QUESTION 75: BASIC CONSOLIDATION

Transcription

1 QUETION 75: BAIC CONOLIDATION On 1 April 2008, Pedantic acquired 60% of the equity share capital of ophistic in a share exchange of two shares in Pedantic for three shares in ophistic. The issue of shares has not yet been recorded by Pedantic. At the date of acquisition shares in Pedantic had a market value of $6 each. Below are the summarized draft financial statements of both companies. tatements of profit or loss for the year ended 30 eptember 2008 Pedantic ophistic $ 000 $ 000 Revenue 85,000 42,000 Cost of sales (63,000) (32,000) Gross profit 22,000 10,000 Operating expenses (8,300) (5,600) Profit before tax 13,700 4,400 Income tax expense (4,700) (1,400) Profit for the year 9,000 3,000 tatements of financial position as at 30 eptember 2008 Pedantic ophistic Assets $ 000 $ 000 Non-current assets Property, plant and equipment 40,600 12,600 Current assets 16,000 6,600 Total assets 56,600 19,200 Equity and liabilities Equity shares of $1 each 10,000 4,000 Retained earnings 35,400 6,500 45,400 10,500 Non-current liabilities 10% loan notes 3,000 4,000 Current liabilities 8,200 4,700 Total equity and liabilities 56,600 19,200 The following information is relevant: (i) At the date of acquisition, the fair values of ophistic s assets were equal to their carrying amounts with the exception of an item of plant, which had a fair value of $2 million in excess of its carrying amount. It had a remaining life of five years at that date [straight-line depreciation is used]. ophistic has not adjusted the carrying amount of its plant as a result of the fair value exercise. (ii) ales from ophistic to Pedantic in the post acquisition period were $8 million. ophistic made a mark up on cost of 40% on these sales. Pedantic had sold $5 2 million (at cost to Pedantic) of these goods by 30 eptember Page 1 of 5 (kashifadeel.com)

2 (iii) (iv) (v) Other than where indicated, PL items are deemed to accrue evenly on a time basis. ophistic s trade receivables at 30 eptember 2008 include $600,000 due from Pedantic which did not agree with Pedantic s corresponding trade payable. This was due to cash in transit of $200,000 from Pedantic to ophistic. Both companies have positive bank balances. Pedantic has a policy of accounting for any non-controlling interest at fair value. Fair value of the non-controlling interest at the acquisition date was $5.9 million. Consolidated goodwill was impaired by $1 million at 30 eptember Required: (a) Prepare the consolidated statement of profit or loss for Pedantic for the year ended 30 eptember (7 marks) (b) Prepare the consolidated statement of financial position for Pedantic as at 30 eptember (13 marks) ACCA F7 December 2008 Q1 Page 2 of 5 (kashifadeel.com)

3 ANWER TO QUETION 75: BAIC CONOLIDATION Pedantic Group Consolidated tatement of profit or loss 30 eptember 2008 Pedantic ophistic x 6/12 Group $000 $000 $000 ales revenue 85,000 21,000 (8,000 J4) 98,000 Cost of ales (63,000) (16, J J5) 8,000 J4 (72,000) Gross Profit 22,000 4,000 26,000 Operating costs (8,300) (2, ,000 J7) (12,100) Profit before tax 13, ,900 Taxation (4,700) (700) (5,400) Profit after tax 9,000 (500) 8,500 NCI share of loss $500 x 40% 200 Profit attributable to owners of Parent 8,700 Pedantic Group Consolidated tatement of Financial Position As at 30 eptember 2008 Assets $000 $000 Goodwill W3 3,500 PPE $40,600+12,600+2,000J2 200J3 55,000 58,500 Current assets $16,000+6, J5 600 J6+200 J6 21,400 Total assets 79,900 Equity Equity shares of $1 each $10,000+1,600J1 11,600 hare premium J1 8,000 Retained earnings W6 35,100 54,700 Non Controlling Interest W5 5,700 60,400 Non - current liabilities 10% loan notes $3,000+4,000 7,000 Current Liabilities $8,200+4, J6 12,500 Total equity and liabilities 79,900 W1 GROUP TRUCTURE ophistic ubsidiary Acquisition date:1 Apr 2008 Group = 60% NCI 40% $000 W2 NET AET (of subsidiary) AT ACQUIITION Equity share capital 4,000 Retained earnings (pre) [$6,500 3,000 x 6/12 months] 5,000 J2 2,000 11,000 Page 3 of 5 (kashifadeel.com)

4 W3 GOODWILL InvestmentJ1 9,600 Less: 11,000 W2 x 60%W1 (6,600) 3,000 Fair value of NCI β 5,900 Less: 11,000 W2 x 40%W1 (4,400) GIVEN 1,500 4,500 J7 (1,000) 3,500 W4 POT ACQUIITION REERVE (of subsidiary) RE Balance [3,000 X 6/12] 1,500 J3 (200) J5 (800) J7 (1,000) (500) W5 NON CONTROLLING INTERET 11,000 W2 x 40%W1 4,400 NCI goodwill W3 1,500 (500) W4 x 40% W1 (200) 5,700 W6GROUP REERVE RE Parent reserves 35, ,400 (500) W4 x 60% W1 (300) 35,100 JOURNAL ENTRIE WITH WORKING Dr. $ 000 Cr. Investment in ubsidiary 9,600-1 hare capital 1,600 hare premium 8,000 Investment 4,000 x 60% x 2/3 x $6 = $9,600 hare capital 4,000 x 60% x 2/3 x $1 = $1,600 hare Premium 4,000 x 60% x 2/3 x $6 = $8,000 PPE 2,000 (i) 2 Reserves Pre () 2,000 Fair value adjustment CO / RE () 200 (i) 3 PPE 200 Extra depreciation due to fair value adjustment $2,000 / 5 years = $400 x 6/12 = $200 Page 4 of 5 (kashifadeel.com)

5 Revenue 8,000 (ii) 4 CO 8,000 Intra group sales and purchase eliminated CO / RE () 800 (ii) 5 Current Assets (Inventory) 800 Unrealised profit in inventory $(8,000-5,200) x 40/140 = $800 Current liabilities (Trade payables) 400 (iv) 6 Current assets (Cash in transit) 200 Current assets (Trade receivables) 600 Intra group balances eliminated and cash in transit recorded Operating costs / RE (ubsidiary) 1,000 (v) 7 Goodwill 1,000 Impairment of goodwill Page 5 of 5 (kashifadeel.com)