Accounting for Intra-Group Transactions

Wonderland Ltd distributes an exclusive range of fashion including clothing, cosmetics, jewellery,

bags and shoes. It operates ten stores in towns and resorts around the country. Alice Ltd is an

investing company which owns shares in several industries including tourism, manufacturing and

retail. Alice Ltd owns 42% of the shares in Wonderland Ltd. Hatter Ltd owns 18% of the shares in

Wonderland Ltd. The board of Wonderland Ltd has five directors, including two directors appointed

by Alice Ltd and one director appointed by Hatter Ltd.

The accountants of Alice Ltd and Hatter Ltd are discussing how to account for their respective

investments in Wonderland Ltd

Required

i Advise the accountant of Alice Ltd how to account for the investment in Wonderland Ltd, clearly outlining relevant assumptions and considerations

ii Suggest two scenarios in which Hatter Ltd may be required to consolidate Wonderland Ltd .