Extracts from the financial statements of AZ, B and C are presented below.

Additional information:

1.  AZ acquired 80 per cent of the equity share capital of B on 1 January 20X2 when the retained earnings of B were $23 million and the balance on B’s other reserves was nil. This acquisition resulted in AZ having power over B and AZ used that power to affect its return from the investment. B has not issued any shares since the acquisition date. The non-controlling interest in B was measured at fair value at the date of acquisition. The fair value of one equity share in B was $2.25 on 1 January 20X2.

2.  B acquired 75 per cent of the equity share capital of C on 1 January 20X4 when the retained earnings of C were $8 million and the balance on C’s other reserves was nil. This acquisition resulted in B having power over C and B used that power to affect its return from the investment. C has not issued any shares since the acquisition date. The non-controlling interest in C was measured at fair value at the date of acquisition. The fair value of one equity share in C was $1.60 on 1 January 20X4.

3. AZ conducted its annual impairment review and concluded that the goodwill on the acquisition of B was impaired by 20 per cent at 31 December 20X5. No other impairments of goodwill have arisen.

4. The balance on ‘other reserves’ for both AZ and B relate to movements in the values of their investments in B and C respectively.

Required:

(a) Explain how the investments in B and C are accounted for in: 

(i) the individual financial statements of AZ and B 

(ii) the consolidated financial statements of the AZ Group.

(b) Prepare the consolidated statement of financial position for the AZ Group as at 31 December 20X5.

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Statement of financial position as at 31 December 20X5 Assets Non-current assets Property, plant and equipment Investment in B Investment in C Current assets Total assets Equity and liabilities Equity attributable to owners of the parent Share capital ($1 equity shares) Share premium Other reserves Retained earnings Total equity Non-current liabilities Current liabilities Total liabilities Total equity and liabilities AZ $m 70 68 138 29 167 50 20 3 59 132 15 20 35 167 B $m 44 38 82 24 106 40 10 2 30 82 8 16 24 106 186N 1888 $m 55 30 55 14 69 5 69 C 23 58