SUBSIDIARY (parent company of SS)

CHAPTER - 8 COMPLEX GROUP STRUCTURES Two structures exist: - Vertical (sub-subsidiaries); and Mixed groups The parent only controls its subsidiaries holdings in other companies but does not control an associate s holdings in other companies. INTRODUCTION: VERTICAL GROUPS Consider the following groups structure: P ULTIMATE PARENT COMPANY (Parent company of S 60% S 70% SUBSIDIARY (parent company of SS) SS SUB-SUBSIDIARY (indirect subsidiary of P) Where SS is a subsidiary of S and S is a subsidiary of P, and then SS is a sub-subsidiary of P (P has indirect control over SS via S). For accounting purposes, we shall refer to SS as a sub-subsidiary. To show the group as a single economic entity, SS must be included in the consolidated accounts of P. PREPARATION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION INCORPORATING SUB- SUBSIDIARY Two methods available: 1. Two stage consolidation (indirect method) (Not recommended in examination) 2. One stage consolidation (direct method) (Recommended in examination) Under this method we need to take into account the EFFECTIVE INTERST (EI) in the subsubsidiary company. Using the earlier group structure: P owns 60% of S and S own 70% of SS. So P has an effective group interest in SS of 60% 70% = 42% Non controlling interests own 58% of SS. The Non controlling interest can be analysed as follows. Owned by outside shareholders in SS Owned by outside shareholders in S (40% 70%) Effective Non controlling interest Use effective interest to ascertain ownership of net assets and profits. But note that the treatment of the investment is determined by the control relationship, not the effective Page 1 of 20 % 30 28 58

interest. Despite the fact that P owns only 42% of SS, SS is treated as a subsidiary (not an associate) because S controls SS. WHAT DIFFERENCE WOULD IT MAKE IF THE DATES OF ACQUISITION HAD NOT COINCIDED? The critical date is the date when effective control is acquired by the ultimate parent company. For example, suppose S acquired SS on 31 December 20.X3 and P acquired S on 31 December 20.X4. This situation makes no difference because the critical date is 31 December 19.X4 when P acquires control over both S and SS. Now consider the other possible situation when SS is acquired after S. For example, suppose P acquired S on 31 December 20.X4 (as before) and acquired Ss on 31 December 20.X5. In this case there are two critical dates to consider. The dates when P acquired control over S and SS 31 December 20.X4 and 31 December 20.X5 INTRODUCTION: COMPLEX GROUP The group is structure in a manner where both the ultimate parent and a subsidiary have an interest in another entity. For example H 60% 30% S 30% T T is a subsidiary of H as H controls 30% directly and 30% indirectly via its interest in S. Thus 60% is controlled. Consolidation is performed in a single stage using the consolidation percentages. S Group share 60% Non controlling interest 40% T Group share Direct 30% Indirect 60% of 30% 18% 48% Non controlling interest 52% SUGGESTED APPROACH OF QUESTION 1: Ascertain group structure part of workings 2. Establish the effective interests part of workings 3. Establish the effective date of acquisition of sub-subsidiary part of workings 4. Proceed with consolidation workings 5. Prepare Pro-forma CSOFP Example 1 The relevant details and summary of the individual statement of financial positions of P, S and SS at December 31,20 X1 are as follows: - Page 2 of 20

