TC Corporation (TC) is a manufacturer of recreational vehicle (RV) parts. TC is a public company and prepares its financial statements in accordance with IFRS. On January 1, 2023, TC acquired in separate transactions a 60% controlling interest in PTL Limited (PTL), a 25% interest in Arthur Company (Arthur), and 1,000 shares of Hazy Corporation (Hazy). This is the first time TC has made any equity investments, so the CFO is unfamiliar with the IFRS accounting (reporting) requirements.

With the exception of Hazy, they all manufacture similar products, but they do not compete with each other. TC acquired the shares of Hazy as a short-term, non-strategic investment with the expectation that the shares would be sold within one year. The cash from the sale is to be used for the acquisition of components needed for parts being manufactured for the new 2024 RV models.

You, CPA, were recently hired as the manager of financial reporting for TC to replace the previous manager who is on extended leave. In your first week, TC's CFO has asked you to review the extracts from the preliminary consolidated financial statements along with the single entity statements for TC, PTL and Arthur and provide comments to the CFO on any issues you note. Extracts from these statements are summarized in an Excel spreadsheet. You have also been supplied with the balance sheets for all three entities just prior to the acquisition date (i.e., December 31, 2022)

Professionally prepared appraisal reports have been obtained to support the fair values of the net assets of both PTL and Arthur. You were able to obtain the following additional information from TC's accounting team:

1. TC financed the acquisition of the 60,000 (60%) voting common shares of PTL with a bank loan. The fair value of the shares was $6,000,000. The PTL shares were trading for $90.25 in the few days prior to the acquisition and a few days after the acquisition. TC paid a premium of $9.75 per share ($585,000 in total) to gain control of PTL.

2.TC acquired the 25% (25,000 voting common shares) interest in Arthur for a cash payment of $325,000. TC's management has indicated that the investment in Arthur was a good opportunity to gain synergies in the RV parts market.

3. The common shares of Hazy were acquired for $75,000.

4. On December 31, 2023, the shares of PTL, Arthur and Hazy were trading at $125, $11, and $85 per share, respectively.

5. When TC acquired PTL, the plant and equipment had a remaining useful life of 10- years and the note payable matured on December 31, 2030.

6. During 2023, Arthur sold goods to TC in numerous intercompany transactions for a total of $2,100,000. The gross profit on intercompany sales is 25% otherwise it is 35%. TC sold 70% of these goods to unrelated third parties as of December 31, 2023.

7. On December 1, 2023, TC sold land to PTL for $320,000. In 2025, PTL intends to begin construction of a facility closer to that of TC's. The land was acquired by TC in 2015 for $175,000. PTL still owned this land on December 31, 2023.

8. There were no goodwill impairment losses in 2023.

9. TC, PTL and Arthur pay income tax at the rate of 40%.

The CFO has sent you an email:

REQUIRED: Based on the information provided in the case, prepare comments for the CFO of TC Corporation. The following should be included in the comments:

1. A detailed explanation of the important financial accounting issues of TC, PTL, Arthur, and the nonstrategic investment in Hazy. Provide the appropriate recommendations based on the information that is available to you and the necessary IFRS reporting requirements to support your decision or recommendation.

For example, if you determine Arthur is an associate (or not), provide your reasons based on the information provided in the assignment and the indicators used to determine when significant influence does or does not exist. Once you have made your fully supported determination, comment on the appropriate method of reporting TC's investment in Arthur. Your recommendation will affect the recalculated account balances.

The return on asset ratio is closely monitored by TC's shareholders. Accordingly, the management of TC would like to minimize the value assigned to goodwill on consolidation. Your comments for the CFO will include a recommendation of what method of consolidation will achieve that objective. Please provide all necessary supporting calculations including calculations of the noncontrolling interest.

2. Recalculated account balances for the consolidated financial statements including supporting calculations for:

The goodwill and NCI at acquisition date (January 1, 2023) (i.e., step 1).

The changes to AD. (i.e., step 2). The investment account balance for the investment in Arthur as at December 31, 2023. The non-controlling interest for the consolidated balance sheet at December 31, 2023 (i.e., step 8).

The calculation of consolidated net income for 2023 (i.e., step 6).

The calculation of consolidated net income attributable to NCI for 2023 (i.e., step 6A).

The calculation of consolidated net income - ATP for 2023 (i.e., step 6B).