Applying the principles of control in IFRS 10 Consolidated Financial Statements, you are required to consider whether certain investments in Newcastle plc are subsidiaries: a) Newcastle plc owns 45% of the voting shares of Hull Ltd b) Newcastle plc owns 60% of the voting shares of Bradford Ltd and Bradford owns 30% of the voting shares of Reading Ltd. Recently, Newcastle plc purchased 70% of the voting shares of Coventry Ltd. Coventry Ltd owns 30% of the voting shares of Reading Ltd. The accountant of Newcastle plc believes that Dery Ltd. is not a subsidiary of Newcastle, as Newcastle effectively owns only 39% of the shares of Reading - 60% x 30% = 18% through Bradford and 70% x 30% = 21% through Coventry. c) Recently, Newcastle plc purchased 60% of the ordinary shares of Sunderland plc. Prior to the purchase, Sunderland plc had in issue 6,000,000 ‘A’ shares of £1 each. Each ‘A’ share carries a single vote. These shares were owned equally by each of the directors of Sunderland plc. For the purchase, the directors of Sunderland plc sold 2,000,000 ‘A’ shares to Newcastle plc, and Sunderland plc issued 4,000,000 ‘B’ shares of £1 each to Newcastle plc. ‘B’ shares do not carry a vote. Required: Consider and, where appropriate, discuss whether the following companies are subsidiaries of Newcastle plc: A. Hull Ltd B. Reading Ltd C. Sunderland plc

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Applying the principles of control in IFRS 10 Consolidated Financial Statements,

you are required to consider whether certain investments in Newcastle plc are subsidiaries:

a) Newcastle plc owns 45% of the voting shares of Hull Ltd
b) Newcastle plc owns 60% of the voting shares of Bradford Ltd and Bradford owns 30% of the voting shares of Reading Ltd. Recently, Newcastle plc purchased 70% of the voting shares of Coventry Ltd. Coventry Ltd owns 30% of the voting shares of Reading Ltd. The accountant of Newcastle plc believes that Dery Ltd. is not a subsidiary of Newcastle, as Newcastle effectively owns only 39% of the shares of Reading - 60% x 30% = 18% through Bradford and 70% x 30% = 21% through Coventry.
c) Recently, Newcastle plc purchased 60% of the ordinary shares of Sunderland plc. Prior to the purchase, Sunderland plc had in issue 6,000,000 ‘A’ shares of £1 each. Each ‘A’ share carries a single vote. These shares were owned equally by each of the directors of Sunderland plc. For the purchase, the directors of Sunderland plc sold 2,000,000 ‘A’ shares to Newcastle plc, and Sunderland plc issued 4,000,000 ‘B’ shares of £1 each to Newcastle plc. ‘B’ shares do not carry a vote.

Required: Consider and, where appropriate, discuss whether the following companies are subsidiaries of Newcastle plc: A. Hull Ltd B. Reading Ltd C. Sunderland plc

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