Brookfield Office Properties is a Canadian-American commercial real estate company with headquarters in New York City and Toronto. The company owns, manages and develops office properties in the downtown core of cities in the U.S. (New York City, Washington, Boston, Houston, Los Angeles, Denver, and Minneapolis), Canada (Toronto, Calgary, Ottawa, and Vancouver) as well as Australia (Perth, Sydney, and Melbourne). The company has many investments and reports the following footnote (in IFRS):

Required

a. The company uses the equity method to account for its investment in associates. Why is this the appropriate method for the three investments disclosed in the footnotes?

b. The balance in the Investments in Equity account was \(\$ 13\) million at December 31, 2011. During the year, the company received no dividends from its associates. Assume that the company paid \(\$ 139\) million for the BSREP Australia acquisition. Determine the balance in the Investments in Equity account at December 31, 2012.

c. Explain how the use of the equity method impacts Brookfield's ROE and its RNOA components (net operating asset turnover and net operating profit margin) as compared to the case of consolidation.

Transcribed Image Text:

Investments in Associates The company exercises significant influence over the following investments which have been accounted for using the equity method: Name of Investment Principal Activity BSREP Australia Trust Investment properties Brookfield LePage Johnson Controls... Facilities management Oakridges.. Residential development Ownership Interest Dec. 31, 2012 41.22% 40.00% 23.75% Dec. 31, 2011 40.00% 23.75%