ABC Ltd is a large Australian manufacturing company that is listed on both the Australian Securities Exchange (ASX) and the New York Stock Exchange (NYSE). It is March 2021 and the senior management of ABC Ltd are currently evaluating a range of investment options in relation to CDE Ltd. Any investment undertaken in CDE Ltd would occur on 1 July 2021.

During the year ending 30 June 2020, ABC Ltd made a $20,000 loan to CDE Ltd. The loan term is five years, and the interest rate is 4%.

The senior management of ABC Ltd hired a financial analyst to evaluate CDE Ltd. The financial analyst has made the following projections:

On 1 July 2021, CDE Ltd is projected to have assets of $5 million and liabilities of $3 million. The financial analyst believes that many of CED Ltd's assets are carried at amounts well below their fair values.

Total comprehensive income for the year ending 30 June 2022 is projected to be $300,000. Of this amount, $250,000 would be net profit whilst $50,000 would be other comprehensive income.

During the year ending 30 June 2022, ABC Ltd is projected to purchase approximately $100,000 of inventory from CDE Ltd and sell $20,000 of non-current assets to CDE Ltd. In addition, CDE Ltd is expected to pay a dividend of 5 cents per share.

The investment options are as follows:

Option 1: purchase 40% of the issued shares of CDE Ltd on 1 July 2021. This would require the purchase of 120,000 shares at a projected price of $15 each.

Option 2: purchase 80% of the issued shares of CDE Ltd on 1 July 2021. This would require the purchase of 240,000 shares at a projected price of $15 each.

Required

explains the accounting requirements for each of these two investment options. As part of your answer, you should explain how the profit of CDE Ltd would be recognised by ABC Ltd.

Refer to AASB