DF is describing its consolidated financial declaration for the year ended 31 December 2009. DF has a numerous investments in other entities. Some of these investments are provided in detail below:
Investment in AB
When the book value of the net assets was $5.8 million, DF obtained 90% of the issued ordinary share capital of AB on 1 July 2009 for $6 million. The reasonable value of these net assets was estimated at $6.8 million at the date of acquirement. The diversity between the fair value and book value of the net assets related to depreciable possessions with a remaining useful life at the date of acquisition of 40 years.
Investment in GH
On 1 January 2008 for $2 million DF acquired 40% of the issued ordinary share capital of GH, when the book value of the net assets was $5.5 million. The fair value of these net assets was estimated at $6 million at the date of acquirement.
Investment in JK
At the date of acquirement of AB, AB held 65% of the issued ordinary share capital of JK. The operations of JK do not fit within the considered plans of DF and so the directors plan to sell this investment. The investment is currently being vigorously marketed with a view to selling it within the next 4 months.
Investment in LM
On 1 January 2004 for $1 million, DF acquired 15% of the issued ordinary share capital of LM.DF acquired a further 40% of issued ordinary share capital for $4.5 million, on 1 October 2009. The fair value of the net assets on 1 January 2004 was $8 million and at 1 October 2009 was $12 million. The earlier held interest had a fair value on 1 October 2009 of $1.7 million.
The group policy is to value non-controlling interest at the date of gaining at the proportionate share of the fair value of the net assets.
Required:
(a) Describe the basis on which each of the investments should be accounted for in the consolidated monetary statements of the DF Group for the year ended 31 December 2009 (calculations are not required).
(b) Explain in brief the impact of the investment in AB, in the consolidated income statement for the year ended 31December 2009.