IAS 28Case studies (Step 3 of 5)

Case study

Step 3 of 5

Professional fileIAS 28L4 · Expert

Group file: significant influence, equity method, eliminations, losses and impairment, cessation of influence (IAS 28)

9 documents45 tasks≈ 300 min

0 / 55 items completed

Standards: IAS 28 — Investments in Associates and Joint Ventures

Assistance levelFree workspace · autonomous situation

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File documents

9 documents: open each one to read it.

Document 1 of 9

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Document 1Memo

Group profile and file conventions

Halvern Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. File conventions: amounts in EUR; case convention (pedagogical assumption, not attributed to IAS 28): fair values are those of independent valuations; the adjusted profits of the associates are file data, after harmonisation of policies; the depreciation of the fair value excess is straight line with no residual value; no tax; no transaction costs; the equity-method entries for Sovrel are not requested and the cumulative effect excludes them; the entries are illustrative. The 20 % presumption is rebuttable and significant influence is a matter of judgement.

Key data from the documents

The figures of the documents, gathered for your work.

Item	Value	Found in
Halvern’s direct voting rights in Corsel	24%
Voting rights held by the subsidiary in Corsel	6%
Halvern’s voting rights in Dunmar	16%
Halvern’s share of Pelvane	25%
Cost of the investment in Pelvane	€2,000,000.00
Fair value of Pelvane’s identifiable net assets	€7,200,000.00
Fair value excess on the equipment	€480,000.00
Pelvane’s profit before adjustment	€640,000.00
Pelvane policy adjustment	€40,000.00
Pelvane’s other comprehensive income	€60,000.00
Dividends distributed by Pelvane	€320,000.00
Halvern’s share of Quorin	35%
Cost of the investment in Quorin	€650,000.00
Fair value of Quorin’s identifiable net assets	€2,000,000.00
Interest retained in Sovrel	40%
Fair value of the retained 40 % interest	€1,200,000.00
Consolidated carrying amount of the retained interest	€1,050,000.00
Sovrel’s adjusted profit for the second half	€120,000.00
Sovrel’s other comprehensive income	€30,000.00
Dividend received by Halvern	€30,000.00
Halvern’s share of Vorlan	30%
Carrying amount of the investment before eliminations	€1,600,000.00
Inventory bought from Vorlan still held, at transfer price	€400,000.00
Vorlan’s margin	35%
Inventory bought from Halvern still held, at transfer price	€250,000.00
Halvern’s margin	20%
Carrying amount of the land contributed	€500,000.00
Fair value of the land contributed	€800,000.00
Carrying amount of the investment in Rimel	€500,000.00
Halvern’s long-term loan to Rimel	€200,000.00
Halvern’s share of Rimel’s loss	€900,000.00
Entire carrying amount of the investment in Tarvik	€900,000.00
Value in use of the net investment	€780,000.00
Fair value less costs of disposal	€740,000.00
Price received for the 20 points sold	€300,000.00
Fair value of the retained 10 % interest	€150,000.00
Carrying amount of the investment on the loss of influence	€410,000.00
Accumulated other comprehensive income	€18,000.00
Reclassification proportion on leaving the equity method	100%
Group training budget	€85,000.00
Remaining useful life of Pelvane’s equipment	8 years

Sorting the information

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Part 1 · Classification · Analysis

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Group profile and file conventions
Corsel SA and Dunmar SA: voting rights and indicators
Pelvane SA and Quorin SA: acquisitions and profits
Sovrel SA: interest retained after the loss of control
Vorlan SA: upstream, downstream and contribution transactions
Rimel SA and Tarvik SA: losses and impairment
Orvel SA: disposal and loss of influence
Group training budget
Valuer’s note: useful life of Pelvane’s equipment

Relevant to the treatment0

No effect0

Work programme

Organise your work freely: deal with each point, then argue your conclusion.

