Question
At the end of 2023, BrightFuture Corp, with one subsidiary, had a holding representing 21% of the equity of Crystal Ltd, a specialty glass company.
At the end of 2023, BrightFuture Corp, with one subsidiary, had a holding representing 21% of the equity of Crystal Ltd, a specialty glass company. It had cost $90,000 when purchased at the start of 2022. At the time of that investment, Crystal Ltd had net assets of $800,000 which increased to $1,200,000 by the end of that year. At the start of the current year, the investment was increased by a further 11% of the equity at a cost of $140,000.
(a) How would the investment be shown in the financial statements if it were treated as a trade investment? (b) How would the investment be shown in the financial statements if it were treated as an associated undertaking? (c) Discuss the potential benefits and drawbacks of BrightFuture Corp's increased investment in Crystal Ltd.
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