Zimt AG is a consumer products manufacturer headquartered in Austria. It complies with IFRS.
In 2008, Zimt held a 10 percent passive stake in Oxbow Limited that was classified as held-for-trading securities. During the year, the value of this stake declined by 3 million.
In December 2008, Zimt announced that it would be increasing its ownership to 50 percent effective 1 January 2009.
Franz Gelblum, an analyst following both Zimt and Oxbow, is curious how the increased stake will affect Zimt’s consolidated financial statements. Because Gelblum is uncertain how the company will account for the increased stake, he uses his existing forecasts for both companies’ financial statements to compare various alternative outcomes.
Gelblum gathers abbreviated financial statement data for Zimt (Exhibit 15-9) and Oxbow (Exhibit 15-10) for this purpose.
EXHIBIT 15-9 Selected Financial Statement Estimates for Zimt AG ( millions)
|
Year ending 31 December |
2008 |
2009 |
|
Revenue |
1,500 |
1,700 |
|
operating income |
135 |
153 |
|
Net income |
66 |
75 |
|
Total assets |
1,254 |
1,421 |
|
Shareholders” equity |
660 |
735 |
EXHIBIT 15-10 Selected Financial Statement Estimates for Oxbow Limited ( millions)
|
Year ending 31 December |
2008 |
2009 |
|
Revenue |
1,200 |
1,350 |
|
operating income |
120 |
135 |
|
Net income |
60 |
68 |
|
Dividend paid |
20 |
22 |
|
Total assets |
1,200 |
1,283 |
|
Shareholders” equity |
660 |
706 |
On 31 December 2009, Zimt’s total assets balance would most likely be
a. highest if Zimt is deemed to have control of Oxbow.
b. highest if Zimt is deemed to have significant influence over Oxbow.
c. unaffected by the accounting method used for the investment in Oxbow.