S acquired the shares in SS on December 31, 19 X 4, when its accumulated profits were 700. On the same date P acquired the shares in S, when its accumulated profits were 2,750. Goodwill arising on acquisition is capitalized and tested annually for impairment. No impairment has been detected to date. P S SS 2,400 shares in S 5,100 -- -- 180 shares in SS -- 750 -- Sundry net assets 11,900 5,500 1,200 17,000 6,250 1,200 Share capital 1 ordinary shares 10,000 3,000 300 Accumulated profits 7,000 3,250 900 17,000 6,250 1,200 Required: - Prepare consolidated statement of financial position as at December 31, 20X1. Example 2 P made a 75% investment of 20 million in H on December 31, W6 when the net assets of H were 24 million (issued capital 12 million plus reserves 12 Million). On December 31, W 7 H made a 60% investment of 10 million in S when the net assets of S were 15 million (issued capital 10 million plus reserves 5 million). The group has the policy of measuring NCI at fair value. The fair value of NCI in S is 7.5 million and in SS is 9.5 million. During the current year H sold goods to S of which 2 million goods are still stock of S. H charged Mark up of 25% on all goods it sell to group companies. In the post acquisition period P sold non-depreciable asset to H by recognizing 2 million gain on disposal. The asset still exists in H statement of financial position. The statement of financial positions of the three companies at December 31, X 0 were as under: - P H S (M) (M) (M) Investment in subsidiaries 20 10 -- Non-current assets 30 20 20 Sundry current assets 10 6 5 60 36 25 Equity-Ordinary share capital of 1 30 12 10 each Retained profits 30 24 15 60 36 25 None of the entities has issued new shares since 31-12-W6. There has been no impairment of goodwill since the acquisitions. Required: - Prepare consolidated statement of financial position as at December 31, X0. Example 3 P holds 90% of the ordinary shares of S and 20% of the ordinary shares of Q. S also hold 60% of the ordinary shares of Q. Page 3 of 20

P acquired its holding in S on December 31, 19X4 when the accumulated profits of that company were 201,000. On the same date both companies acquired their shares in Q when the balance of accumulated profits was 67,000. The group has the policy of measuring NCI at fair value. The fair value of NCI in S at the date of acquisition is 65,000 and in Q 26% NCI has 75,000. The following summarized statements of financial position have been prepared at December 31, 20X1. P S Q Investment in subsidiaries S 600,000 Q 40,000 120,000 Sundry net assets 1,336,000 717,000 213,000 1,976,000 837,000 213,000 Equity-Ordinary share capital of 1 500,000 400,000 100,000 each Retained profits 1,476,000 437,000 113,000 1,976,000 837,000 213,000 Note: Goodwill arising on consolidation is capitalized and tested annually for impairment. No impairment has been detected to date. Required: Prepare consolidated statement of financial position for Group at December 31, 20X1. Example 4 P owns 75% of S and S own 90% of SS. The condensed income statements of all three companies are given as under: - P S SS Operating profit 100,000 80,000 20,000 Investment income Dividend from S 6,000 Dividend from SS 1,800 Profit before tax 106,000 81,800 20,000 Tax (40,000) (30,000) (7,000) Profit after tax 66,000 51,800 13,000 Dividend paid (35,000) (8,000) (2,000) Retained profit for the year 31,000 43,800 11,000 Required: - Consolidated income statement for the year then ended Example 5 Comprehensive illustration (Vertical) On April 01, 20X1 H Limited bought 80% of the issued share capital of K Limited and on April 01, 20X3 H Limited was itself taken over by P Limited, which purchased 75% of the ordinary shares in H Limited. The statement of financial position of three entities at October 31, 20X5 showed the following position. P H K Property, plant and equipment Freehold land 89,000 30,000 65,000 Page 4 of 20

Building 64,000 80,000 23,600 Plant 33,000 84,000 43,800 186,000 194,000 132,400 Investments Shares in H at cost 135,000 Shares in K at cost 130,000 Current assets Inventory 108,500 75,500 68,400 Trade receivables 196,700 124,800 83,500 Cash at bank 25,200 25,400 651,400 524,300 309,700 Capital and reserves Ordinary shares of 1 each 200,000 120,000 100,000 10% Preference shares each 40,000 Reserves 154,000 119,000 74,000 354,000 239,000 214,000 Current liabilities Bank overdraft 37,400 Trade payables 160,000 152,700 59,200 Income tax 57,400 47,200 24,500 Dividend payable 80,000 48,000 12,000 651,400 524,300 309,700 Additional information a) The fair value of net assets of H and K on April 01, 20x1 were 150,000 and 165,000 and on April 01, 20x3 were 175,000 and 185,000. The whole of fair value gain related to free hold lands which are not depreciated. The group has the policy of measuring non-current assets under cost model. b) At the date of acquisition P agreed to pay 30,000 to old shareholders of H if H earning per share exceed 2 per share within two years of acquisition. The earning target has not been satisfied by the end of two year. No accounting entries have been incorporated by P. c) At the date of acquisition of K, by the group there was an internet domain name not recognized by K has a fair value of 5,000 and useful life of five years. At the date of acquisition of H by P, H was having an operating lease contract favorable from market term by 5,000 and remaining lease term was 5 years at the date of acquisition. d) Dividend declared before the year-end by K is ordinary 10,000 and preference 2,000. e) Dividend by P and H is included in receivables. f) Items purchased by H from K and remaining in inventory at October 31, 20X5 are 25,000. K charges 20% profit element in the selling price. g) Included in the plant and equipment of K is equipment purchased from the manufacturers, P on January 01, 20X4 for 10,000. P recorded a profit of 2,000 on sale of the machine. The group charges depreciation on plant and equipment @ 10 % on each year. h) Intra group balances are included in receivables and payables respectively and are as follows: - Page 5 of 20

