Vocation school questions

Transcription

1 Vocation school questions QUESTION 1 (15 marks) Blue Limited and Red Limited were incorporated on 30 June 2013 and no changes in their shareholdings have occurred since their incorporation. Black Limited holds a 40% interest in Blue Limited which in turn holds a 25% interest in Red Limited. Summarized extracts from the statement of profit or loss for the year ended 31 December 2017 are as follows: Black Limited Blue Limited Small Limited N$ N$ N$ Profit from operations Taxation (30 000) (25 000) (10 000) Profit for the year Scenario 1 Black Limited (Parent) 40% Blue Limited (Subsidiary) 25% Consider the following scenarios: Scenario 2 Black Limited (Parent) 40% Blue Limited (Subsidiary) 25% Scenario 3 Black Limited (Parent) 40% Blue Limited (Associate) 25% Red Limited (Subsidiary of Blue Limited) Red Limited (Associate of Blue Limited) Red Limited (Associate of Blue Limited) The Black Limited Group s accounting policies include: Associates are accounted for in the group financial statements on the equity method. Required: Complete the statement of profit or loss in respect of the Black Limited Group for the year ended 31 December 2017 for each of the scenarios as per IFRS 10 requirements. (15 marks) 1

2 Question 2 (35 marks) On 1 October 2016, Coke Plc secured a majority equity shareholding in Fanta Ltd on the following terms: an immediate payment of $4 per share on 1 October 2016; and a further amount deferred until 1 October 2017 of $5 4 million. The immediate payment has been recorded in Coke s financial statements, but the deferred payment has not been recorded. Coke s cost of capital is 8% per annum. On 1 February 2017, Coke also acquired 25% of the equity shares of Sprite Ltd paying $10 million in cash. The summarised statements of financial position of the three companies at 30 September 2017 are: Coke Fanta Sprite $ 000 $ 000 $ 000 Assets Non-current assets Property, plant and equipment 40,000 31,000 30,000 Intangible assets 7,500 Investments Fanta (8 million shares at $4 each) 32,000 Sprite 10,000 nil nil 89,500 31,000 30,000 Current assets Inventory 11,200 8,400 10,000 Trade receivables 7,400 5,300 5,000 Bank 3,400 nil 2,000 Total assets 111,500 44,700 47,000 2

3 Equity and liabilities Equity Equity shares of $1 each 50,000 10,000 10,000 Retained earnings at 1 October ,700 12,000 31,800 for year ended 30 September ,200 6,000 1,200 84,900 28,000 43,000 Non-current liabilities Deferred tax 15,000 8,000 1,000 Current liabilities Bank nil 2,500 nil Trade payables 11,600 6,200 3,000 Total equity and liabilities 111,500 44,700 47,000 The following information is relevant: i. Coke s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose the directors of Coke considered a share price for Fanta of $3 50 per share to be appropriate. ii. At the date of acquisition, the fair value of Fanta s property, plant and equipment was equal to its carrying amount with the exception of Fanta s plant which had a fair value of $4 million above its carrying amount. At that date the plant had a remaining life of four years. Fanta uses straight-line depreciation for plant assuming a nil residual value. Also at the date of acquisition, Coke valued Fanta s customer relationships as a customer base intangible asset at fair value of $3 million. Fanta has not accounted for this asset. Trading relationships with Fanta s customers last on average for six years. 3

4 iii. At 30 September 2017, Fanta s inventory included goods bought from Coke (at cost to Fanta) of $2 6 million. Coke had marked up these goods by 30% on cost. Coke s agreed current account balance owed by Fanta at 30 September 2017 was $1 3 million. iv. Impairment tests were carried out on 30 September 2017 which concluded that consolidated goodwill was not impaired, but, due to disappointing earnings, the value of the investment in Sprite was impaired by $2 5 million. v. Assume all profits accrue evenly through the year. Required: Prepare the consolidated statement of financial position for Coke Plc and its subsidiaries as at 30 September (35 marks) (Note 20 marks will be allocated to appropriate workings) 4

5 QUESTION 3 On 1 October 2017 Havana Plc purchased 75% of the equity shares in Hakahana Ltd. The acquisition was through a share exchange of two shares in Havana for every three shares in Hakahana. The stock market price of Havana shares at 1 October 2017 was $4 per share. The summarized statements of comprehensive income for the two companies for the year ended 31 March 2018 are: Havana Hakahana $ 000 $ 000 Revenue 450, ,000 Cost of sales (260,000) (110,000) Gross profit 190, ,000 Distribution costs (23,600) (12,000) Administrative expenses (27,000) (23,000) Finance costs (1,500) (1,200) Profit before tax 137,900 93,800 Income tax expense (48,000) (27,800) Profit for the year 89,900 66,000 Other comprehensive income: Gain on revaluation of land (note (i)) 2,500 1,000 Loss on fair value of equity financial asset investment (700) (400) 1, Total comprehensive income 91,700 66,600 5

