BetterCare Hospitals, Inc. operates a chain of hospitals throughout the United States. Th ecompany has been expanding by acquiring local hospitals. Its largest acquisition, that of Statewide Medical, was made in 2001 under the pooling of interests method. BetterCare complieswith US GAAP.BetterCare is currently forming a 50/50 joint venture with Supreme Healthcare underwhich the companies will share control of several hospitals. BetterCare plans to use the equitymethod to account for the joint venture. Supreme Healthcare complies with IFRS and will usethe proportionate consolidation method to account for the joint venture.Erik Ohalin is an equity analyst who covers both companies. He has estimated the jointventure’s fi nancial information for 2010 in order to prepare his estimates of each company’searnings and fi nancial performance. Th is information is presented in Exhibit 1. EXHIBIT 1 Selected Financial StatementForecasts for Joint Venture ($ Millions)Year ending 31 December 2010Revenue 1,430Operating income 128Net income 6231 December 2010Total assets 1,500Shareholders’ equity 740Supreme Healthcare recently announced it had formed a special purpose entity throughwhich it plans to sell up to $100 million of its accounts receivable. Supreme Healthcare hasno voting interest in the SPE, but it is expected to absorb any losses that it may incur. Ohalinwants to estimate the impact this will have on Supreme Healthcare’s consolidated fi nancialstatements.23 . Based on Ohalin’s estimates, the amount of joint venture shareholders’ equity at31 December 2010 included on the consolidated fi nancial statements of each venturerwill most likely be:A . higher for BetterCare.B . higher for Supreme Healthcare.C . the same for both BetterCare and Supreme Healthcare.
BetterCare Hospitals, Inc. operates a chain of hospitals throughout the United States. Th e
company has been expanding by acquiring local hospitals. Its largest acquisition, that of Statewide Medical, was made in 2001 under the pooling of interests method. BetterCare complies
with US GAAP.
BetterCare is currently forming a 50/50 joint venture with Supreme Healthcare under
which the companies will share control of several hospitals. BetterCare plans to use the equity
method to account for the joint venture. Supreme Healthcare complies with IFRS and will use
the proportionate consolidation method to account for the joint venture.
Erik Ohalin is an equity analyst who covers both companies. He has estimated the joint
venture’s fi nancial information for 2010 in order to prepare his estimates of each company’s
earnings and fi nancial performance. Th is information is presented in Exhibit 1.
EXHIBIT 1 Selected Financial Statement
Forecasts for Joint Venture ($ Millions)
Year ending 31 December 2010
Revenue 1,430
Operating income 128
Net income 62
31 December 2010
Total assets 1,500
Shareholders’ equity 740
Supreme Healthcare recently announced it had formed a special purpose entity through
which it plans to sell up to $100 million of its
no voting interest in the SPE, but it is expected to absorb any losses that it may incur. Ohalin
wants to estimate the impact this will have on Supreme Healthcare’s consolidated fi nancial
statements.
23 . Based on Ohalin’s estimates, the amount of joint venture shareholders’ equity at
31 December 2010 included on the consolidated fi nancial statements of each venturer
will most likely be:
A . higher for BetterCare.
B . higher for Supreme Healthcare.
C . the same for both BetterCare and Supreme Healthcare.
Joint Venture means the business starts by two or more than two persons for a specific project only and once the project completed, this venture terminated as per the contract signed between both the parties.
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