Task 1Analysis
Draw up the file plan: entities, questions of influence, equity method, eliminations, losses and cessation.
Your written answer
Task 2Analysis
Corsel: compute Halvern’s total voting rights, direct and indirect.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Corsel: compute Halvern’s total voting rights, direct and indirect.
Halvern’s total voting rights in Corsel (24 + 6)
%
Checks
0 / 1 step entered
Amounts readable
Your written answer
Task 3Professional judgement
Corsel: does Halvern have significant influence, and is the 20 % presumption confirmed?
Your written answer
Task 4Professional judgement
Dunmar: with 16 % of the voting rights, do the indicators rebut the presumption of no influence?
Your written answer
Task 5Calculation
Pelvane: compute Halvern’s share of the fair value of the identifiable net assets.
Calculator
Calculation
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Part 1 · Calculation
Pelvane: compute Halvern’s share of the fair value of the identifiable net assets.
Halvern’s share of Pelvane’s net fair values (25 % × 7,200,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 6Calculation
Pelvane: compute the difference between the cost and that share and state its treatment.
Calculator
Calculation
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Part 1 · Calculation
Pelvane: compute the difference between the cost and that share and state its treatment.
Goodwill included in the carrying amount of Pelvane (2,000,000 − 1,800,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 7Calculation
Pelvane: compute the extra annual depreciation relating to the fair value excess.
Calculator
Calculation
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Part 1 · Calculation
Pelvane: compute the extra annual depreciation relating to the fair value excess.
Extra annual depreciation (480,000 ÷ 8)
€
Checks
0 / 1 step entered
Amounts readable
Task 8Analysis
Pelvane: harmonise the policy and compute the adjusted profit used for the share.
Calculator
Calculation
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Part 1 · Calculation
Pelvane: harmonise the policy and compute the adjusted profit used for the share.
Pelvane’s adjusted profit (640,000 − 40,000 − 60,000)
€
Checks
0 / 1 step entered
Amounts readable
Your written answer
Task 9Calculation
Pelvane: compute the share of the adjusted profit.
Calculator
Calculation
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Part 1 · Calculation
Pelvane: compute the share of the adjusted profit.
Share of Pelvane’s adjusted profit (25 % × 540,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 10Calculation
Pelvane: compute the share of other comprehensive income.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Pelvane: compute the share of other comprehensive income.
Share of Pelvane’s other comprehensive income (25 % × 60,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 11Analysis
Pelvane: what dividend does Halvern receive and how is it accounted for?
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Pelvane: what dividend does Halvern receive and how is it accounted for?
Dividend received from Pelvane (25 % × 320,000)
€
Checks
0 / 1 step entered
Amounts readable
Your written answer
Task 12Calculation
Pelvane: compute the closing carrying amount of the investment.
Calculator
Calculation
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Part 1 · Calculation
Pelvane: compute the closing carrying amount of the investment.
Closing carrying amount of Pelvane (2,000,000 + 135,000 + 15,000 − 80,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 13Calculation
Quorin: compute Halvern’s share of the fair value of the identifiable net assets.
Calculator
Calculation
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Part 1 · Calculation
Quorin: compute Halvern’s share of the fair value of the identifiable net assets.
Halvern’s share of Quorin’s net fair values (35 % × 2,000,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 14Calculation
Quorin: compute the difference between the cost and the share and state its treatment.
Calculator
Calculation
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Part 1 · Calculation
Quorin: compute the difference between the cost and the share and state its treatment.
Bargain income on Quorin (700,000 − 650,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 15Analysis
Sovrel: how is the retained 40 % interest treated after the loss of control, what is its cost and what part of the gain relates to remeasurement?
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Sovrel: how is the retained 40 % interest treated after the loss of control, what is its cost and what part of the gain relates to remeasurement?
Remeasurement gain on the retained interest (1,200,000 − 1,050,000)
€
Checks
0 / 1 step entered
Amounts readable
Your written answer
Task 16Analysis
Sovrel, second half: compute the share of profit and of other comprehensive income and the closing carrying amount.
Calculator
Calculation
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Part 1 · Calculation
Sovrel, second half: compute the share of profit and of other comprehensive income and the closing carrying amount.
Share of the adjusted profit of the second half (40 % × 120,000)
€
Share of other comprehensive income (40 % × 30,000)
€
Carrying amount at 31 December 20X6 (1,200,000 + 48,000 + 12,000 − 30,000)
€
Checks
0 / 3 steps entered
Amounts readable
Result: Carrying amount at 31 December 20X6 (1,200,000 + 48,000 + 12,000 − 30,000)
Your written answer
Task 17Analysis
Vorlan: compute the total unrealised profit of the upstream and downstream inventory transactions.
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 1 · Calculation
Vorlan: compute the total unrealised profit of the upstream and downstream inventory transactions.
Unrealised profit of Vorlan in Halvern’s inventory (400,000 × 35 %)
€
Unrealised profit of Halvern in Vorlan’s inventory (250,000 × 20 %)
€
Checks
0 / 2 steps entered
Amounts readable
Result: Unrealised profit of Halvern in Vorlan’s inventory (250,000 × 20 %)
Your written answer
Task 18Calculation
Vorlan: compute the profit eliminated on the upstream transaction.
Calculator
Calculation
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Part 1 · Calculation
Vorlan: compute the profit eliminated on the upstream transaction.
Profit eliminated, upstream (30 % × 140,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 19Calculation
Vorlan: compute the profit eliminated on the downstream transaction.
Calculator
Calculation
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Part 1 · Calculation
Vorlan: compute the profit eliminated on the downstream transaction.
Profit eliminated, downstream (30 % × 50,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 20Professional judgement
