On November 1 20X6,a Parent Entity Helios Ltd Acquired 25

question 31

Multiple Choice

On November 1 20X6,a parent entity Helios Ltd acquired 25% (500,000 shares) of the share capital of Havers Ltd and the power to significantly influence the operating and financial policies of that company for $4,000,000 cash.In the period from the date of acquisition to June 30 20X7,Havers Ltd earned a profit for the period of $500,000 (after tax of $200,000) and declared a dividend of $100,000.At June 30 20X7,Helios Ltd recognised its equity in the dividend.At June 30 20X7,the quoted market value of the shares in Havers was $10 per share.At June 30 20X7,in the separate balance sheet of Helios Ltd and in the consolidated balance sheet of the group controlled by Helios Ltd,the investment in Havers Ltd would be reported as:

• A) $4,000,000 and $4,100,000 respectively.
• B) $5,000,000 and $4,100,000 respectively.
• C) $5,000,000 and $5,100,000 respectively.
• D) None of the above.

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Definitions:

Compensating Balance

A minimum account balance that a borrower must maintain as a condition for a bank loan, often to compensate the bank for extending credit.

Interest Rate

Interest Rate is the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Effective Annual Interest Rate

The real return on an investment after accounting for the effect of compounding interest over a period.

Inventory Period

The average time it takes for inventory to be sold and replaced over a period, indicating the efficiency of a company's inventory management.