Addis Ababa University

College of Business and Economics

School of Commerce

Department of Accounting and Finance

Assignment on Advanced Accounting

Prepared by: Bezawit Abrham

ID No.: BEE/1370/09

Sec: E4A1

Submitted to: Instructor Kiros E.

June, 2020

Addis Ababa, Ethiopia

 1.

(a) Workings
Working 1 Group structure
1/4/X8 Pedantic acquired 60% of Sophistic which is Mid-year acquisition, six months before
year end
Working 2 Cost of sales $'000
Pedantic 63,000
Sophistic (32 x 6/12) 16,000
Intra group sales (8000)
Unrealized profit in inventory 800
Additional depreciation (2000/5yrs x 6/12) 200
72,000
Working 3 Goodwill $'000 $'000
Consideration transferred (W5) 9,600
Fair value of non-controlling interests (note IV) 5,900
Less: Fair value of net assets at acquisition:
Share capital 4,000
Retained earnings 5,000
Fair value adjustment note (iii) / (W6) 2,000
(11,000)
Goodwill 4,500

Working 4 Retained earnings Pedantic Co Sophistic Co

$'000 $'000
Per question 35,400 6,500
Movement on FV adjustment note (i) / (W6) (200)
PUP note (ii) / (W7) (800)
Pre- acquisition (5,000)
500
Group share (500 x 60%) 300
35,700
Working 5 Non-controlling interests $'000
NCI at acquisition W2 5,900
NCI share of post-acquisition retained earnings ((W3) 500 × 40%) 200
6,100

Working 6 Share exchange Debit Credit

$'000 $'000
Consideration transferred (4,000 x 60% x 2/3 = 1,600 x $6) 9,600
Share capital of Pedantic Co (1,600 x $1) 1,600
Share premium of Pedantic Co (1,600 x $5) 8,000

Working 7 Fair value adjustments $’000 $'000 $'000

Acquisition Movement Year end
1/4/X8 6/12 30/9/X8
Plant note (i) (*$2m / 5 x 6/12) 2,000 (200)* 1,800

Working 8 Intragroup trading $'000 $'000

Eliminate unrealised profit on inventories
Cost of sales/retained earnings ((8,000 – 5,200) x 40 / 140) 800
Inventories (SOFP) 800

Working 9 Current assets (alternative presentation of working) $'000

Pedantic 1 6,000
Sophistic 6,600
Unrealised profit in inventory (W7) (800)
Intercompany receivables (per question) (600)
Cash in transit (W9) 200
21,400
Working 10 Cash in transit Debit Credit
Receivables 600
Payables 400
Cash 200

a. Prepare the consolidated statement of P/L for Pedantic for the year ended 30 Sep
20X8.
Pedantic
Consolidated income statement
For the year ended 30 September 2008
$’000
Revenue (85,000 + (42,000 x 6/12) – 8,000 intra-group sales) 98,000
Cost of sales (w 2) (72,000)
Gross profit 26,000
Distribution costs (2,000 + (2,000 x 6/12)) (3,000)
Administrative expenses (6,000 + (3,200 x 6/12)) (7,600)
Finance costs (300 + (400 x 6/12)) (500)
Profit before tax 14,900
Income tax expense (4,700 + (1,400 x 6/12)) (5,400)
Profit for the year 9,500

Attributable to:
Equity holders of the parent 9,300
Non-controlling interest (((3,000 x 6/12) – (800 URP + 200 depreciation)) x 40%) 200
9,500
b. Prepare the consolidated statement of financial position for Pedantic as at 30 Sep
20X8.
 PEDANTIC CO
Consolidated Statement OF Financial Position
AT 30 September 20X8
$'000
Non-current assets
Property, plant and equipment (40,600 + 12,600 + 1,800 (W7)) 55,000
Goodwill (W3) 4,500
59,500
Current assets (16,000 + 6,600 – 800 PUP – 600 + 200 CIT) ((W10)) 21,400
Total assets 80,900

Equity attributable to owners of the parent

Share capital (10,000 +1,600 (W6)) 11,600
Share premium (W6) 8,000
Retained earnings (W4) 35,700
55,300
Non-controlling interests (W5) 6,100
61,400
Non-current liabilities
10% loan notes (3,000 + 4,000) 7,000
Current liabilities (8,200 + 4,700 – 400 (W10)) 12,500
80,900
 2.
Workings
Working 1 Retained earnings
Pyramid Square
$’000 $’000
Per question 30,200 27,000
Less: pre-acquisition (19,000)
8,000
Depreciation on fair value adjustment (600)
Unwinding of discount on deferred consideration (5,760 × 10%) (576) .
29,624 7,400

