Refer to the information in P5.2.

Required

1. If Jewel could legitimately structure the relationship with Opal such that it could equity account rather than consolidate Opal’s financial statements, what would be the reported balance in the investment in Opal account as of 31 December 20x2 ?

2. Advise Jewel on whether, and how, investors may differ in their perceptions of the risk and value of the economic entity as a result of the different information presented under equity as compared with consolidation for group reporting.

Data from P5.2

The financial statements of Jewel Ltd and its subsidiary Opal Ltd are shown below:

Additional information

(a) 

(b) 

(c) 

(d) Taxation rate was 20%. Tax effects are to be considered wherever appropriate.

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Income Statement and Partial Statement of Changes in Equity For the Year Ended 31 December 20x2 Jewel Ltd $10,000,000 $ 1,000,000 23,400 $ 1,023,400 Sales... Operating profit.. Dividend income from Opal. Profit before tax.. Tax..... Profit after tax. Retained earnings, 1 January 20x2.. Dividends declared. Retained earnings, 31 December 20x2... (220,000) $ 803,400 2,050,000 (100,000) $ 2,753,400 Opal Ltd $3,300,000 $ 160,000 $ 160,000 (35,200) $ 124,800 210,000 (29,250) $ 305,550