b) Goodwill reserve from the acquisition of Swanney Plc for the year ended 31 December 2014.

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Meagan Brown
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1 MIA QE March 2015 Suggested Solution and Marking Scheme ANSWER 1 a) When Swift Bhd acquired 70% of the ordinary shares of Gagah Bhd on 2 January 2014, Gagah Bhd became a subsidiary of Swift Bhd. Swift Bhd is a subsidiary of Arrow Bhd. Thus, by virtue of its control over the parent company of Gagah Bhd, Arrow Bhd is deemed to have control over it (Gagah Bhd). Hence, Gagah Bhd is a subsidiary of Arrow Bhd. As such, Gagah Bhd should be included in the consolidated statement of financial position and other comprehensive income of Arrow Bhd and its group from the date Swift Bhd acquired control of the company (i.e. 2 January 20114). The profit of Gagah Bhd attributable to the equity holders of Arrow Bhd and the non-controlling interest of Gagah Bhd should be determined based on their respective effective interest in Gagah Bhd (49%:51%). b) Goodwill reserve from the acquisition of Swanney Plc for the year ended 31 December AUD 000 AUD Consideration transferred (3,810, ) 1,314 Less: Fair value of net assets acquired Ordinary shares 1,000 Retained profits 450 1,450 65% Goodwill , Goodwill reserve c) Swanney Plc Translated statement of profit or loss and other comprehensive income For the year ended 31 December 2014 AUD 000 AUD 000 Rate Sales ,746 Opening inventory Purchases ,746 Closing inventory (536) 2.91 (1,559.76) Cost of sales (264) (768.24) Gross Profit Operating expenses (26) 2.91 (75.66) Selling & distrib. exp (70) 2.91 (203.70) Profit before tax Tax (60) 2.91 (174.60) Profit after tax ==== ======

2 (14 x ½ mark = 7 marks) d) Arrow Bhd Consolidated statement of profit or loss and other comprehensive income For the year ended 31 December Sales (67, ,000) + 15, ,746-3, ,646 Opening inventory (10, ,800) + 3, , Purchases (40, ,000) + 5, ,746-3, ,946 Closing inventory (15, ,000) + 2, , (26,939.76) Cost of sales (56,588.24) Gross Profit 66, Operating expenses (8, ,400) + 2,950 + (20,805.66) Selling & distrib. exp (203.70) Pref. dividend income - Gain on sale of mach. - Profit before tax 45, Tax (5, ,950) + 1,412 + (11,439.60) Profit after tax 33, Other comprehensive income Difference on exchange Goodwill reserve Total comprehensive income 33, Profit attributable to: 000 Equity holders of Arrow Bhd 27, Non-controlling interests (W1) 5, , Total comprehensive income attributable to: Equity holders of Arrow Bhd 27, , (26.2 x 65%) Non-controlling interests 5, (26.2 x 35%) 5, ,

3 W1 Profit attributable to NCI Swift Bhd PAT 11,850 Preference dividend (120) 90% 108 PAT to ordinary shareholders 11,730 30% 3,519 3,627 Gagah Bhd PAT 4,238 Gain on sale of machine (100) Overdepreciation of mach. 20 4,158 51% 2, Swanney Plc PAT % , (46 x ½ mark = 23 marks) (Total: 40 marks) ANSWER 2 a) Arena Bhd would have control over Zazan Bhd, under IFRS 10, if and only if it has the following: i. power over the investee; ii. exposure, or rights, to variable returns from its involvement with the investee; and iii. the ability to use its power over the investee to affect the amount of the investor s returns In this case, its 44% equity interest is sufficient to give it power over Zazan Bhd. The absolute size of its shareholdings when compared to the relative size of the other shareholdings would give Arena Bhd the unilateral ability to direct the relevant activities of Zazan Bhd which would affect the amount of returns to the investors. Furthermore, it is highly difficult for the hundreds of remaining shareholders to get together and agree to direct the relevant matters in the operations of Zazan Bhd. This again indicate that Arena Bhd has control over Zazan Bhd without the need of the contractual agreement from the other shareholders. b) According to MFRS 137, a provision is a liability of uncertain timing and amount whereas a contingent liability is i. a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or ii. a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying 3

