Group Accounts and Consolidation

SECTION A AeroVentures Group (AV) is a multinational entity operating in the renewable energy sector. AV prepares its consolidated financial statements in US Dollars ($) to 31 December 20X5. On 1 January 20X4, AV acquired 60% of the equity shares of BreezeCo, a wind-farm operator located in a foreign country whose functional currency is the Krone (KR). At the date of acquisition, AV recognized goodwill and measured the non-controlling interest (NCI) at fair value. On 1 July 20X5, AV acquired a further 20% of the equity shares of BreezeCo for a cash consideration of $45 million. At this date, the carrying amount of BreezeCo's net assets in the consolidated financial statements was $150 million, and the carrying amount of the NCI was $62 million. Separately, on 1 October 20X5, AV entered into a joint arrangement, 'SolarGrid', with another entity to construct and operate a large-scale solar power plant. AV and the other entity each hold a 50% voting right. The arrangement is structured through a separate vehicle. The legal form of the vehicle separates the obligations and assets of the vehicle from the parties. However, the contractual terms stipulate that AV and the other party are obligated to purchase 100% of the power generated by SolarGrid in proportion to their shareholdings, and SolarGrid cannot sell power to third parties. Required: (a) Explain, with supporting calculations, how the acquisition of the further 20% interest in BreezeCo should be accounted for in the consolidated financial statements of AV for the year ended 31 December 20X5. (12 marks) (b) Discuss the principles under IAS 21 'The Effects of Changes in Foreign Exchange Rates' for translating the results and financial position of BreezeCo from Krone (KR) into US Dollars ($), including the specific treatment of goodwill arising on acquisition. (10 marks) (c) Advise the directors of AV on how to determine whether the 'SolarGrid' arrangement should be classified as a joint operation or a joint venture under IFRS 11 'Joint Arrangements', and how it should be accounted for based on the specific facts provided. (8 marks)