P Payable to H 45,600 Payables to K 28,900 H Receivables from P 56,900 K Receivables from P 28,900 i) A cheque drawn by P for 11,300 on October 28, 20X5 was received by H on November 3, 20X5. j) At April 01, 20X1 reserves in H were 28,000 and in K were 20,000 at April 01, 20X3 the figures were 40,000 and 60,000 respectively. k) The group has the policy of measuring NCI at proportionate share of fair value of net assets at the date of acquisition. l) Goodwill was completely written off some years ago following an impairment review. Required: - Prepare consolidated statement of financial position as at October 31, 20X5 for Sales and its subsidiaries. Example 6 Comprehensive illustration (Mix) The following statements of financial positions relate to Rodney, a public limited company, Del, a public limited company and Trigger a public limited company as at November 30, 2009. Rodney Del Trigger (m) (m) (m) Non- current assets Tangible 1,230 505 256 Investment in Del 640 -- -- Investment in Trigger 160 100 -- 2,030 605 256 Current assets Inventory 300 135 65 Trade receivables 240 105 49 Cash and bank 90 50 80 630 290 194 Total assets 2,660 895 450 Equity and liabilities Equity Share capital 1500 500 200 Share premium 300 100 50 Revaluation reserve -- -- 70 Retained earnings 625 200 60 2425 800 380 Non-current liabilities 135 25 20 Current liabilities 100 70 50 2,660 895 450 Page 6 of 20

It is the group s policy to value the non-controlling interest at fair value. The following information is relevant to the preparation of the group financial statements: (i) Rodney had acquired 80% of the ordinary share capital of Del on 1 December three years ago, when the retained earnings of Del were 100m. The fair value of the non-controlling interest was 154m at acquisition. The fair value of the net assets of Del was 710m at that date. Any fair value adjustments related to inventory and these had been realized by the current year end. There had been no new issues of shares in the group since the current group structure was created. (ii) Rodney and Del had acquired their holdings in Trigger on the same date as part of an attempt to mask the true ownership of Trigger. Rodney acquired 40% and Del acquired 25% of the ordinary share capital of Trigger two years ago. The fair value of the non-controlling interest in Trigger was 149m at acquisition. The retained earnings of Trigger on that date were 50m and those of Del were 150m. There was no revaluation reserve in the books of Trigger at acquisition. The fair values of the net assets of Trigger at acquisition were not materially different from their carrying values. (iii) The group operates in the pharmaceutical industry and incurs a significant amount of expenditure on the development of products. These costs were formerly written off to the income statement as incurred but then reinstated when the related products were brought into commercial use. The reinstated costs are shown as Development Inventory. The costs do not meet the development criteria in IAS 38, Intangible Assets for classification as intangibles and it is unlikely that the net cash inflows from these products will be in excess of the development costs. In the current year, Del has included 20m of these costs in inventory. (iv) Del had purchased a significant amount of new production equipment early in the year. The cost before trade discount of this equipment was 50m. The trade discount of 6m was taken to the income statement. Depreciation is charged on the straight-line basis over a six-year period. (v) The policy of the group is now to state tangible non-current assets at depreciated historical cost. The group changed from the revaluation model to the cost model under IAS 16, Property, Plant and Equipment at the current year start and restated all of its tangible non-current assets to historical cost in that year except for the tangible non-current assets of Trigger. These had been revalued by the directors of Trigger on the first day of the current year. The values were incorporated in the financial records creating a revaluation reserve of 70m. The tangible non-current assets of Trigger were originally purchased on 1 December two years before the current year end, at a cost of 300 million. The assets are depreciated over six years on the straight-line basis. The group does not make an annual transfer from revaluation reserves to the retained earnings in respect of the excess depreciation charged on revalued tangible non-current assets. There were no additions or disposals of the tangible non current assets of Trigger for the two years to the current year end. (vi) The goodwill resultant from the Del acquisition was impairment tested at the first and second year end after acquisition and again at the current year end. The first and second impairment reviews revealed no impairment. However, the current review identified a recoverable value of 809m for Del. There has been no impairment in Trigger s goodwill since acquisition. Page 7 of 20

