Epsilon acquired 40% of Zeta when Zeta’s retained earnings were $50,000, 25% of Kappa when…

Epsilon acquired 40% of Zeta when Zeta’s retained earnings were $50,000, 25% of Kappa when Kappa’s retained earnings were $40,000, and 25% of Lambda when Lambda’s retained earnings were $50,000.

The four companies’ statements of financial position as at 31 October 2011 were as follows:

Epsilon is entitled to appoint three members of Zeta’s board. Zeta’s articles state that the board of directors is restricted to five members and that board decisions are binding whenever a simple majority of the directors agree.

Epsilon used its voting rights to secure a place on Kappa’s board for one of its own directors. This director has access to internal management reports and can exert some influence on decision making within the company.

Epsilon does not have a representative on the board of Lambda. The directors of Epsilon attempted to secure a place on the board, but were rebuffed by Ms Strong, who owns 75% of the shares. Ms Strong takes a very direct role in the management of Lambda.

Required:

(a) Discuss how each of Epsilon shareholdings should be accounted for in the Epsilon group’s consolidated financial statements.

(b) Prepare a consolidated statement of financial position for the Epsilon Group as at 31 October 2011.

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