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Epsilon acquired 40% of Zeta when Zetas retained earnings were $50,000, 25% of Kappa when Kappas retained earnings were $40,000, and 25% of Lambda when

Epsilon acquired 40% of Zeta when Zetas retained earnings were $50,000, 25% of Kappa when Kappas retained earnings were $40,000, and 25% of Lambda when Lambdas retained earnings were $50,000. The four companies statements of financial position as at 31 October 2011 were as follows:

Epsilon $000

Zeta $000

Kappa $000 Lambda $000

ASSETS Non-current assets 1,900 170 140 160 Investment in Zeta 100 Investment in Kappa 55 Investment in Lambda 60 ___ ___ ___ 2,115 170 140 160

Current assets: Inventory 8 6 12 11 Trade receivables 12 5 4 7 Bank 5 4 3 2 25 15 19 20 Total assets 2,140 185 159 180 LIABILITIES Equity: Share capital 500 50 60 70 Reserves 1,563 124 91 98 2,063 174 151 168

Non-current liabilities 50 Current liabilities: Trade payables 27 11 8 12 2,140 185 159 180

Epsilon is entitled to appoint three members of Zetas board. Zetas articles state that the board of direct- ors is restricted to five members and that board decisions are binding whenever a simple majority of the

directors agree.

Epsilon used its voting rights to secure a place on Kappas board for one of its own directors. This direct- or has access to internal management reports and can exert some influence on decision making within

the company. Epsilon does not have a representative on the board of Lambda. The directors of Epsilon attempted to secure a place on the board, but were rebuffed by Ms Strong, who owns 75% of the shares. Ms Strong takes a very direct role in the management of Lambda. Required: (a) Discuss how each of Epsilon shareholdings should be accounted for in the Epsilon groups consolidated financial statements. (b) Prepare a consolidated statement of financial position for the Epsilon Group as at 31 October 2011.

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