Question
At the end of 2023, BrightStar Ltd, with one subsidiary, had a holding representing 19% of the equity of Aqua Ltd, a water utility company.
At the end of 2023, BrightStar Ltd, with one subsidiary, had a holding representing 19% of the equity of Aqua Ltd, a water utility company. It had cost $88,000 when purchased at the start of 2022. At the time of that investment, Aqua Ltd had net assets of $700,000 which increased to $950,000 by the end of that year. At the start of the current year, the investment was increased by a further 13% of the equity at a cost of $115,000.
(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) Analyze the effect on BrightStar Ltd's cash flows if Aqua Ltd pays a 5% dividend on its shares.
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