QUESTION 71: BASIC CONSOLIDATION

Transcription

1 QUETION 71: BAIC CONOLIDATION On 1 June 2010, Premier acquired 80% of the equity share capital of anford. The consideration consisted of two elements: a share exchange of three shares in Premier for every five acquired shares in anford and $800,000 cash. The share issue has not yet been recorded by Premier. At the date of acquisition shares in Premier had a market value of $5 each. Below are the summarized draft financial statements of both companies. tatements of profit or loss and other comprehensive income For the year ended 30 eptember 2010 Premier anford $ 000 $ 000 Revenue 92,500 45,000 Cost of sales (70,500 ) (36,000 ) Gross profit 22,000 9,000 Other expenses (12,000 ) (5,100 ) Profit for the year 10,000 3,900 Other comprehensive income: Gain on revaluation of land nil nil Total comprehensive income 10,000 3,900 tatements of financial position as at 30 eptember 2010 Assets Non-current assets Property, plant and equipment 25,500 13,900 Investments 1,800 nil 27,300 13,900 Current assets 12,500 2,400 Total assets 39,800 16,300 Equity and liabilities Equity Equity shares of $1 each 12,000 5,000 Other equity reserve 30 eptember 2009 (note (iv)) 500 nil Retained earnings 12,300 4,500 24,800 9,500 Current liabilities 15,000 6,800 Total equity and liabilities 39,800 16,300 The following information is relevant: (i) At the date of acquisition, the fair values of anford s assets were equal to their carrying amounts with the exception of its property. This had a fair value of $1 2 million below its carrying amount, and had a remaining useful life of 8 years at the date of acquisition. anford has not incorporated this in its financial statements. (ii) ales from anford to Premier throughout the year ended 30 eptember 2010 had consistently been $1 million per month. anford made a mark-up on cost of 25% on these sales. Premier had $2 million (at cost to Premier) of inventory that had been supplied in the post-acquisition period by anford as at 30 eptember Page 1 of 5 (kashifadeel.com)

2 (iii) (iv) (v) (vi) Premier had a trade payable balance owing to anford of $350,000 as at 30 eptember This did not agree with the corresponding receivable in anford s books due to a $130,000 payment made to anford, which anford has not yet recorded. Premier s investments include investment in shares which at the date of acquisition were classified as fair value through other comprehensive income. The investments have increased in value by $300,000 during the year. The other equity reserve relates to these investments and is based on their value as at 30 eptember There were no acquisitions or disposals of any of these investments during the year ended 30 eptember Premier s policy is to value the non-controlling interest at fair value at the date of acquisition deemed to be $3.5 million. There has been no impairment of consolidated goodwill. Required: (a) Prepare the consolidated statement of profit or loss and other comprehensive income for Premier for the year ended 30 eptember (6 marks) (a) Prepare the consolidated statement of financial position for Premier as at 30 eptember (14 marks) ACCA F7 December 2010 Q1 Page 2 of 5 (kashifadeel.com)

3 ANWER TO QUETION 71: BAIC CONOLIDATION Premier Group Consolidated PL & OCI For the year ended 30 eptember 2010 Premier anford x 4/12 Adj. Group $000 $000 $000 ales revenue 92,500 15,000 4,000 J5 103,500 Cost of ales (70,500) (12, J J6) 4,000 J5 (78,850) Gross Profit 22,000 2,650 24,650 Other expenses (12,000) (1,700) (13,700) Profit after tax 10, ,950 Other Comprehensive income Gain on revaluation Gain on investments 300 J Total Comprehensive Income 10, ,250 NCI share profit $950 x 20% (190) NCI share of OCI Nil x 20% 0 Total Comprehensive Income attributable to owners of Parent 11,060 Premier Group Consolidated FP as at 30 eptember 2010 Assets $000 $000 PPE $25,500+13,900-1,200 J3 +50 J4 38,250 Goodwill W3 9,300 Other investments $1, J J8 1,300 48,850 Current assets $12,500+2, J J7 480 J7 14,150 Total assets 63,000 Equity Equity shares $12,000+2,400 J2 14,400 hare premium J2 9,600 Other reserves W6 800 Retained earnings W6 13,060 37,860 Non Controlling Interest W5 3,690 41,550 Current Liabilities $15,000+6, J7 21,450 Total equity and liabilities 63,000 Page 3 of 5 (kashifadeel.com)

4 W1 GROUP TRUCTURE anford ubsidiary Acquisition date: 1 Jun 2010 Group = 80% NCI 20% $000 W2 NET AET (of subsidiary) AT ACQUIITION Equity share capital 5,000 Retained earnings (pre) ($4,500 3,900)+$3,900 x 8/12 months 3,200 J3 (1,200) 7,000 W3 GOODWILL Investment 800 J1 + 12,000 J2 12,800 Less: 7,000 W2 x 80% W1 (5,600) 7,200 Fair value of NCI 3,500 Less: 7,000 W2 x 20% W1 (1,400) 2,100 9,300 W4 POT ACQUIITION REERVE (of subsidiary) RE Balance [3,900 x 4/12] 1,300 J4 50 J6 (400) 950 W5 NON CONTROLLING INTERET 7,000 W2 x 20% W1 1,400 NCI goodwill W3 2, W4 x 20% W ,690 W6 GROUP REERVE OR RE Parent reserves ,300 J ,300 0 & 950 W4 x 80% W ,060 Page 4 of 5 (kashifadeel.com)

5 JOURNAL ENTRIE WITH WORKING Dr. $ 000 Cr. Investment in subsidiary 800 (-) 1 Other investments 800 Cash included in other investment $800 Investment in subsidiary 12,000 (-) 2 hare capital 2,400 hare premium 9,600 5,000 x 80% x 3/5 x $5 = $12,000 Reserve Pre (anford) 1,200 (i) 3 PPE 1,200 Fair value adjustment PPE 50 (i) 4 CO / RE (anford) 50 Reduction in depreciation due to fair value adjustment 1,200 / 8 years x 4/12 = 50 Revenue 4,000 (ii) 5 CO 4,000 Cancellation of intra group trading $1,000 x 4 months = $4,000 CO / RE (anford) 400 (ii) 6 Current assets (inventory) 400 Unrealized profit $2,000 x 25/125 = $400 Current liabilities 350 (iii) 7 Cash in transit 130 Current assets 480 Cancellation of intra group balances Other Investments 300 (iv) 8 OCI / OR (Premier) 300 Increase in fair value of investments through OCI recorded Page 5 of 5 (kashifadeel.com)