Question 1 Pitaya Ltd has acquired 45% of ordinary shares in Santol Ltd. Another investor has a 10% shareholding in Santal Ltd whilst the remaining voting rights are held by thousands of shareholders, none of whom individually hold more than 1% of the voting rights. Pitaya Ltd holds convertible debt instrument that, as at 30 June 2022, are convertible into ordinary shares of Santol Ltd at a price of $ 10 per share. At 30 June 2022, the shares of Santol Ltd trade at $ 9.80 per share. Pitaya Ltd would hold 65% of the voting rights in Santol Ltd if Pitaya Ltd exercise its right to convert the debt. Both companies operate in Santol industries and would benefit from synergies.

Discuss how Pitaya Ltds investment in the ordinary shares of Santol Ltd should be treated in the consolidated financial statements for the year ended 30 June 2022. [ 10 Marks]