| ACC302: Advanced Financial Reporting |
S Ltd and T Ltd were incorporated in Singapore in January 20×8. They adopt Singapore Financial Reporting Standards and present yearly financial statements with 31 December year-end.
S Ltd acquired 50% interest in T Ltd on 31 December 20×8.
The financial statements of S Ltd and T Ltd for the year 20×8 are as follows:
- Statements of financial position as of 31 December20x8
| S Ltd | T Ltd | |
| $’000 | $’000 | |
| Land | 1,000 | 1,000 |
| Investment in T Ltd, at cost | 100 | – |
| 1,100 | 1,000 | |
| Share capital | 200 | 100 |
| Retained profit | 400 | 100 |
| Long term loan | 500 | 800 |
| 1,100 | 1,000 |
- Statements of profit or loss and other comprehensive income (partial) for the year ended 31 December 20×8
| S Ltd | T Ltd | |
| $’000 | $’000 | |
| Revenue | 800 | 200 |
| Less expenses | 300 | 70 |
| Profit before tax | 500 | 130 |
| Less tax | 100 | 30 |
| Profit after tax | 400 | 100 |
Assume that S Ltd is permitted to account for T Ltd either as a subsidiary or as an associate. The management of S Ltd is seeking your view as to whether it is more advantageous from the viewpoint of accounting consequences to account for T Ltd as a subsidiary or as an associate.
Required:
Prepare a report to advise the management of S Ltd whether T Ltd should be accounted for as a subsidiary or as an associate, from the viewpoint of accounting consequences. Support your advice with S Ltd’s 20×8 consolidated statement of financial position (where T Ltd is accounted for as a subsidiary), and S Ltd’s 20×8 statement of financial position (where T Ltd is accounted for as an associate), and the related financial analysis. (Consolidation journal entries and worksheets are not required.