Vorlan: how is the gain on the contribution of land treated? Compute the gain on the contribution and the part to eliminate.
Calculator
Calculation
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Part 1 · Calculation
Vorlan: how is the gain on the contribution of land treated? Compute the gain on the contribution and the part to eliminate.
Gain on the contribution (800,000 − 500,000)
€
Gain on the contribution eliminated (30 % × 300,000)
€
Checks
0 / 2 steps entered
Amounts readable
Result: Gain on the contribution eliminated (30 % × 300,000)
Your written answer
Task 21Calculation
Vorlan: compute the carrying amount of the investment after the downstream eliminations.
Calculator
Calculation
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Part 1 · Calculation
Vorlan: compute the carrying amount of the investment after the downstream eliminations.
Carrying amount after downstream eliminations (1,600,000 − 15,000 − 90,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 22Calculation
Rimel: are the long-term interests part of the net investment? Compute Halvern’s interest used to cap the losses.
Calculator
Calculation
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Part 1 · Calculation
Rimel: are the long-term interests part of the net investment? Compute Halvern’s interest used to cap the losses.
Halvern’s interest in Rimel (500,000 + 200,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 23Calculation
Rimel: compute the share of losses to recognise.
Calculator
Calculation
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Part 1 · Calculation
Rimel: compute the share of losses to recognise.
Share of losses recognised (the lower of 900,000 and 700,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 24Calculation
Rimel: compute the unrecognised losses.
Calculator
Calculation
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Part 1 · Calculation
Rimel: compute the unrecognised losses.
Unrecognised losses (900,000 − 700,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 25Analysis
Rimel: in which order are the losses charged to the components of the interest, and must Halvern recognise a liability for the unrecognised losses?
Your written answer
Task 26Calculation
Tarvik: determine the recoverable amount of the net investment.
Calculator
Calculation
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Part 1 · Calculation
Tarvik: determine the recoverable amount of the net investment.
Recoverable amount of Tarvik (the higher of 780,000 and 740,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 27Calculation
Tarvik: compute the impairment loss on the net investment.
Calculator
Calculation
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Part 1 · Calculation
Tarvik: compute the impairment loss on the net investment.
Impairment loss on the net investment in Tarvik (900,000 − 780,000)
€
Checks
0 / 1 step entered
Amounts readable
Task 28Professional judgement
Orvel: does Halvern lose significant influence? Determine the other comprehensive income to reclassify.
Calculator
Calculation
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Part 1 · Calculation
Orvel: does Halvern lose significant influence? Determine the other comprehensive income to reclassify.
Other comprehensive income reclassified on the loss of influence (100 % × 18,000)
€
Checks
0 / 1 step entered
Amounts readable
Your written answer
Task 29Calculation
Orvel: compute the gain on loss of influence before and after reclassification.
Calculator
Calculation
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Part 1 · Calculation
Orvel: compute the gain on loss of influence before and after reclassification.
Gain on loss of influence before reclassification (300,000 + 150,000 − 410,000)
€
Total gain on loss of influence (40,000 + 18,000)
€
Checks
0 / 2 steps entered
Amounts readable
Result: Total gain on loss of influence (40,000 + 18,000)
Task 30Journal entries
Quorin: record the acquisition with the bargain income.
Calculator
Calculation
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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
TotalsDebit0Credit0
Task 31Journal entries
Pelvane: record the share of the adjusted profit.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 32Journal entries
Pelvane: record the share of other comprehensive income.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 33Journal entries
Pelvane: record the dividend received.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 34Journal entries
Sovrel: record the retained interest brought to fair value as the cost of the associate.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 35Journal entries
Vorlan: record the elimination of the profit on the upstream transaction.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 36Journal entries
Vorlan: record the elimination of the profit on the downstream transaction.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 37Journal entries
Vorlan: record the elimination of the gain on the contribution.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 38Journal entries
Rimel: record the loss charged to the investment.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 39Journal entries
Rimel: record the loss charged to the long-term interests.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 40Journal entries
Tarvik: record the impairment loss.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 41Journal entries
Orvel: record the derecognition of the investment and the retained 10 % interest at fair value.
Calculator
Calculation
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.
Line 1
Line 2
Line 3
Line 4
TotalsDebit0Credit0
Task 42Journal entries
Orvel: record the reclassification of other comprehensive income.
Calculator
Calculation
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.
Line 1
Line 2
TotalsDebit0Credit0
Task 43Effects on the financial statements
What is the cumulative effect of the thirteen entries on the consolidated financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
IncreaseDecreaseNo effect
Profit or loss
IncreaseDecreaseNo effect
Other comprehensive income
IncreaseDecreaseNo effect
Equity
IncreaseDecreaseNo effect
Calculator
Calculation
Click in an answer field to be able to insert the result.
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Amount of the effect — Financial position (balance sheet)
€
Amount of the effect — Profit or loss
€
Amount of the effect — Other comprehensive income
€
Amount of the effect — Equity
€
Checks
0 / 4 steps entered
Amounts readable
Result: Amount of the effect — Equity
Task 44Analysis
Which points remain to be dealt with by the reviewer?
Your written answer
Task 45Conclusion
Write the conclusion of the file.
Your written answer