Required: - Prepare a consolidated statement of financial position of the Rodney Group as at 30 November 2009? SUB-ASSOCIATE Example 1 The balance sheets of H, S and A at December 31, 20X0 are as follows: - H S A (000) (000) (000) Investments 23,500 10,000 -- Property, plant and equipment 20,000 22,000 25,000 Net current assets 8,000 6,000 5,000 51,500 38,000 30,000 Issued capital (1 each) 20,000 15,000 10,000 Accumulated profits 31,500 23,000 20,000 51,500 38,000 30,000 Notes: a) On December 31,20W5, when the accumulated profits of S showed a balance of 11 million, H purchased 12 million shares in S for 23.5 million. The fair value of NCI at the date of acquisition was 7.5 million. b) On December 31, 20W6, when the accumulated profits of A showed a balance of 12 million, S purchased 4 million shares in A for 10 million. c) There has been no impairment of goodwill yet. Required: - Prepare consolidated statement of financial position as at December 31, 20X0. Example 2 The balance sheets of P, S and A at December 31, 20X1 are as follows: - P S A (000) (000) (000) Investments 80,000 shares in S 130,000 -- 3,000 shares in A 5,000 -- Net assets 120,000 225,000 25,000 250,000 230,000 25,000 Issued capital (1 each) 100,000 100,000 10,000 Accumulated profits 150,000 130,000 15,000 250,000 230,000 25,000 Notes: a) P acquired the shares in S on December 31, 19X4, when its accumulated profits were 50,000. The fair value of NCI was 30,000. On the same day S acquired the shares in A, when its accumulated profits were 5,000. b) Goodwill arising on acquisition has been impaired fully to date. Required: - Consolidated statement of financial position as at December 31, 20X1 Page 8 of 20

ANSWERS TO EXAMPLES A 1 P group Consolidated statement of financial position As at December 31, 20X1 Assets Page 9 of 20 Sundry assets (11,900+5,500+1,200) 18,600 Goodwill (500+120) 620 19,220 Equity and liabilities Equity- ordinary share capital 10,000 Consolidated retained earnings 7,496 17,496 NCI 1,724 19,220 Workings P S SS W-1 Group structure 80 % % Group S 80 48 NCI 60 20 52 SS 100 100 Debit Credit W-2 Cost of control account-s Investment 5,100 Share capital 2,400 SRE-pre 2,200 Goodwill 500 5,100 5,100 W-3 Cost of control account-ss Investment 600 Share capital 144 SSRE-pre 336 Goodwill 120 600 600 W-4 NCI Share capital-s 600 Share capital-ss 156 SRE-pre 550 SRE-post 100 SSRE-pre 364 SSRE-post 104 Investment 150 C/d 1,724 1,874 1,874

