convention (pedagogical assumption, not attributed to IFRS 11): the provisions on the acquisition of an interest in a joint operation apply to the year; the equipment sold to Ormel is neither a business nor a subsidiary; the separate statements follow the cost method; the entries are illustrative.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Selling price of the equipment | €1,800,000.00 | |
| Carrying amount of the equipment | €1,300,000.00 | |
| Total gain on the sale | €500,000.00 | |
| Share of Veltor in the joint operation | 40% | |
| Share of the other parties | 60% | |
| Cash corresponding to the other parties' share | €1,080,000.00 | |
| Carrying amount corresponding to the other parties' share | €780,000.00 | |
| Interest held before in Granit | 10% | |
| Interest acquired in Granit | 30% | |
| Price paid for the interest acquired | €2,100,000.00 | |
| Cost of the investment in Karval | €1,000,000.00 | |
| Profit of Karval | €600,000.00 | |
| Share of Veltor in Karval | 25% | |
| Dividends received from Karval | €40,000.00 | |
| Closing carrying amount reported (consolidated accounts) | €1,110,000.00 | |
| Communication fees | €64,000.00 |
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.
Group profile and case conventions
Sale of an item of equipment to the Ormel joint operation
Acquisition of an interest in the Granit quarry
Karval SAS: extract of the accounts and policy of the separate statements
Note of the chief financial officer on the classification of Karval
Financial communication fees
Organise your work freely: deal with each point, then argue your conclusion.
Task 1Analysis
Sale to Ormel: to what extent can Veltor recognise the gain, and why?
Task 2Calculation
Compute the gain recognised on the sale.
Part 1 · Calculation
Compute the gain recognised on the sale.
Task 3Calculation
Compute the gain not recognised on the sale.
Part 1 · Calculation
Compute the gain not recognised on the sale.
Task 4Journal entries
Record the sale to the joint operation, limited to the share of the other parties.
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.
Line 1
Line 2
Line 3
Task 5Effects on the financial statements
What is the effect of the entry on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 6Professional judgement
Granit: is the joint operation acquired a business, and which rules does the acquirer apply to its interest?
Task 7Professional judgement
Granit: what happens to the 10 % interest held before when Veltor obtains joint control?
Task 8Analysis
Karval: compute, under the equity method, the share of profit and then the closing carrying amount in the consolidated accounts.
Part 1 · Calculation
Karval: compute, under the equity method, the share of profit and then the closing carrying amount in the consolidated accounts.
Result: Closing carrying amount of Karval (1,000,000 + 150,000 − 40,000)
Task 9Professional judgement
Separate statements: how does Veltor treat Ormel and Karval, and what is the amount of Karval under the cost policy?
Task 10Professional judgement
May the chief financial officer classify Karval as a joint operation like Ormel because their purpose and economics are close?
Task 11Analysis
What would the sale of a subsidiary, rather than an item of equipment, to the joint operation change?
Task 12Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 15).
Document this file
These working papers use the data and results of this case.
Normative references