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Case Scenario 1

Atlas Global Holdings acquired 80% of the ordinary shares of Zenith Retail Ltd on 1 January 2025. During the year, the subsidiary sold goods worth €4 million to the parent company at a markup of 25%. Half of these goods remained unsold at year-end.

The following extracts are available at 31 December 2025:

Item	Parent (€m)	Subsidiary (€m)
Revenue	52	20
Cost of Sales	34	13
Trade Receivables	8	5
Trade Payables	6	4
Retained Earnings	12	5
Inventory	10	4

Additional information:

• Fair value adjustment on acquisition: €2 million for equipment.
• Goodwill impairment during the year: €0.5 million.
• Non-controlling interest measured at fair value.

Required

1. a) Prepare the key consolidation adjustments required for:

• intra-group sales,
• unrealised profit in inventory,
• goodwill impairment,
• non-controlling interest.

Your answer must include:

consolidation adjustment entries, workings, calculations, explanations of treatment in consolidated financial statements.

1. b) Discuss the accounting treatment of associates and joint ventures and explain how they differ from subsidiaries with clear example and calculations. (20 marks)

Your answer must include:

• definition and characteristics of:
  • subsidiaries,
  • associates,
  • joint ventures,
• ownership percentages and control concepts,
• accounting treatment under International Financial Reporting Standards,
• clear numerical examples and calculations using:
  • equity method,
  • share of profit recognition,
  • investment valuation,
• comparison between consolidation and equity accounting methods.

Case Scenario 2

NovaTech Manufacturing Ltd is a rapidly growing manufacturer of semiconductor components operating across Europe and Asia. The company recently adopted new reporting policies aligned with International Financial Reporting Standards.

The Board of Directors is concerned about declining operating cash flows despite reporting higher profits. The company has also increased investment in research and development, leased new production facilities, and issued additional share capital during the year.
The summarized financial information for 2025 is provided below:

Item	€ million
Revenue	480
Cost of Sales	320
Operating Expenses	82
R&D Expenditure	24
Finance Costs	10
Profit Before Tax	44
Net Cash from Operating Activities	12
Capital Expenditure	65
Lease Liabilities	40
Trade Receivables Increase	28

 

For REF… Use:#getanswers2002768