W-5 Consolidated retained earnings B /f 7,000 SRE-post 400 SSRE-post 96 C/d 7,496 7,496 W-6 Subsidiary retained earnings S Pre Post B /f 2,750 500 Allocated to: Group 2200 400 NCI 550 100 W-6 Subsidiary retained earnings SS Pre Post B /f 700 200 Allocated to: Group 336 96 NCI 364 104 A-2 P group Consolidated statement of financial position As at December 31, 20X0 (m) (m) Assets Sundry assets (30+20+20-2) 68.00 Goodwill (2+0.75+1.5+1.25) 5.50 Current assets (10+6+5-0.4 20.60 94.10 Equity and liabilities Equity- ordinary share capital 30.00 Consolidated retained earnings 41.20 71.20 NCI 22.90 P 94.10 Workings 75 S SS W-1 Group structure S % % Group 60 75 45 NCI SS 25 55 100 100 Debit Credit W-2 Cost of control account-h (m) (m) Investment 20 Share capital 9 SRE-pre 9 Page 10 of 20

Goodwill 2 20 20 W-3 Cost of control account-s Investment 7.50 Share capital 4.50 SRE-pre 2.25 Goodwill 0.75 7.50 7.50 W-4 NCI Share capital-h 3.00 Share capital-s 5.50 HRE-pre 3.00 HRE-post 2.90 SRE-pre 2.75 SRE-post 5.50 Goodwill H 1.50 Goodwill S 1.25 Investment 2.50 C/d 22.90 25.40 25.40 W-5 Consolidated retained earnings B /f 30 Un-realized profit 2 HRE-post 8.70 SRE-post 4.50 C/d 41.20 43.20 43.20 W-6 Subsidiary retained earnings H Pre Post B /f 12 12 Un-realized profit (0.4) 12 11.6 Allocated to: Group 9 8.70 NCI 3 2.90 W-6 Subsidiary retained earnings S B /f 5 10 Allocated to: Group 2.25 4.5 NCI 2.75 5.5 W-7 NCI goodwill H S Fair value 7.5 9.50 Net assets Share capital 3 5.50 Pre- retained earnings 3 2.75 6 8.25 Page 11 of 20

A-3 P group Consolidated statement of financial position As at December 31, 20X1 1.50 1.25 Assets Sundry assets 2,266,000 Goodwill 120,000 2,386,000 Equity and liabilities Equity- ordinary share capital 500,000 Consolidated retained earnings 1,722,440 2,222,440 NCI 163,560 P 2,386,000 Workings 90% S Q W-1 Group structure S 20% % % Group 60% 90 74 NCI Q 10 26 100 100 Debit Credit W-2 Cost of control account-s Investment 600,000 Share capital 360,000 SRE-pre 180,000 Goodwill 59,100 600,000 600,000 W-3 Cost of control account-q Investment (40,000+108,000) 148,000 Share capital 74,000 SRE-pre 49,580 Goodwill 24,420 148,000 148,000 W-4 NCI Share capital-s 40,000 Share capital-q 26,000 SRE-pre 20,100 SRE-post 23,600 QRE-pre 17,420 QRE-post 11,960 Goodwill S 4,900 Goodwill Q 31,580 Page 12 of 20

Investment 12,000 C/d 163,560 175,560 175,560 W-5 Consolidated retained earnings B /f 1,476,000 SRE-post 212,400 QRE-post 34,040 C/d 1,722,440 1,722,440 1,722,440 W-6 Subsidiary retained earnings S Pre Post B /f 201,000 236,000 Allocated to: Group 180,900 212,400 NCI 20,100 23,600 W-6 Subsidiary retained earnings Q B /f 67,000 46,000 Allocated to: Group 49,580 34,040 NCI 17,420 11,960 W-7 NCI goodwill S Q Fair value 65,000 75,000 Net assets Share capital 40,000 26,000 Pre- retained earnings 20,100 17,420 60,100 43,420 Goodwill 4,900 31,580 A 4 P group Consolidated statement of comprehensive income For the year ended P 75 S SS Group structure S % % Group 90 75 67.50 NCI SS 25 32.50 100 100.00 P S SS Adj. Total Operating profit for the year 100,000 80,000 20,000 -- 200,000 Investment income Dividend from S 6,000 (6,000) -- SS 1,800 (1,800) -- Page 13 of 20

