Page 40 - CIMA MCS Workbook February 2019 - Day 1 Suggested Solutions

CIMA FEBRUARY 2019 – MANAGEMENT CASE STUDY

 power of the investor over the investee
 exposure or rights to variable returns in the investee
 ability to use power to affect the variable returns

In practical terms, control is normally demonstrated by one entity holding the majority of equity
shares in another. This enables the investor to control the membership of the board of directors
and, consequently, to control the strategic and operating policies of the investee. It will therefore
be in a position to exert power and receive the benefit of the variable returns generated by the
investee.

Application to Crowncare
It would appear that one or more subsidiaries was acquired during 2018 as the carrying amount of
goodwill increased during 2018 as previously noted. It would appear that all subsidiaries are
wholly‐owned as there is no disclosure of non‐controlling interests in the financial statements of
Crowncare.

How are any acquisitions financed or purchased? There was an increase in share capital and share
premium in 2018 and the case material states that new practices/subsidiaries are acquired by a
share‐for‐share exchange. If acquisition(s) are achieved via a share exchange, this may lead to a
dilution of ownership and potentially control exercised by Crowncare’s current shareholders.

Group accounting issues ‐ IFRS 11 Joint arrangements

IFRS 11 defines a joint arrangement as an arrangement of which two or more parties have joint
control. Joint control is defined as the contractually agreed sharing of control of an arrangement,
which requires unanimous consent of the parties to the joint arrangement.

There are two forms of joint arrangement as follows:

 joint operation ‐ a joint arrangement operation whereby the parties to the arrangement
have rights to the assets and obligations for the liabilities. A separate entity or vehicle is not
established for a joint operation.
 joint venture – a joint arrangement whereby the parties to the arrangement have rights to
the net assets of the arrangement. A separate entity or vehicle is established for a joint
venture.

Application to Crowncare
Although Crowncare does not yet have any investments which have been classified as joint
arrangements, it is possible or feasible that it may do so at some later date.

For example, it could enter into a practice‐sharing arrangement and agree to split costs and
revenues on an agreed basis. This could be appropriate to a practice, which is seeking support to
provide an extended range of dental and related cosmetic services, which it currently does not
provide.

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