Square (7,400 x 80%) 5920

35,544

a) Good will
Goodwill $’000 $’000
Consideration transferred
Share exchange ($6 × (9,000 × 80%) × 2/3) 28,800
Deferred consideration (((9,000 × 80%) × 0.88) × 1/1.1) 5,760
34,560

Non-controlling interest at fair value ((9,000 × 20%) × 3.5) 6,300

40,860
Fair value of net assets:
Shares 9,000
Retained earnings 19,000
Fair value adjustment on plant 3,000
Deferred tax liability (1000)
(30,000)
Goodwill 10860
b) PPE
Property, plant and equipment $’000
Pyramid 38,100
Square 28,500
Fair value adjustment 3,000
Depreciation on fair value adjustment (3,000 / 5) (600)
69,000

c) Equity $’000

Attributable to owners of parent:

Share capital (50,000 + (9,000 × 80%) × 2/3)) 54,800
Share premium (4,800 × $5) 24,000
Other components of equity 8,000
Retained earnings (W1) 35,544
122,344
d) Non-controlling interests $’000
FV of NCI at acquisition (a) 6,300
Share of post-acquisition retained earnings ((8,000 – 600) × 20%) 1,480
7,780
3. Workings
Working 1 Goodwill
Consideration $000 $000
Share exchange (80%*9000*2/3*3) 14,400
Deferred cons. (80%*9000*0.275/1.1) 1,800
NCI (20%*9000*2.5) 4,500
Less: FV of net asset of S
Share capital 9,000
RE- 2014/1/13(500-2000*9/12) 2,000
Fair value adjustment
Property 4,000 (15,000)
Goodwill- Acq. Date 5,700
Impairment (500)
Goodwill- 2014/09/30 5,200

Debit Credit
Investment in S 16,200
Share capital 4,800
Share premium 9,600
Current liability 1,800

