Question 1

SECTION A

Voltaria Group is a cross-border multinational public utility company specializing in renewable energy infrastructure. Voltaria's functional and presentation currency is the Dollar ($).

On 1 January 20X4, Voltaria acquired a 60% controlling interest in Solarnet, a foreign entity operating in a jurisdiction where the local currency is the Dinaro (D). The acquisition was accounted for correctly, with goodwill calculated using the proportionate share of net assets method.

On 30 June 20X6, Voltaria acquired the remaining 40% of the equity shares in Solarnet for D150 million in cash. At this date, the carrying amount of Solarnet's identifiable net assets in its individual financial statements was D300 million. The carrying amount of the non-controlling interest (NCI) in the consolidated financial statements of Voltaria just prior to this transaction was $45 million.

Exchange rates are as follows:
- 1 January 20X4: $1 = D1.5
- 30 June 20X6: $1 = D2.0
- 31 December 20X6: $1 = D2.2
- Average rate for the year ended 31 December 20X6: $1 = D2.1

Additionally, during the year ended 31 December 20X6, Voltaria entered into a joint arrangement to construct a cross-border wind farm. Voltaria and its partner each have a 50% interest. The arrangement is structured through a separate vehicle, but the contractual terms dictate that Voltaria and its partner have direct rights to the assets and obligations for the liabilities relating to the arrangement in proportion to their ownership.

Required:

(a) Explain, with supporting calculations, how the acquisition of the remaining 40% of Solarnet on 30 June 20X6 should be accounted for in the consolidated financial statements of Voltaria Group for the year ended 31 December 20X6. (12 marks)

(b) Discuss the principles of IAS 21 'The Effects of Changes in Foreign Exchange Rates' regarding the translation of Solarnet's results and net assets, and calculate the exchange difference arising on the translation of Solarnet's net assets for the year ended 31 December 20X6. (10 marks)

(c) Advise the directors of Voltaria on the appropriate classification and accounting treatment of the joint arrangement for the wind farm under IFRS 11 'Joint Arrangements'. (8 marks)

Accepted Answer

For part (a), recognize that this is a transaction between owners. Calculate the consideration in the parent's currency, compare it to the NCI carrying amount, and post the difference to equity. For part (b), apply IAS 21 rules: closing rate for balance sheet, average rate for P&L, and put differences to OCI. For part (c), apply the IFRS 11 classification test: separate vehicle usually means joint venture, but contractual terms overriding it means joint operation.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Students often try to calculate new goodwill on the step acquisition of the remaining 40%. This is incorrect under IFRS 10. Another common mistake is classifying the joint arrangement as a joint venture simply because there is a separate vehicle, ignoring the contractual terms.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA SBR — Strategic Business Reporting Practice Exam 3

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