Page 43 - CIMA May 18 - MCS Day 1 Suggested Solution

SUGGESTED SOLUTIONS

Application to Menta
It would appear that one or more subsidiaries were acquired during 2017 as goodwill increased
during the year as previously noted. It would appear that all subsidiaries are wholly‐owned as
there is no disclosure of non‐controlling interests.

How are any acquisitions financed or purchased? There was an increase in share capital and share
premium in 2017 and it may be that any acquisition was achieved via a share‐for‐share exchange
in the year. If acquisition(s) were achieved via a share issue, this may lead to a dilution of
ownership and ultimately control of the Whiteford brothers if they retain a controlling interest in
Menta.

It would appear that operating activities are quite segregated as each operating unit has its own
resources, assets and staff. Consequently, there may be very little activity in terms on intra‐group
sales and unrealised profits arising on transactions between operating units and/or subsidiaries
which would need to be cancelled and eliminated when preparing the consolidated financial
statements.

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 Menta
Although Menta 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 route sharing agreement with another bus company and agree
to split costs and revenues on an agreed basis. This could be appropriate to the operation of inter‐
city bus services, although it could also be done for city or rural bus routes.

A joint arrangement may also be applicable if Menta was to collaborate with one or more other
bus companies into research to improve bus transport. This could be e.g. to improve passenger
safety, fuel efficiency or to minimise environmental damage resulting from the operation of bus
services.

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