Current liability 135

Finance cost (RE) 135
Working 2 Fair value adjustment
Acq. Date Movement Year end
2014/01/01 2014/09/30
$000 $000 $000
Property 4,000 (100) 3,900
Working 3 Intra-group sale ($000)
URP= 600*25/ (100+25) = 120
Debit Credit
Revenue 2,700
Cost 2,700
Inventory 120
Cost – P 120
Intra-group balance ($000)
Debit Credit
Bank 400
Trade receivable 400
Debit Credit
Trade receivable 800
Trade payable 800
Investment in loan 1,000
10% loan notes 1,000
Working 4 Consolidated Retained earning
Plastik Subtrak
$000 $000
Per question 6,300
Post-acquisition 1,500
Unwinding interest (135)
GW impairment (500)
Additional depreciation (100)
URP (120)
900
Group Share 720
6,765
Working 5 NCI $000
At Acquisition 4,500
Share of post-acq. RE of S 180
Share of post-acq. OCE of S (600*20%) 120
4,800
Working 6 NCI - financial performance PFY TCI
$000 $000
Per Question (2000*9/12) 1,500 2,100
Additional Depreciation (100) (100)
URP - S
Goodwill impairment
(500) (500)
900 1,500
20% 20%
180 300
 a) Plastik
Consolidated statement of profit or loss and other comprehensive income
For the year ended 30 September 2014
$’000
Revenue (62,600 + (30,000 x 9/12) – (300 x 9 months intra-group sales)) 82,400
Cost of sales (w (i)) (61,320)
Gross profit 21,080
Distribution costs (2,000 + (1,200 x 9/12)) (2,900)
Administrative expenses (3,500 + (1,800 x 9/12) + 500 goodwill impairment) (5,350)
Finance costs (200 + 135 (w (v))) (335)
Profit before tax 12,495
Income tax expense (3,100 + (1,000 x 9/12)) (3,850)
Profit for the year 8,645
Other comprehensive income
Gain on revaluation of property (1,500 + 600) 2,100
Total comprehensive income 10,745
Profit for year attributable to:
Equity holders of the parent (balance) 8,465
Non-controlling interest (w (ii)) 180
8,645
Total comprehensive income attributable to:
Equity holders of the parent (balance) 10,445
Non-controlling interest (180 above + (600 x 20%)) 300
10,745
b) Plastik
Consolidated statement of financial position
As at 30 September 2014
$’000
Assets
Non-current assets
Property, plant and equipment (w (iii)) 37,100
Intangible asset: goodwill (w (iv)) 5,200
42,300
Current assets
Inventory (4,300 + 1,200 – 120 URP (w (i))) 5,380
Trade receivables (4,700 + 2,500 – 1,200 intra-group) 6,000
Bank 300
11,680
Total assets 53,980
Equity and liabilities
Equity attributable to owners of the parent
Equity shares of $1 each ((10, 000 + 4,800) w (iv)) 14,800
Other component of equity (share premium) (w (iv)) 9,600
Revaluation surplus (2,000 + (600 x 80%)) 2,480
Retained earnings (w (v)) 6,765
33,645
Non-controlling interest (w (vi)) 4,800
Total equity 38,445
Non-current liabilities
10% loan notes (2,500 + 1,000 – 1,000 intra-group) 2,500
Current liabilities
Trade payables (3,400 + 3,600 – 800 intra-group) 6,200
Current tax payable (2,800 + 800) 3,600
Deferred consideration (1,800 + 135 w (v)) 1,935
Bank (1,700 – 400 cash in transit) 1,300
13,035
Total equity and liabilities 53,980
c) IFRS 3 Business Combinations addresses the recognition of separable intangibles assets.
Both of the items which the directors of Plastik have identified in the acquisition of
Dilemma should be recognized as separate intangible assets on the acquisition of
Dilemma. Both IFRS 3 Business Combinations and IAS 38 Intangible Assets require in-
process research in a business combination to be separately recognized at its fair value
 provided this can be reliably measured ($1·2 million in this case). The recognition of
customer list as an intangible asset is a specific illustrative example given in IFRS 3 (IE
24) and should also be recognized at its fair value of $3 million.
Workings ($’000)
$’000 $’000
(i) Cost of sales
Plastik 45,800
Subtrak (24,000 x 9/12) 18,000
Intra-group purchases (300 x 9 months) (2,700)
URP in inventory (600 x 25/125) 120
Additional depreciation on property 100
61,320
$’000 $’000
(ii) Non-controlling interests in Subtrak’s profit or loss
Subtrak’s profit as reported 2,000
9/12 post-acquisition 1,500
Deduct: Additional depreciation on property (100)
Goodwill impairment (500)
Adjusted post-acquisition profit 900
X 20% non-controlling interest 180
$’000 $’000
(iii) Non-current assets
Plastik 18,700
Subtrak 13,900
Fair value increase at acquisition 4,000
Additional depreciation on property (100)
Fair value increase since acquisition 600
37,100
 $’000 $’000
(iv) Goodwill in Subtrak
Investment at cost
Shares (9,000 x 80% x 2/3 x $3) 14,400
Deferred consideration (9,000 x 80% x 27·5 cents x 1/1·1) 1,800
Non-controlling interest (9,000 x 20% x $2·50) 4,500
20,700
Net assets (equity) of Subtrak at 30 September 2014 (12,500)
Less post-acquisition profits (2,000 x 9/12) 1,500
Fair value adjustment: property (4,000)
Net assets at date of acquisition (15,000)
Goodwill on consolidation, 700
Impairment as at 30 September 2014 (500)
5,200
Note: The 4·8 million (9,000 x 80% x 2/3) shares issued by Plastik at $3 each would be recorded
as share capital of $4·8 million (4,800 x $1) and share premium of $9·6 million (4,800 x $2).
$’000 $’000
(v) Retained earnings
Plastik 6,300
Subtrak’s post-acquisition adjusted profit (900 (w (ii)) x 80%) 720
Finance costs on deferred consideration (1,800 x 10% x 9/12) (135)
Unrealised profit in inventory (w (i)) (120)
6,765
Alternative calculation
Plastik’s retained earnings at 30 September 2014 6,300
Less: Plastik’s profit for the year (8,000)
Consolidated profit for the year from part (a) 8,465
6,765
 $’000 $’000
(vi) Non-controlling interest in statement of financial position
At date of acquisition (w (iv)) 4,500
Post-acquisition from statement of profit or loss and other comprehensive income 300
4,800