Enron Corporation's 2000 financial statements disclosed the following transaction with LIM2, a non-consolidated special purpose entity (SPE) that was formed by Enron:

In June 2000, LIM2 purchased dark fibre optic cable from Enron for a purchase price of $100 million. LIM2 paid Enron $30 million in cash and the balance in an interest-bearing note for $70 million. Enron recognized $67 million in pre-tax earnings in 2000 related to the asset sale.

Investigators later discovered that LIM2 was in many ways controlled by Enron. In the wake of the bankruptcy of Enron, both American and Canadian standard-setters introduced accounting standards that require the consolidation of SPEs that are essentially controlled by their sponsor firm.

By selling goods to SPEs that it controlled but did not consolidate, did Enron overstate its

earnings?

Required:

a) If Enron controlled LIM2, how they reported the profit of $67,000. And how this will impact in consolidted financial statements (Inter-company profits).

b) Read IAS 28 guidelines and is related with the question.

c) Look at IAS 24 guidelines and is related with the question.