Elliott and Elliott, Financial Accounting and Reporting, 16th edition, Instructors Manual on the Web

Question 9 Bleu plc

Statement of financial position as at January 20X0

ASSETS Million
Non-current assets
Property, plant and equipment (150 + 120) 270
Goodwill [210 (80% 180)] 66
Current assets (108 + 105) 213
549
Share capital 300
Retained earnings 78
Share capital and reserves 378
Non-controlling interest (20% 180) 36
Current liabilities (90 + 45) 135
549

Question 10 Base plc

Statement of financial position as at January 20X0

ASSETS 000
Non-current assets
Property, plant and equipment (250 + 120) 370
Goodwill [90 (60% 110) - (60% 20) + (55 40%130)] 15
Current assets (100 + 70) 170
Total assets 555
Share capital 200
Retained earnings 160
Share capital and reserves 360
Non-controlling interest [(40% 110) + (40% 20)] + 3 55
Current liabilities (80 + 60) 140
Total equity and liabilities 555

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Elliott and Elliott, Financial Accounting and Reporting, 17 edition, Instructors Manual on the Web

Question 11 Austin Plc

Considering each of the situations:

(a) Normally, Bond would not be a subsidiary of Austin plc, as Austin does not own 50% or
more of the voting shares of Bond.

(i) If another entity owned 50% or more shares of Bond, then Bond would be a subsidiary
of that (other) entity, and Bond would not be a subsidiary of Austin plc. It is probable
that Austin plc would treat Bond as an Associated company.

(ii) If a large number of individuals or companies owned the remaining 55% of the shares
of Bond, and they were unlikely to act together, then Bond could be considered to be a
subsidiary of Austin plc. The reason for this is that in a vote of shareholders, Austins
45% holding plus some other shareholders would probably accumulate to a total of
more than 50% of the votes, thus giving Austin control over Bond.

(b) In this situation, it is probable that Derby is a subsidiary of Austin.

The reason for this is that Austin owns over 50% of the voting shares of both Bradford and
Coventry. Thus, Austin controls both Bradford and Coventry and they are both subsidiaries
of Austin. Bradford owns 30% of the voting shares of Derby and Coventry own 30%. In a
vote at a meeting of Derby Ltd, Austin will be able to control both Bradfords vote of 30%
and Coventrys vote of 30% (as it has control over both companies). By exercising these
two 30% votes, Austin will have control over 60% of the votes, which is a majority. So,
Austin has control over Derby (as well as Bradford and Coventry).
In the individual accounts of Bradford and Coventry, Derby will be treated as an Associated
company.

(c) In this situation, although Austin plc owns the majority of the shares of Norwich plc, it has
only 33% of the votes at a meeting of Norwich. Thus, Norwich plc is not a subsidiary of
Austin. The directors of Norwich plc will have the ability to control Norwich, as they have
67% of the votes at a general meeting of Norwich.

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