4 economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability. In this case, the cost of cleaning up the contaminated shores of Thailand should be treated as a provision since, altough it is a result of a past event, it is not subject to the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity such as a lawsuit from the Thai government. It is highly unlike for the Thai government to sue the company since Thailand has no environmental legislation. Furthermore, a constructive obligation (liability) is created since there is a valid expectation for the company to clean up the contamination. This is due to Arena Bhd s reputation as an advocate of environmental preservation and its excellent track record of cleaning up all contamination that it causes. c) The negotiation for the acquisition of equity interest in Gedombak Bhd was entered into in January Although the negotiation took place within the period between the end of the reporting period (31 December 2014) and the date when the financial statements are authorised for issue (30 March 2015), it does not provide any evidence of conditions that existed at the end of the reporting period. Prior to the negotiation, Arena Bhd does not have any shares in Gedombak Bhd. Therefore, the acquisition of the shares in Gedombak Bhd is not an adjusting event under MFRS 110. It is only an indication of conditions that arose subsequent to the end of the reporting period (31 December 2014). Hence, no adjustring entries are required to recognise the potential acquisition of the shares in Gedombak Bhd in the financial statements for the year ended 31 December d) Under ther terms of agreement for the acquisition, when the acquisition of Gedombak Bhd is completed in March 2015, Arena Bhd would have joint control over the daily operations of the latter company and equal rights with Com-Ex Bhd over the net assets of Gedombak Bhd. Under IFRS 11, a joint arrangement which gives the joint controller the rights over the net assets of the investee, the arrangement is a joint venture. Thus under IFRS 11, Arena Bhd is a joint venturer with Gedombak Bhd as its joint venture. Therefore, in March 2015, when the negotiation is completed, Arena Bhd should recognise its investment in Gedombak Bhd at cost. Similarly when it prepares its own separate financial statements it should recognised the investment at cost. However, in its consolidated financial statements for the year ended 31 December 2015, it should use equity accounting to recognise its investment in Gedombak Bhd. (Total: 20 marks) 4

5 ANSWER 3 Habatul Wooden Bhd Statement of Profit or Loss and other Comprehensive Income for the year ended 31 December Turnover 37,088 Cost of sales (18,360) Gross profit 18,728 Selling & distribution expenses (3,680) Administrative expenses (14,065) Finance cost (840) Change in FV of investment ( 26,000-20,000) 6,000 Profit before tax 6,143 Taxation: Current tax epense (1, ) 1,660 Deferred tax expenses (252) (1,408) Profit for the period 4,735 Other Comprehensive Income Items that will not be reclassified to profit or loss:- Surplus on revaluation of land 1,200 Surplus on available for sale financial asset 2,400 3,600 Total Comprehensive Income 8, Habatul Wooden Bhd Statement of Changes in Equity for the year ended 31 December 2014 Share Capital Share Premium Retained earnings Revaluation reserve AFS Share Option Reserve Total Balance b/d 32,000 18,400 5,136 55,536 Profit for the period 4,735 4,735 Share options granted for the period Dividend paid (800) (800) Surplus on revaluation 1,200 1,200 Available for sale 2,400 2,400 instruments Balance c/d 32,000 18,400 9,071 1,200 2, ,

6 Habatul Wooden Bhd Statement of Financial Position as at 31 December 2014 Non - Current Assets: Property, plant and equipment (W4) 25,492 Intangibles: Development Cost & Patents 2,735 Investments (25, , ,400) 34,000 Current Assets: Inventories ( 3, ) 3,148 Accounts receivables ( 9, ) 3,568 Cash at Bank 10,688 17,404 79,631 Equity and Liabilities Share capital 32,000 Reserves 9,071 Other reserves 22,500 Non Current Liabilities 7% Loan notes 12,000 Deferred tax liability 420 Current Liabilities Tax payable 40 Accounts payable 3,180 Interest accrued 420 3,640 79, Workings: (W1) Cost of Sales 000 As per T/B 18,000 (+) Damaged inventory ( ) ,360 (W2) Administrative expenses 000 As per T/B 10,600 (+) Share option 500 Amortisation - development cost patent 375 Patent written down 350 Research cost 1,380 14,065 6

7 (W3) Expenses and reserves for share options (share-based payment) Expenses Share Options Reserves 1 April x 10,000 x 5 500, ,000 (W4) Deferred Tax Balance at 1 January ,000 Def Tax movement (252,000) Balance at 31 December 2014 (1,680,00 x 25%) 420,000 (W5) (W6) (W7) Taxation Tax for the year 1,408,000 (-) Changes in DT 252,000 1, (-) Tax paid 1,620,000 40,000 Available for sale investment Cost 5,600,000 FV 8,000,000 Surplus on revaluation 2,400,000 Property Plant and Equipment Cost/Rev Acc. dep Carrying value Plant & Equipment 5,336 (1,700) 3,636 Land 10,000 10,000 Building (24,000 8,800) 15,200 3,344 11,856 25,492 (W8) Intangible Assets Development cost: Cost 4,300 (-) Amortisation: Bal b/f 2,580 Current year 860 (3,440) Carrying amount at 31/12/ Patent Cost 2,600 (-) Reduce in value 350 2,250 (-) Amortisation (2,250 x 6) (375) 3 12 Carrying amount at 31/12/2014 1,875 2,735 7

