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IAS 28Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIAS 28L3 · Advanced

Losses beyond the interest, long-term interests, possible liability, impairment indicators and test of the net investment as a single asset

5 documents13 tasks≈ 90 min
0 / 15 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  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn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

Hexor Group SA (fictitious entity) accounts for Rovane (40 %, deeply loss-making, with a loan from Hexor) and Sendral (35 %, in difficulty) under the equity method and classifies Telmor (25 %) as held for sale. You prepare the 20X6 year-end note on losses, impairment and their disclosures.

Your assignment

For Rovane, compute the interest, the share of losses recognised and the unrecognised losses, then deal with the order of allocation and the liability; for Sendral, assess the indicators, determine the recoverable amount and the impairment loss; place IAS 36, Telmor and the disclosures; 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

5 documents: open each one to read it.

Document 1Memo

Group profile and case conventions

Hexor Group SA (fictitious entity) closes its accounts on 31 December 20X6. Case conventions: amounts in EUR; values in use and fair values less costs of disposal are case data, their determination being outside the scope; case convention (pedagogical assumption, not attributed to IAS 28): the loss allowance for expected credit losses on Hexor’s loan to Rovane is nil, the order of application of IFRS 9 and IAS 28 not being detailed; the entries are illustrative.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Carrying amount of the investment in Rovane€600,000.00
Hexor’s long-term loan to Rovane€250,000.00
Hexor’s share of Rovane’s loss€1,000,000.00
Hexor’s share of Rovane40%
Entire carrying amount of the investment in Sendral€1,200,000.00
Value in use of the net investment€1,000,000.00
Fair value less costs of disposal€950,000.00
Hexor’s share of Telmor25%
Travel budget€38,000.00

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 sort5

  • Group profile and case conventions

  • Rovane SA: Hexor’s interest and loss of the period

  • Sendral SA: impairment indicators and test

  • Telmor SA: classification as held for sale

  • Hexor travel budget

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      13 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 1Calculation

        Rovane: is the loan of 250,000 part of the net investment? Compute Hexor’s interest used to cap the losses.

        Calculator

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

        Part 1 · Calculation

        Rovane: is the loan of 250,000 part of the net investment? Compute Hexor’s interest used to cap the losses.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      2. Task 2Calculation

        Rovane: compute the share of losses to recognise.

        Calculator

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

        Part 1 · Calculation

        Rovane: compute the share of losses to recognise.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Calculation

        Rovane: compute the unrecognised losses.

        Calculator

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

        Part 1 · Calculation

        Rovane: compute the unrecognised losses.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Analysis

        Rovane: in which order are the losses charged to the components of the interest, and must Hexor recognise a liability for the unrecognised losses?

      5. Task 5Analysis

        Sendral: is there objective evidence of impairment of the net investment? Is the test required?

      6. Task 6Calculation

        Sendral: determine the recoverable amount.

        Calculator

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

        Part 1 · Calculation

        Sendral: determine the recoverable amount.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      7. Task 7Calculation

        Sendral: compute the impairment loss on the net investment.

        Calculator

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

        Part 1 · Calculation

        Sendral: compute the impairment loss on the net investment.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      8. Task 8Analysis

        How does the test fit with IAS 36 (single asset, goodwill) and what is needed for Telmor, classified as held for sale, and for the information on these interests?

      9. Task 9Journal entries

        Rovane: record the loss charged to the investment.

        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

      10. Task 10Journal entries

        Rovane: record the loss charged to the long-term interests.

        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

        Sendral: record the impairment loss.

        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 12Effects 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

      13. Task 13Conclusion

        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 / 15).

      Document this file

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

      Normative references

      • IAS 28 §38
      • IAS 28 §40
      • IAS 28 §41A
      • IAS 28 §42