Profit before tax 106,000 81,800 20,000 (7,800) 200,000 Tax expense (40,000) (30,000) (7,000) -- (77,000) Profit after tax 66,000 51,800 13,000 (7,800) 123,000 Profit attributable to: - NCI (50,000x25%)* *(12,500) (4,225) (16,725) Owners of parent 66,000 39,300 8,725 (7,800) 106,275 A 5 P GROUP CONSOLIDATED FINANCIAL STATEMENT OF FINANCIAL POSITION AS AT OCTOBER 31, 20X5 Non-current assets Tangible assets Freehold land (184,000+40,000) 224,000 Building 167,600 Plant (160,800-2000+367) 159,167 550,767 Intangible assets Internet domain (5,000-2,583) 2,417 Operating lease contract (5,000-2,583) 2,417 4,834 555,601 Current assets Inventory (252,400-5,000) 247,400 Trade receivables (405,000-8,000-36,000-275,200 85,800) Cash and bank (50,600+11,300) 61,900 584,500 1,140,101 Equity and liabilities Ordinary share capital 200,000 Consolidated retained earnings 229,883 429,883 NCI 124,318 554,201 Non- current liabilities 10% preference share capital 40,000 Current liabilities Bank overdraft 37,400 Trade payables (371,900+11,300-85,800) 297,400 Income tax 129,100 Dividend payable (140,000-8,000-36,000-82,000 545,900 14,000) W-1 Group structure 1,140,101 Page 14 of 20

H K P % % Group 75 60 75% NCI H 25 40 100 100 80% K W-2 Cost of control account H K Investment 135,000 97,500 Contingent consideration 30,000 -- Total cost of investment 165,000 97,500 Share capital 90,000 60,000 Retained earnings 45,000 54,000 Goodwill/ Bargain purchase gain 30,000 (16,500) W-3 NCI Share capital (30,000+40,000) 70,000 Dividend payable 14,000 HRE-pre 15,000 HRE-post 19,104 KRE-pre 36,000 KRE-post 2,714 Investment (32,500) 124,318 W-4 Consolidated retained earnings P company 154,000 Contingent consideration 30,000 HRE-post 57,313 KRE-post 4,070 Bargain purchase gain 16,500 Depreciation (2,000) Goodwill (30,000) 229,883 W-5 Fair value gain H K Fair value 175,000 185,000 Share capital 120,000 100,000 Pre acquisition reserves 40,000 60,000 160,000 160,000 15,000 25,000 W-7 HRE KRE As per question 119,000 74,000 Adjustments Depreciation -- 367 Fair value gain 5,000 5,000 Fair value gain 15,000 25,000 Stock -- (5,000) Amortization (2,583) (2,583) Page 15 of 20

A 6 136,417 96,784 Allocation Cost of control account 45,000 54,000 Consolidated retained earnings 57,313 4,070 NCI 15,000 36,000 NCI 19,104 2,714 136,417 96,784 P group Consolidated statement of financial position As at December 31, 20X1 (m) (m) Assets Noncurrent assets PPE (1991-6+1-70+14) Goodwill (72+60+41-50) 1,930 123 2,053 Current assets Inventory (500-20) 480 Receivables 394 Cash and bank balances 220 1,094 Goodwill 3,147 Equity and liabilities Equity- ordinary share capital 1,500 Share premium 300 Consolidated retained earnings 651.40 2,451.40 NCI 295.60 2,747.00 Noncurrent liabilities 180 Current liabilities 220 R 3,147 Workings 80% S Q W-1 Group structure D 40% % % Group 20% 80 60 NCI T 20 40 100 100 Debit Credit W-2 Cost of control account-s (m) (m) Investment 640 Share capital 400 Page 16 of 20

