Advanced Consolidation Question 47

QUESTION 47: ADVANCED CONSOLIDATION

Minny is a company which operates in the service sector. Minny has business relationships with
Bower and Heeny.

All three entities are public limited companies. The draft statements of financial position of these
entities are as follows at 30 November 2012:

Minny Bower Heeny

$m $m $m
Assets:
Non-current assets
Property, plant and equipment 920 300 310
Investments in subsidiaries
Bower 730 - -
Heeny - 320 -
Investment in Puttin 48 - -
Intangible assets 198 30 35
1,896 650 345
Current assets 895 480 250
Total assets 2,791 1,130 595
Equity and liabilities:
Share capital 920 400 200
Other components of equity 73 37 25
Retained earnings 895 442 139
Total equity 1,888 879 364
Non-current liabilities 495 123 93
Current liabilities 408 128 138
Total liabilities 903 251 231
Total equity and liabilities 2,791 1,130 595

The following information is relevant to the preparation of the group financial statements:
1. On 1 December 2010, Minny acquired 70% of the equity interests of Bower. The purchase
consideration comprised cash of $730 million. At acquisition, the fair value of the non-
controlling interest in Bower was $295 million. On 1 December 2010, the fair value of the
identifiable net assets acquired was $835 million and retained earnings of Bower were $319
million and other components of equity were $27 million. The excess in fair value is due to non-
depreciable land.

2. On 1 December 2011, Bower acquired 80% of the equity interests of Heeny for a cash
consideration of $320 million. The fair value of a 20% holding of the non-controlling interest
was $72 million; a 30% holding was $108 million and a 44% holding was $161 million. At the
date of acquisition, the identifiable net assets of Heeny had a fair value of $362 million,
retained earnings were $106 million and other components of equity were $20 million. The
excess in fair value is due to non-depreciable land.
It is the group’s policy to measure the non-controlling interest at fair value at the date of
acquisition.

3. Both Bower and Heeny were impairment tested at 30 November 2012. The recoverable
amounts of both cash generating units as stated in the individual financial statements at 30

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Advanced Consolidation Question 47

November 2012 were Bower, $1,425 million, and Heeny, $604 million, respectively. The
directors of Minny felt that any impairment of assets was due to the poor performance of the
intangible assets. The recoverable amount has been determined without consideration of
liabilities which all relate to the financing of operations.

4. Minny acquired a 14% interest in Puttin, a public limited company, on 1 December 2010 for a
cash consideration of $18 million. The investment was accounted for under IFRS 9 Financial
Instruments and was designated as at fair value through other comprehensive income. On 1
June 2012, Minny acquired an additional 16% interest in Puttin for a cash consideration of $27
million and achieved significant influence. The value of the original 14% investment on 1 June
2012 was $21 million. Puttin made profits after tax of $20 million and $30 million for the years
to 30 November 2011 and 30 November 2012 respectively. On 30 November 2012, Minny
received a dividend from Puttin of $2 million, which has been credited to other components of
equity.

5. Minny purchased patents of $10 million to use in a project to develop new products on 1
December 2011. Minny has completed the investigative phase of the project, incurring an
additional cost of $7 million and has determined that the product can be developed profitably.
An effective and working prototype was created at a cost of $4 million and in order to put the
product into a condition for sale, a further $3 million was spent. Finally, marketing costs of $2
million were incurred. All of the above costs are included in the intangible assets of Minny.

6. Minny intends to dispose of a major line of the parent’s business operations. At the date the
held for sale criteria were met, the carrying amount of the assets and liabilities comprising the
line of business were:
$m
Property, plant and equipment (PPE) 49
Inventory 18
Current liabilities 3

It is anticipated that Minny will realise $30 million for the business. No adjustments have been
made in the financial statements in relation to the above decision.

