Banana Berhad is the parent of a listed group of companies which have a year end of 30 June 2021. Banana has made a number of acquisitions and disposals of investments during the current financial year and the directors require advice as to the correct accounting treatment of these acquisitions and disposals. a. Banana had purchased a 40% equity interest in Strawberry for RM18 million a number of years ago when the fair value of the identifiable net assets was RM44 million. Since acquisition, Banana had the right to appoint one of the five directors on the board of Strawberry. The investment has always been equity accounted for in the consolidated financial statements of Banana. Banana disposed of 75% of its 40% investment on 1 October 2021 for RM19 million when the fair values of the identifiable net assets of Strawberry were RM50 million. At that date, Banana lost its right to appoint one director to the board. Banana has stated that they have no intention to sell their remaining shares in Strawberry and wish to classify the remaining 10% interest as fair value through other comprehensive income in accordance with MFRS 9 Financial Instruments.

Required: Explain whether equity accounting was the appropriate treatment for Strawberry in the consolidated financial statements up to the date of its disposal. (6 marks)

b. Banana Berhad owns 45% of the voting shares in Orange Berhad. Orange has four other investors which own the remaining 55% of its voting shares and are all technology companies. The largest of these holdings is 18%. Orange is a property developer and build both residential and commercial properties. Banana has no expertise in this area and is not involved in the renovation or disposal of the property. The board of directors of Orange makes all of the major decisions but Banana can nominate up to four of the eight board members. Each of the remaining four board members are nominated by each of the other investors. Any major decisions require all board members to vote and for there to be a clear majority. Thus, Banana has effectively the power of veto on any major decision. There is no shareholder agreement as to how Orange should be operated or who will make the operating decisions for Orange. The directors of Banana believe that Banana has joint control over Orange because it is the major shareholder and holds the power of veto over major decisions.

Required: Explain whether Banana Berhad has joint control over Orange Berhad. (9 marks)