8 (W9) Other Reserves Share Premium 18,400 Revaluation Reserve 1,200 AFS 2,400 Share Option , (50 x ½ = 25 marks) ANSWER 4 A. a) Basic EPS 2013 Profit after tax 940,000 (-) Preference div [10%X1,000,000] (100,000) 840,000 Weighted average no. of shares Bonus element (5/4.83 x 4,000,000 x 6/12) 2,070,393 1/7/2013 [4,800,000 x 6/12] 2,400,000 4,470,393 Basic EPS 2013 = 840,000 = sen 4,470,393 Basic EPS 2012 Restated = 20 sen X 4.83/5 = sen Theoretical ex-right Old shares = 5 x 5.00 = New share = 1 x 4.00 = Theoretical ex right = 29/6 = 4.83 Diluted EPS 2013 Profit as per Basic EPS 840,000 Interest saved (2,000,000 x 10%) 200,000 1,040,000 Weighted average number of shares As per BEPS Assumed conversion of debentures (2,000,000 /2) 4,470,393 1,000,000 5,470,393 Diluted EPS 2013 = 1,040,000 5,470,393 = 19.0 sen 8

9 Basic EPS 2014 Profit after tax = 1,160,000 (-) Preference div [10%X1,000,000] = (100,000) = 1,060,000 Weighted average no. of shares I January 2014 Debentures converted (600,000 x ½) 4,800, ,000 5,100,000 Basic EPS 2014 = 1,060,000 5,100,000 = sen Diluted EPS 2014 Profit as per BEPS Interest saved (1,400,000 x 10%) 1,060, ,000 1,200,000 Weighted average no. of shares Shares in issue as per Basic EPS Assumed conversion of debentures (1,400,000/2) 5,200, ,000 5,900,000 Diluted EPS = 1,200,000 5,900,000 = sen (30 x 1/3 = 10 marks) B. a) Where borrowing costs are incurred on a qualifying asset, it can be capitalised as part of the cost of that asset. A qualifying asset is a tangible or an intangible asset that takes a substantial period of time to get ready for its intended use or eventual sale. Hence, borrowing costs could be capitalized during property construction. Capitalisation should commence when expenditure is being incurred on the asset. However, this may not necessarily starts from the date funds are borrowed. Capitalisation should cease when the asset is ready for its intended use, even though the funds may still be incurring borrowing costs. Also capitalisation should be suspended if there is a suspension of active development of the asset. Any borrowing costs that are not eligible for capitalisation must be expensed. Any income earned from the temporary investment of specifically borrowed funds would normally be deducted from the amount to be capitalised. (6 x 0.5=3 marks) 9

10 b) Total amount of borrowing costs that could be capitalised: 2012: 10 million x 9% x 8/12 = 600, : 10 million x 9% = 900, : 10 million x 9% x 1/12 = 75,500 Total = 1,575,000 Therefore, amount expensed to statement and profit or loss for the year ended 31 December 2014 = 825,000 (for 11 months). (8 x 0.5=4 marks) C. According to MFRS 116, any surplus on revaluation under the revaluation model should be transferred to asset revaluation reserve and disclosed as on OCI item under the heading: items not reclassified to profits loss. The action of the BOD is not appropriate since they are not following the requirement of MFRS 116. The surplus on revaluation should be credited to retained earnings only when the asset is disposed. (3 marks) D. Calculation of impairment loss 31 December 2014 Cost 1/1/ Less: acc dep ( )/5 (30 000) Carrying Amount at 31 Dec Recoverable Amount 1. Net SP Value In Use (ViU) Year cash flow DF@14% PV () , , ,975 VIU 100,354 Recoverable Amount is the higher of ViU and NSP = 100,354 Impairment loss = Carrying Amount >Recoverable Amount = Impairment loss = 69,646 ( 10 x ½ = 5 marks) 10

SET A AFAR MARCH 2016 SET A MARCH Consolidated Statements of Profit and Loss and Other Comprehensive Income for the Year ended 31 December 2015

SET A AFAR MARCH 2016 SET A MARCH Consolidated Statements of Profit and Loss and Other Comprehensive Income for the Year ended 31 December 2015 SET A MARCH 2016 SUGGESTED SOLUTION QUESTION 1 Consolidated Statements of Profit and Loss and Other Comprehensive Income for the Year ended 31 December 2015 Revenue 69,185 + 39,385 + (29,920 x 6/12) 5,000