Question

Goodman Group is an Australian company reporting under a form of IFRS acceptable in Australia. Under IFRS, associate companies are those entities over whose financial and operating policies the consolidated entity exercises significant influence but not control (under
U.S. GAAP, these are referred to as “equity-method investments”). Joint ventures, or entities that are jointly controlled by the consolidated entity and another entity, are also accounted for using the equity method under both U.S. GAAP and IFRS.
The June 30, 2010, balance sheet for Goodman follows:


The equity investments (for instance, $2,071.4 for 2010) include both investments in joint
ventures and investments in associate companies. Information on these affiliated company
investments follows:

Joint ventures are often used by companies to purchase assets that the firm cannot afford to purchase on its own.

Required:
A. Using the balance sheet, compute the ratio of total liabilities to total assets.
B. Assume that instead of reporting only the net investment, the standards required the consolidated entity to reflect separately Goodman’s percentage of both assets and liabilities for its investment in joint ventures. Compute the ratio of total liabilities to total assets and comment.
C. Repeat part B, except assume that the standards required the consolidated entity to reflect separately Goodman’s percentage of both assets and liabilities for all equity investments. Compute the ratio of total liabilities to total assets and comment.
D. Assume that the equity investments in joint ventures are fully consolidated instead (typically, the ownership percentage is close to 50%). Compute the ratio of total liabilities to total assets. Compare your answer to part A, and comment.
E. Assume that all equity investments are fully consolidated. Compute the ratio of total liabilities to total assets. Compare your answer to parts A and B and C andcomment.


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  • CreatedMarch 13, 2015
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