Assume: Wesfarmers proposal to acquire Kidman is only accepted by 50% of Kidmans shareholders on 30 September
Question:
Assume:
Wesfarmers proposal to acquire Kidman is only accepted by 50% of Kidman’s
shareholders on 30 September 2019 for a transaction value of $388 million;
The ultimate parent entity will directly acquire the 50% interest in Kidman;
The equity accounting method for investment in associates will be adopted by Wesfarmers in their consolidated financial statements;
Kidman’s interest in the Mt Holland mine project, concentrator and Kwinana refinery (Wesfarmers, 2019, May 2, a, Thompson 2019, May 23, p.2) will be funded by a $700 million interest free loan from Wesfarmers during the year ended 30 June 2020. Wesfarmers will use its existing balance sheet cash balances to finance this transaction;
During the year ended 30 June 2020 the Wesfarmers group will provide Kidman significant non cash chemical processing management services; and
All other Kidman acquisition information and future transactions and events remain the same.
“Wesfarmers is not a speculative investor but happy to put its balance sheet to work when it sees value” (Thompson, 2019, June 13, p 4).
Discuss from a financial reporting perspective whether the 50% investment in Kidman should be accounted for as an associate or as a subsidiary in Wesfarmers consolidated financial statements.
One (1) for argument point for the preferred accounting treatment that will bring the most significant value to the Wesfarmers consolidated financial statements;
and One (1) alternative argument point that explains why the other accounting treatment will bring, to a lesser extent, value to the Wesfarmers consolidated financial statements.
Business Communication Developing Leaders for a Networked World
ISBN: 978-9814714655
2nd edition
Authors: Peter Cardon