6 The following information for the equity of the companies as at 1 April 2017 (i.e. before the share exchange took place) is available: Havana Hakahana $ 000 $ 000 Equity shares of $1 each 250, ,000 Share premium 100,000 nil Revaluation reserve (land) 8,400 nil Other equity reserve (re equity financial asset investment) 3,200 2,200 Retained earnings 90, ,000 The following information is relevant: i. Havana policy is to revalue the group s land to market value at the end of each accounting period. Prior to its acquisition, Hakahana s land had been valued at historical cost. During the post-acquisition period Hakahana s land had increased in value over its value at the date of acquisition by $1 million. Hakahana has recognized the revaluation within its own financial statements. ii. Immediately after the acquisition of Hakahana on 1 October 2017, Havana transferred an item of plant with a carrying amount of $4 million to Hakahana at an agreed value of $5 million. At this date the plant had a remaining life of two and half years. Havana had included the profit on this transfer as a reduction in its depreciation costs. All depreciation is charged to cost of sales. iii. After the acquisition Hakahana sold goods to Havana for $40 million. These goods had cost Hakahana $30 million. $12 million of the goods sold remained in Havana closing inventory. iv. Havana policy is to value the non-controlling interest of Hakahana at the date of acquisition at its fair value which the directors determined to be $100 million. 6

7 v. The goodwill of Hakahana has not suffered any impairment. vi. All items in the above statements of comprehensive income are deemed to accrue evenly over the year unless otherwise indicated. Required: a) i) Prepare the consolidated statement of comprehensive income of Havana for the year ended 31 March 2018; (11 marks) ii) Prepare the equity section (including the non-controlling interest) of the consolidated statement of financial position of Havana as at 31 March (5 marks) Note: you are NOT required to calculate consolidated goodwill or produce the statement of changes in equity. b) IFRS 3 Business combinations permits a non-controlling interest at the date of acquisition to be valued by one of two methods: i) At its proportionate share of the subsidiary s identifiable net assets; or ii) At its fair value (usually determined by the directors of the parent company). Required: Explain the difference that the accounting treatment of these alternative methods could have on the consolidated financial statements, including where consolidated goodwill may be impaired. (4 marks) [Total 20 marks] 7

8 QUESTION 4 The following represents the consolidated financial statements of Animal Limited for the year ended 31 December 2017: Statement of financial position as at 31 December Assets $ $ Non-current assets Property, plant and equipment (PPE) 2,500,000 1,550,000 Goodwill 121,200 60,000 Investments in associates 400, ,000 Available for sale financial assets 150, ,000 Current assets Inventory 300, ,000 Trade receivables 572, ,000 Cash 924, ,000 4,967,400 3,860,000 Equity and liabilities Equity attributable to owners of the parent Share capital 600, ,000 Retained earnings 1,745,000 1,315,000 Revaluation reserve 88,600 80,000 Non-controlling interest 1,023, ,000 Non-current liabilities Long-term loans 900, ,000 Deferred tax 298, ,000 Current liabilities Trade payables 250, ,000 Shareholders for dividends 32,000 50,000 8

9 Tax payable 30,000 45,000 4,967,400 3,860,000 Statement of comprehensive income for the year ended 31 December $ Revenue Cost of sales ( ) Gross profit Other income Other expenses ( ) Finance charges (85 000) Share of profit of associate Profit before tax Income tax expense ( ) Profit for the year Other comprehensive income: Available for sale investments Gains arising during the year Tax effects of gains arising during the year (6 300 Reclassification adjustment (35 000) Tax effect of reclassification adjustment Total comprehensive income for the year Profit for the year attributable to: Owners of the parent non-controlling interest total comprehensive income attributable to: - Owners of the parent non-controlling interest

10 Statement of changes in equity for the year ended 31 December 2011 (Extracts only) Share capital Revaluation reserve Retained earnings Non controlling interest Balance 1 January Total comprehensive income - Profit for the year - Other comprehensive income Additional interest in existing (20 000) subsidiary (Plant Ltd) Acquisition of new subsidiary (Poverty Ltd) Investment becomes subsidiary (People Ltd) Dividends declared (50 000) (30 000) Balance 31 December Additional information: i. Animal Ltd acquired a 70% interest in Plant Ltd on 1 January On 30 April 2017 the company acquired an additional 10% interest in exchange for a cash payment. ii. Animal Ltd acquired a 15% interest in People Ltd during 2009 at a cost of $ This investment was classified as available for sale. On 30 June 2017 Animal Ltd acquired an additional 50% interest in People Ltd at a cost of $ paid in cash. The non-controlling interest was measured at acquisition date at a fair value of $ The fair values of People Ltd's assets acquired and liabilities assumed were as follows; $ PPE Trade receivables Inventory Bank Deferred tax (15 000)

11 The fair value of the former 15% investment in People Ltd amounted to $ on 30 June The acquisition gave rise to a bargain purchase gain, which is included in other income. The reclassification of the fair value gains relating to the previously held 15% investment is also included in other income. iii. iv. Animal Limited acquired a 90% interest in Poverty Ltd on 30 November 2017 in exchange for a cash payment of $ The non-controlling interest was measured at acquisition date at their proportionate share of the fair value of Poverty Ltd. s net assets. The fair value of Poverty Ltd. s assets acquired and liabilities assumed were as follows on that date; PPE Trade receivables Loans ( ) Bank overdraft (20 000) Additional investments were made during the year in available-for-sale financial assets in the associates. Dividends received on available-for-sale investments are included in other incomes: This is the only other income apart from the items mentioned in point 2. Dividends received from the associates amounted to $63,000. v. The group's depreciation for the year amounted to $315,000 and is included in other expenses Required Prepare the consolidated statement of cash flows for the Animal Limited Group, for the period ended 31 December 2017 as per the International Standard No. 7 using the direct method. (30 marks) (Comparative amounts and notes are not required but workings should be clearly shown) END OF QUESTION PAPER [Total 30 marks] 11

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