Page 279 - SBR Integrated Workbook STUDENT S18-J19

Group accounting – Basic groups

Example 10

Joint arrangements

Music works closely with a number of other companies. On 1 January 20X1,
Music, Lullaby and Racket established a new entity called Rhythm for nil
purchase consideration. Music has 50 percent of the voting rights in the new
entity, Lullaby has 30 percent and Racket has 20 percent. The contractual
arrangement between Music, Lullaby and Racket specifies that at least 75
percent of the voting rights are required to make decisions about the relevant
activities of Rhythm.

Rhythm is liable for its own debts and obligations. It made a profit of $10
million in the year ended 31 December 20X1.

The directors of Music require advice as to how they should account for
the investment in Rhythm in the consolidated financial statements for
the year ended 31 December 20X1.

273