Zimt, AG is a consumer products manufacturer headquartered in Austria. It complies with IFRS. In 2009, 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 2009, Zimt announced that it would be increasing its ownership to 50 percent effective 1 January 2010.
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 1) and Oxbow (Exhibit 2) for this purpose.
At 31 December 2010, 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.