(a) Hapsburg, a public listed company, acquired the following investments:
€¢ On 1 April 2003, 24 million shares in Sundial. This was by way of an immediate share exchange of two shares in Hapsburg for every three shares in Sundial plus a cash payment of $1 per Sundial share payable on 1 April 2006. The market price of Hapsburg's shares on 1 April 2003 was $2 each.
€¢ On 1 October 2003, 6 million shares in Aspen paying an immediate $2.50 in cash for each share.
Based on Hapsburg's cost of capital (taken as 10% per annum), $1 receivable in three years' time can be taken to have a present value of $0.75.
Hapsburg has not yet recorded the acquisition of Sundial but it has recorded the investment in Aspen.
The summarized statement of financial positions at 31 March 2004 is:

The following information is relevant:
(i) Below is a summary of the results of a fair value exercise Sundial carried out; date of acquisition:

The book values of the net assets of Aspen at the date of acquisition were considered to be a reasonable approximation to their fair values.
(ii) The profits of Sundial and Aspen for the year to 31 March 20X4, as reported in their entity financial statements, were $4.5 million and $6 million respectively. No dividends have been paid by any of the companies during the year. All profits are deemed to accrue evenly throughout the year.
(iii) In January 20X4 Aspen sold goods to Hapsburg at a selling price of $4 million. These goods had cost Aspen $2.4 million.
Hapsburg had $2.5 million (at cost to Hapsburg) of these goods still in inventory at 31 March 20X4.
(iv) All depreciation is charged on a straight-line basis.
Required:
Prepare the consolidated statement of financial position of Hapsburg as at 31 March 20X4 in accordance with current lASs.
(b) Some commentators have criticized the use of equity accounting on the basis that it can be used as a form of off-statement of financial position financing.
Required:
Explain the reasoning behind the use of equity accounting and discuss the above comment.

Transcribed Image Text:

Hapsburg 000 00 $000 Sundial Aspen Non-current assets Property, plant and $000 equipmen investments 1 000 15 000 56 34 800 3 000 37 800 37 700 ril 37 700 Current assets in Trade and other 9 900 4 800 7 900 eceivables Cash Total assets Equity and liabilitios Capital and reserves Ordinary shares $1 13 600 8 600 14 400 1 200 24700 3800 230 i 22 300 80 700 55 000 60 000 20 000 each Reserves Share premium Accumulated profits 10600 18600 8500 10500 0008000 30 000 20 000 8 000 2000 38 600 40 500 28 000 Non-current liabilities 10% loan note Current liablities Trade and other 16 000 4 200 12 000 16 500 rul 5 930 nil 3 600 4 500 les Bank overdraft Taxation Total equity and 9 600 26 100 3400 300900 40 000 际abilities 80 700 55 000 60 000 Carrying value Fair value at acquisition at acquisitionNotes Asset $000 10 000 5000 15 000 Plant remaining life at acquisition four years Investments 3 3000 4 500 no change in value since acquisition