Johnston plc bought a 30% stake in Cameron several years ago when Cameron had reserves of 50m and when the fair value of its fixed assets was estimated to be 30m greater than their net book value. Since then Johnston has had a representative on the board of directors of Cameron and has been involved in its management policies. However it is not considered that Johnston controls the financial and operating policies of Cameron. Johnston also has a 50% stake in Menzies, a joint venture entity in which the Bell group of companies also has a 50% stake. Johnston and Bell exercise control over Menzies jointly. Johnston purchased its stake in Menzies when Menziess reserves were 130m and when the fair value of its net assets was estimated to be the same as their book value. There have been no issues of shares by either Cameron or Menzies since the investments made by Johnston. The respective balance sheets of the companies at 30 September 20X6 are as follows.

(a) Produce a consolidated balance sheet for Johnston Group as at 30 September 20X6 consistent with international accounting standards.

(b) Explain the logic of the accounting treatment of both Cameron and Menzies mandated by international accounting standards.

(c) Discuss why the merger accounting (uniting of interests) method of consolidation was popular in the past with company managers and explain the action which accounting standard setters have found it necessary to take in connection with its use.

Johnston m 600 100 Cameron m 210 Menzies m 200 Property, Plant& Equipment Investment in Cameron Investment in Menzies 90 Stock Debtors 100 40 60 70 60 30 Bank 20 180 50 Creditors within 1 year 50 120 130 90 920 120 800 40 170 30 20 240 150 350 Creditors more than 1 year 240 350 60 Share Capital (1) Share Premium Reserves (P&L) 400 40 360 800 50 120 70 240 290 350