Question 4 25 Marks The Finance Director has set up a company, River, through which Zoom...
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Question 4 25 Marks The Finance Director has set up a company, River, through which Zoom conducts its investment activities. Zoomhas paid R400 million to River during the year and this has been included in dividends paid. The money was invested in a specified portfolio of investments. Ninety-five per cent of the profits and one hundred per cent of the losses in the specified portfolio of investments are transferred to Zoom. An investment manager has charge of the company's investments and owns all of the share capital of River. An agreement between the investment manager and zoom sets out the operating guidelines and prohibits the investment manager from obtaining access to the investments for the manager's benefit. An annual transfer of the profit/loss will occur on 30 June annually and the capital will be returned in four years' time. The transfer of R400 million cash occurred on 1 January 20X6 but no transfer of profit/loss has yet occurred. The statement of financial position of River on 30 June 20X6 is as follows: (a) RIVER: STATEMENT OF FINANCIAL POSITION AT 30 JUNE 20X6 Investment at fair value through profit or loss (b) Share capital Retained earnings Rm 390 390 400 It is the group's policy to value the non-controlling interest at its proportionate share of the fair value of the subsidiary's identifiable net assets. Required (10) 390 Discuss the issues which would determine whether River should be consolidated by Zoom in the group financial statements. (explain elements of control) 15 Marks Discuss briefly the importance of ethical behaviour in the preparation of financial statements and whether the creation of River could constitute unethical practice by the finance director of Zambeze.(10 marks Question 4 25 Marks The Finance Director has set up a company, River, through which Zoom conducts its investment activities. Zoomhas paid R400 million to River during the year and this has been included in dividends paid. The money was invested in a specified portfolio of investments. Ninety-five per cent of the profits and one hundred per cent of the losses in the specified portfolio of investments are transferred to Zoom. An investment manager has charge of the company's investments and owns all of the share capital of River. An agreement between the investment manager and zoom sets out the operating guidelines and prohibits the investment manager from obtaining access to the investments for the manager's benefit. An annual transfer of the profit/loss will occur on 30 June annually and the capital will be returned in four years' time. The transfer of R400 million cash occurred on 1 January 20X6 but no transfer of profit/loss has yet occurred. The statement of financial position of River on 30 June 20X6 is as follows: (a) RIVER: STATEMENT OF FINANCIAL POSITION AT 30 JUNE 20X6 Investment at fair value through profit or loss (b) Share capital Retained earnings Rm 390 390 400 It is the group's policy to value the non-controlling interest at its proportionate share of the fair value of the subsidiary's identifiable net assets. Required (10) 390 Discuss the issues which would determine whether River should be consolidated by Zoom in the group financial statements. (explain elements of control) 15 Marks Discuss briefly the importance of ethical behaviour in the preparation of financial statements and whether the creation of River could constitute unethical practice by the finance director of Zambeze.(10 marks
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Answer a The issues which would determine whether River should be consolidated by Zoom in the group financial statements are as follows The finance director has set up a company River through which Zo... View the full answer
Related Book For
Concepts in Federal Taxation 2017
ISBN: 9781305965119
24th edition
Authors: Kevin E. Murphy, Mark Higgins
Posted Date:
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