ACCT19061 Advanced Financial Accounting

Question 1
Angela Kirk, the newly appointed Chief Executive Officer of Wakefield Ltd, is considering an investment in the shares of Hobson Ltd. Over the past five years, Hobson Ltd has been very profitable and profits are expected to increase over the next three to four years. The investment would involve purchasing between 5% and 70% of Hobson Ltd’s issued shares. Each share carries one vote at the companies general meeting. Because Angela Kirk is unfamiliar with these types of investments, she has requested some information about the applicable accounting requirements from you.
Draft a memorandum that explains the accounting requirements for the proposed investment. You should also explain, depending on how the investment is accounted for, how the profit of Hobson Ltd would be recognised in Wakefield Ltd’s financial statements


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