Share premium 80 DRE-pre 88 Goodwill 72 640 640 W-3 Cost of control account-t Investment (160+80) 240 Share capital 120 Share premium 30 TRE-pre 30 Goodwill 60 148,000 148,000 W-4 NCI Share capital-d 100 Share capital-t 80 Share premium D 20 Share premium T 20 DRE-pre 22 DRE-post 13 TRE-pre 20 TRE-post 9.60 Goodwill D 12 Goodwill T 29 Investment 20 Impairment loss on goodwill 10 C/d 295.60 325.60 325.60 W-5 Consolidated retained earnings B /f 625.00 DRE-post 52.00 TRE-post 14.40 Impairment loss on goodwill 40.00 C/d 651.40 691.40 691.40 W-6 Subsidiary retained earnings D Pre Post B /f 100 100 Fair value gain 10 (10) Intangible asset -- (20) PPE (-6+1) (5) 110 65 Allocated to: Group 88 52 NCI 22 13 W-6 Subsidiary retained earnings T B /f 50 10 Extra depreciation -- 14 Page 17 of 20

50 24 Allocated to: Group 30 14.40 NCI 20 9.60 W-7 NCI goodwill D T Fair value 154 149 Net assets Share capital 100 80 Share premium 20 20 Pre- retained earnings 22 20 142 120 Goodwill 12 29 W-8 revaluation reserve Historic Revalued cost amount Cost 300 300 Depreciation 300/6 (50) (50) Carrying value 250 250 Revaluation surplus -- 70 Fair value 250 320 Depreciation 320/5 50 64 Extra depreciation to be reversed 14 W-9 impairment test Recoverable value 809 Carrying value of net assets Share capital 500 Share premium 100 Retained earnings (110+65) 175 775 Goodwill (72+12) 84 Total carrying value 859 Impairment loss 50 Consolidated retained earnings 40 NCI 10 Goodwill 50 Page 18 of 20

Answers to Sub-Associate Questions A-1 H Group Consolidated statement of financial position As at December 31, 20X0 Assets (000) (000) Property, plant and equipment 42,000 Goodwill (2,300+2,700) 5,000 Investment in associate (10,000+3,200) 13,200 60,200 Net current assets 14,000 74,200 Equity and liabilities Equity Ordinary share capital 20,000 Retained earnings 43,660 63,660 Non-controlling interest 10,540 74,200 W-1 Group structure S A % % Group 80 32 NCI 20 8 100 40 W-2 Cost of control account (000) (000) Cost of investment 23,500 Share capital 12,000 SRE-pre (11,000x80%) 8,800 20,800 Goodwill 2,700 W-3 NCI goodwill Fair value of NCI 7,500 Share capital 3,000 SRE-pre (11,000x80%) 2,200 5,200 Goodwill 2,300 W-4 NCI Fair value of NCI 7,500 SRE-post (12,000x20%) 2,400 Share from associate {(20,000-12,000)x40%}x8/40 640 10,540 W-5 Consolidate retained earnings Balance 31,500 SRE-post (12,000x80%) 9,600 Share from associate {(20,000-12,000)x40%}x32/40 2,560 43,660 Page 19 of 20

A-2 P Group Consolidated statement of financial position As at December 31, 20X0 Assets (000) (000) Net current assets 345,000 Investment in associate (5,000+3,000) 8,000 353,000 353,000 Equity and liabilities Equity Ordinary share capital 100,000 Retained earnings 208,400 308,400 44,600 Non-controlling interest 253,000 W-1 Group structure S A % % Group 80 24 NCI 20 6 100 30 W-2 Cost of control account (000) (000) Cost of investment 130,000 Share capital 80,000 SRE-pre (50,000x80%) 40,000 120,000 Goodwill 10,000 W-3 NCI goodwill Fair value of NCI 30,000 Share capital 20,000 SRE-pre (11,000x80%) 10,000 30,000 Goodwill -- W-4 NCI Fair value of NCI 30,000 SRE-post (80,000x20%) 16,000 Impairment loss on goodwill (10,000x20%) (2,000) Share from associate {(15,000-5,000)x30%}x6/30 600 44,600 W-5 Consolidate retained earnings Balance 150,000 SRE-post (80,000x80%) 64,000 Impairment loss on goodwill (8,000) Share from associate {(15,000-5,000)x30%}x24/30 2,400 208,400 Page 20 of 20