Required:
Prepare the consolidated statement of financial position for the Minny Group as at 30 November
2012. (35 marks)

ACCA P2 – December 2012 – Q1a

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Advanced Consolidation Question 47

ANSWER TO QUESTION 47: ADVANCED CONSOLIDATION

Minny Group
Consolidated Statement of Financial Position
As at 30 November 2012

$m
Non-current assets
PPE $920 + 300 + 310 + 89 J1 + 36 J2 – 49 J9 1,606
Goodwill W3 190
Intangible assets $198 + 30 + 35 – 27 J4 – 9 J8 227
Investment in Puttin $48 + 4.5 J6 – 2 J7 50.5

Current assets $895 + 480 + 250 – 18 J9 1,607

Disposal group $33 J9 33
3,713.5

Share Capital 920

Retained earnings W6 936.08
Other components of equity W6 77.80

Non-controlling interest W5 394.62

Non-Current Liabilities $495 + 123 + 93 711

Disposal group $3 J9 3
Current Liabilities $408 + 128 + 138 – 3 J9 671
3,713.5

W1 GROUP STRUCTURE
Bower Subsidiary Acquisition: 1 Dec 2010 Group 70% NCI 30%
Heeny Subsidiary Acquisition: 1 Dec 2011 Group 70% x 80% = 56% NCI 44%
$m

W2 NET ASSETS (of subsidiaries) AT ACQUISITION Bower Heeny

Equity share capital 400 200
Retained earnings (pre) 319 106
Other reserves (Pre) 27 20
J1 89
J2 36
835 362

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Advanced Consolidation Question 47

W3 GOODWILL Bower Heeny

Investment [730] ; [320 - 96 J3] 730 224
Less: [835 W2 x 70%] ; [362 W2 x 56%] (584.5) (202.72)
145.5 21.28
Fair value of NCI 295 161
Less: [835 W2 x 30%] ; [362 W2 x 44%] (250.5) (159.28)
44.5 1.72
190 23
J4 (23)
190 0

W4 POST ACQUISITION RESERVES RE OR

Bower Heeny Bower Heeny
Balance 123 33 10 5
J4 (50)
123 (17) 10 5

W5 NON CONTROLLING INTEREST Bower Heeny

[835 W2 x 30%] ; [362 W2 x 44%] 250.5 159.28
NCI goodwill W3 44.5 1.72
[123 + 10 = 133 W4 x 30%] ; [(17) + 5 = (12) W4 x 44%] 39.9 -5.28
J3 (96)
238.9 155.72

W6 GROUP RESERVES RE OR
Parent reserves 895 73
J5 3 (3)
J6 4.5
J7 (2)
J8 (9)
J9 (34)
859.5 68
Bower [123 & 10 W4 x 70%] 86.1 7
Heeny [(17) & 5 W4 x 56%] (9.52) 2.8
936.08 77.8

$m
JOURNAL ENTRIES WITH WORKINGS
Dr. Cr.

PPE 89
(i) 1
RE Pre (Bower) 89
Fair value adjustment

PPE 36
(ii) 2
RE Pre (Heeny) 36
Fair value adjustment

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Advanced Consolidation Question 47

NCI (Bower) 96
(ii) 3
Investment in Heeny 96
Indirect investment 320 x 30% = 96

RE (Heeny) 50
(iii) 4 Goodwill 23
Intangible assets 27
Bower: $1,425 Recoverable amount – [1,130 Total assets + 89 J1 + 190 W3] = No impairment
Heeny: $604 Recoverable amount – [595 Total assets + 36 J2 + 23 W3] = $50 impairment

OCI (Minny) 3
(iv) 5
RE (Minny) 3
On achieving significant influence

Investment in Puttin 4.5

(iv) 6
RE (Minny) 4.5
Share of profit $30m x 30% x 6/12 = $4.5

OCI (Minny) 2
(iv) 7
Investment in Puttin 2
Dividend from associate

RE (Minny) 9
(v) 8
Intangible assets 9
Expense incorrectly capitalised now corrected

Disposal group (Assets) 33

Current liabilities 3
RE (Minny) 34
(vi) 9
PPE 49
Inventory 18
Disposal group (L) 3
Transfer under IFRS 5

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