Joint Arrangement Albion plc operates in the power industry and owns 45% of the voting shares in Linden Ltd. Linden Ltd has four other investors which own the remaining 55% of its voting shares and are all technology companies. The largest of these holdings is 18%. Linden Ltd is a property developer and purchases property for its renovation potential and subsequent disposal. Albion plc has no expertise in this area and is not involved in the renovation or disposal of property. The board of directors of Linden Ltd makes all the major decisions but Albion plc can nominate up to four of the eight board members. Each of the remaining four board members are nominated by each of the other investors. Any major decisions require all board members to vote and for there to be a clear majority. Thus, Albion plc has effectively the power of veto on any major decision. There is no shareholder agreement as to how Linden Ltd should be operated or who will make the operating decisions for Linden Ltd. The Albion plc directors believe that Albion plc has joint control over Linden Ltd because it is the major shareholder and holds the power of veto over major decisions. The directors of Albion plc would like advice as to whether they should account for Linden Ltd under IFRS 11 Joint Arrangements.

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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Joint Arrangement Albion plc operates in the power industry and owns 45% of the voting shares in Linden Ltd. Linden Ltd has four other investors which own the remaining 55% of its voting shares and are all technology companies. The largest of these holdings is 18%. Linden Ltd is a property developer and purchases property for its renovation potential and subsequent disposal. Albion plc has no expertise in this area and is not involved in the renovation or disposal of property. The board of directors of Linden Ltd makes all the major decisions but Albion plc can nominate up to four of the eight board members. Each of the remaining four board members are nominated by each of the other investors. Any major decisions require all board members to vote and for there to be a clear majority. Thus, Albion plc has effectively the power of veto on any major decision. There is no shareholder agreement as to how Linden Ltd should be operated or who will make the operating decisions for Linden Ltd. The Albion plc directors believe that Albion plc has joint control over Linden Ltd because it is the major shareholder and holds the power of veto over major decisions. The directors of Albion plc would like advice as to whether they should account for Linden Ltd under IFRS 11 Joint Arrangements.

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