24/02/2025, 15:55
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Question 1
a.Explaination of why Layout Co does not control Brassioc Co as at 31 December 20X7
In accordance with IFRS 10 Consolidated Financial Statements control is when an invester has power over
an investee and should have rights to variable returns .
On 1 January 20X7, Layout Co acquired 45% of the equity share capital in Brassioc Co on 1 January 20X7,
this is less than 50% of equity shares and does not give Layout Co power over Brassoic. Therefore Layout
Co does not control Brassioc Co as at 31 December 20X7.
Brassioc Co Board of directors has twelve exercutive directors which make all the key business decisions by
simple majority. Layout Co could only appoint five of the executive directors which is less than 50% of the
executive directors of of Brassoic Co therefore does not make any key business decisions
Brassioc Co has seven non executive directors which help in the strategic development of the company and
provide advice to the executive directors but cannot vote on business decisions .Layout Co could could
appoint four of these non executive directors , although this is more than 50% of the non executive directors
they can not make any business decisions thus Layout Co does not control Brassioc Co.
Layout Co entered into a forward contract during the year ended 31 December 20X7 to purchase an
additional 10% of the equity capital of Brassioc Co in October 20X8. If exercised this will give Layout Co a
total holding of 55% of the equity share capital in Brassoic Co , this is more than 50% and is supposed to
give Layout Co power of the overall decision making in Brassoic Co, but this will not be the case as this will
not change the number of directors which Layout Co can appoint.
Based on the above facts Layout Co does not control Brassioc Co as at 31 December 20X7.Therefore Layout
Co should not account for Brassioc Co as a subsidiary in its draft consolidated financial statements for the
year ended 31 December 20X7 but should use the equity method to account for Brassioc Co.
b.How the defined benefit plan should be accounted for in the year ended 31 December 20X7
Net interest component
This is an increase in the net pensions obligation .The interest rate on high quality corporate bonds was 5%
on 1 January 20x7 and this is used to calculate the net interest component.An amount of $1.2million (W1)
should be added to the net pensions obligation for the year ended 31 December 20x7
Past Service cost
The pension plan extinguished its obligation to 250 ex-employees by paying $60 million out of its plan assets
to another pension provider on 31December 20x7 this amount will increase the the net pension obligation in
the year ended 31 December 20X7.
The plan obligation was actually reduced by $50million not $60million which means that there was a gain
on settlement of $10million (W1)
Contributions paid
Contributions paid reduces the net obigation by $4 million for the year ended 31 December 20x7.
Remeasurent component
The remeasurement component is an excess asset of $37.2million (W1)and should be recognised in statement
of other comprehensive income for the year ended 31 December 20x7.
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24/02/2025, 15:55
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c.The pre-populated spreadsheet response option to correct the draft consolidated statement of
financial position as at 31 December 20X7
Answered on the spreadsheet.
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