File review

Points raised during the review of this file: read them as the preparer would.

Review notes

BlockingResolvedReviewer note (blocking): support the useful life of Pelvane’s equipment with the valuer’s note
Non-blockingOpenReviewer note: specify the effect of the final valuation of the retained interest in Sovrel on the gain

Information requests

ObtainedRequest to the valuer: remaining useful life of Pelvane’s equipment
Assumption documentedDocumented assumption: provisional valuation of the retained interest in Sovrel

Completion checklist

Significant influence in Corsel and Dunmar documentedDone
Cost, goodwill and share reconciled to the valuationsDone
Upstream, downstream and contribution eliminations computedDone
Losses, impairment and loss of influence computedDone
Balanced entries and effect on the financial statements establishedDone
Final valuation of the retained interest in Sovrel to be obtained from the independent valuerTo review

Working notes

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

Saved on this device only; never graded.

Submission and solution

Complete every item of the file to submit it (0 / 55).

Document this file

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

Normative references

IAS 28 §5
IAS 28 §22
IAS 28 §28
IAS 28 §32
IAS 28 §38
IAS 28 §42

Case brief

Situation

Documents

File documents

Data

Key data from the documents

Sorting the information

To sort9

Relevant to the treatment0

No effect0

Workspace

Work programme

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File review

Review notes

Information requests

Completion checklist

Conclusion

Submission and solution