Question
Case 2 Green Field Co controls a group of companies that operates within the manufacturing sector. It prepares financial statements as at 31 December 2022.
Case 2
Green Field Co controls a group of companies that operates within the manufacturing sector. It prepares financial statements as at 31 December 2022. Several years ago, Green Field Co acquired control of:
- Elsa Co, by acquiring 80% of its shares.
- Buddy Co, an overseas subsidiary, by acquiring 70% of its shares.
- Zippy Co, by acquiring 90% of its shares.
During the year, Green Field sold shares in these three companies. Details are provided below.
- Sale of shares in Zippy Co.
Green Field Co. sold half of its equity interest in Zippy Co, retaining a 45% holding in Zippy. The other shares in Zippy are held by unconnected investors, with no single investor holding more than 6%. There are no agreements between different shareholder groups to act together and they have no desire to do so.
Required:
Prepare an explanatory note to the directors of Green Field Co. to address the following issues.
Explain with supporting calculations how each of the following transactions should be accounted for in the consolidated financial statements of Green Field Co for the year ended 31 December 2022.
Discuss whether Green Field Co should account for Zippy as a subsidiary or as an associate following the sale of the equity in Zippo
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