Advanced Consolidation Question 40

QUESTION 40: ADVANCED CONSOLIDATION

Interior Company, incorporated in 2001 and listed in Karachi stock exchange, is engaged in the
import of items of home appliances and interior designing. The company imports all items from a
UAE based trading company. During 2012, due to increasing competition, the management
decided to acquire shares in the supplier to have competitive advantage in local market.

On July 1, 2012, Interior Company acquired shares of Al-Jadeed Inc., whose functional currency is
UAE Dirhams (Dhs). The company purchased 7,500 shares @ Dhs 6.75 per share when the
retained earnings of Al-Jadeed Inc., were Dhs 30,000.

The statements of financial position of the above companies at June 30, 2013 were as follows:

Statements of Financial Position

Interior Al-Jadeed
Company Inc.,
PKR Dhs
Assets
Non-current assets 2,500,000 55,000
Investment in Al-Jadeed Inc. 1,417,500 -
Current assets 1,100,000 17,000
5,017,500 72,000
Equity and Liabilities
Equity capital (Rs. 10/ Dhs 1) 1,200,000 10,000
Retained earnings 2,017,500 45,000
Long-term loan 1,000,000 2,000
Current liabilities 800,000 15,000
5,017,500 72,000

Additional Information:
(i) At the date of acquisition, the fair value of the net assets of Al-Jadeed Inc., was Dhs
50,000. The increase in the fair value is attributable to the plant with a remaining useful life
of 5 years at the date of acquisition. This plant is still held by Al-Jadeed Inc., and was not
revalued till reporting date.

(ii) During the year, Al-Jadeed Inc., sold some goods to Interior Company for Dhs 5000 @ 25%
markup on cost. 30% of these goods remain unsold at reporting date.

(iii) On January 1, 2013, Interior Company made a short-term loan to Al-Jadeed Inc., of Rs.
130,000. The liability is recorded by Al-Jadeed Inc., at the historic rate. The loan is recorded
within current assets and liabilities as appropriate.

(iv) The non-controlling interest is valued using the proportion of net assets method. No shares
have been issued since the date of acquisition. The presentational currency of the group is
Pak Rupees.

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Advanced Consolidation Question 40

(v) Exchange rates at different dates are as follows:

Pak Rs. per
Dhs
July 1, 2012 28.00
Average rate 29.00
January 1, 2013 26.00
June 30, 2013 30.00

Required:
Prepare the Consolidated Statement of Financial Position of Interior Group as at June 30, 2013.
(20)

ICMAP 501 – Extra Attempt 2014 – Q2

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Advanced Consolidation Question 40

ANSWER 40: ADVANCED CONSOLIDATION

Interior Company
Consolidated Statement of Financial Position
As at June 30, 2013
Non-current assets Rs.
PPE 2,500,000 + [55,000 x 30] + [10,000 J1 x 30] – [2,000 J2 x 30] 4,390,000
Goodwill W3 393,750
4,783,750
Current assets 1,100,000 + [17,000 x 30] – [300 J3 x 30] – 130,000 J5 1,471,000

6,254,750
Equity
Share Capital 1,200,000
Retained earnings W6 2,308,225
Exchange reserves W6 111,275
3,619,500
Non-controlling interest W5 475,250
4,094,750
Non - Current Liabilities
Long term loan 1,000,000 + [2,000 x 30] 1,060,000

Current liabilities 800,000 + [15,000 x 30] – [667 J4 x 30] – 130,000 J5 1,100,000

6,254,750

W1 GROUP STRUCTURE
Al Jadeed Inc Subsidiary Acquisition: 01.07.2012 Group = 75% NCI 25%
Rs.

W2 NET ASSETS (of subsidiaries) AT ACQUISITION Al-J

Equity share capital 10,000 x 28 280,000
RE 30,000 x 28 840,000
J1 [10,000 x 28] 280,000
1,400,000
Translation gain to W4 100,000
1,430,000 / 28 x 30 1,500,000

W3 GOODWILL Al – J
Investment 1,417,500
Less: [1,400,000 W2 x 75%] (1,050,000)
367,500
Translation gain to W6 26,250
367,500 / 28 x 30 393,750

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Advanced Consolidation Question 40

W4 POST ACQUISITION RESERVES (of subsidiaries) Al – J

ER RE
RE [45,000 – 30,000] x 30 450,000
J2 [2,000 x 30] (60,000)
J3 [300 x 30] (9,000)
J4 [667 x 30] 20,000
401,000
Transfer to ER 401,000 – 401,000 / 30 x 29 13,367 (13,367)
Transfer from W2 100,000
113,367 387,633

W5 NON CONTROLLING INTEREST Al – J

[1,400,000 W2 x 25%] 350,000
[113,367 & 387,633 W4 x 25%] 125,250
475,250

W6 GROUP RESERVES ER RE
Parent reserves 2,017,500
Transfer from W3 26,250
2,017,500
RE [113,367 & 387,633 W4 x 75%] 85,025 290,725
111,275 2,308,225

PPE 10,000 Dhs

(-) 1
RE (S Pre) 10,000 Dhs
SC 10,000 + RE Pre 30,000 = 40,000 – 50,000 FV = 10,000 Dhs

RE (S) 2,000 Dhs

(-) 2
PPE 2,000 Dhs
Extra depreciation 10,000 / 5 years = 2,000

RE (S) 300 Dhs

(-) 3
Inventory Dhs
Unrealised profit 5,000 x 30% = 1,500 x 25/125 = 300 Dhs

Current liabilities 667 Dhs

(-) 4
RE (S) 667 Dhs
At historic rate 130,000 / 26 = 5,000 Dhs
At closing rate 130,000 / 30 = 4,333.33 Dhs
Difference 666.67 Dhs

Current liabilities 130,000 PKR

(-) 5
Current assets 130,000 PKR
Intra group loan cancelled

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