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What are the accounting requirements for each option

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Reference no: EM133184359

Question - Tally Ltd is a medium-sized Australian retailing company that was registered as a proprietary company until 31 December 2021 when it changed to a public company and listed its shares on the Australian Securities Exchange (ASX). It is March 2022 and the senior management of Tally Ltd are currently evaluating an investment in Zeus Ltd. Any investment in Zeus Ltd would occur on 1 July 2022.

A financial analyst was employed to analyse Zeus Ltd. The financial analyst has made the following projections:

On 1 July 2022, Zeus Ltd is projected to have assets of $3 million and liabilities of $1 million. The financial analyst believes that many of Zeus Ltd's assets are carried at amounts well below their fair values whilst all liabilities are carried at fair value.

Zeus Ltd has no unrecorded liabilities and only one unrecorded asset. This asset is a brand name that currently has an estimated fair value of $150,000. Tally Ltd would like very much to obtain this brand name. However, previous offers to purchase it were unsuccessful.

Total comprehensive income for the year ending 30 June 2023 is projected to be $500,000. Of this amount, $300,000 would be net profit whilst $200,000 would be other comprehensive income.

During the year ending 30 June 2023, Zeus Ltd is projected to purchase approximately $150,000 of inventory from Tally Ltd and sell $50,000 of non-current assets to Tally Ltd. In addition, Zeus Ltd is expected to pay a dividend of 5 cents per share.

During the year ending 30 June 2022, Tally Ltd made a $30,000 loan to Zeus Ltd. The loan term is five years, and the interest rate is 5%.

The investment options are as follows:

Option 1: purchase 30% of the issued shares of Zeus Ltd on 1 July 2022. This would require the purchase of 90,000 shares at a projected price of $15 each.

Option 2: purchase 80% of the issued shares of Zeus Ltd on 1 July 2022. This would require the purchase of 240,000 shares at a projected price of $15 each.

Required -

1. What are the accounting requirements for each option (based on Australian Accounting Standards Board)?

2. How would the profit of Zeus be recognised by Tally in financial statements for both options?

3. Would the either options give Tally control over the brand name owned by Zeus?

Reference no: EM133184359

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