Consolidation

i. Basic Consolidation
SOFP
ii Adjustment
iii Consolidated P/L
iv Consolidated SOCE
v Consolidated Cash Flows
vi Associate & Joint ventures
vii Joint Operations
viii Further Acquisition→ Gaining control
ix Further Acquisition→ with retention of control
x Full disposal
xi Partial Disposal → with retention of control
xii Partial Disposal→ with Loss of control
xiii Foreign Operations
xiv Hedge of net investment in Foreign Operations

Concept (1)Post acquisition Earnings

When a subisidiary is acquired, earnings earned after acquisition are relevant for us rather earnings earned before acquisit
Earnings earned before acquisition are classified into Pre-acq R.earns

Concept (2)12 Months Corridor

A 12 month period where the related goodwill can be adjusted prospectively i.e. if Net assets turns out to be less then the con
would be more than the original assessment. This change is allowed for a period of 12 months.

Full Goodwill Partial Goodwill

Net assets solely acquired by Partial goodwill will result in case where
Parent will result into full goodwill alongwith parent other share is acquired by NCI.

Concept (3)Process of Consolidation

(i) Consolidation is done every year, there is no opening balances of consolidation.

(ii) Separate accounts → responsibility for a company who is not required to prepare consolidated accounts
(ii) Standalone accounts → responsibility for a company who is required to prepare consolidated accounts

Adjustment # 1: Intra group Receivable / Payable

Parent Subsidiary Adjustment

(i) Receivable = 100 Payable = 90 Payable 90
Cash in Transit 10
Receivable 100

(ii) Receivable = 100 Payable = 82 Payable 82

Cash in Transit 18
Receivable 100

(iii) Investment = 50 Loan Payable = 50 Loan payable 50

Investment 50

(iv) Inv. In Pref shares = 50 Pref. share cap = 50 Pref share cap 50
Investment 50

(v) Inv. In ordinary shares = Ord. share cap = 50 Ordinary shares 50

Investment 50
(vi) Interest Rec = 50 Interest Payable = 50 Int. payable 50
Int. Receivable 50

(vii) Div. Receivable = 50 Div. Payable = 60 Div. payable 50

Div. Receivable 50

Scenario #

Year end BOD date Reporting dateBook Closure

31-Dec-21 15-Mar-22 31-Mar-22 6-Apr-22

on the BOD subisidiary announces dividend.

therefore on that date Dividend payable is to be recorded.

Parent would be entitled for the dividend at the book closure date
As, reporting date is before the book closure and to avoid accounting mis-match
Dividend payable is reversed from subsidiary Retained earnings.
(Because there is no receivable, payable should be reversed)

Illustration # 1:
Abad Limited Acquired 80% shares of Banjar Limited on 1 Jan 2015
Statement of Financial Position at 31 December 2016 are as under:
Abad Banjar
Property Plant & Equipm 486,000 445,000
Investments 870,000 465,000
Account Receivable 45,000 60,750
Interest Receivable 65,000 87,750
Dividend Receivable 120,000 162,000
Cash 210,000 228,000
1,796,000 970,750

Share Capital 500,000 200,000

Retained Earnings 900,000 648,500
Loan Payable 150,000 300,000
Interest Payable 100,000 80,000
Dividend Payable 128,000 150,000
Account Payable 18,000 70,000
1,796,000 1,448,500
Banjar's Retained earnings at the date of acquisition was Rs. 150,000
Accounts Receivable of Abad limited includes Rs. 24,800 whereas the same was
appearing in the Books of Banjar at Rs. 16,400.

All the interest income earned by parent is from Banjar.

Investment of Abad include is Rs. 360,000 given as a Loan to Banjar.

Required: Consolidated Statement of Financial Position

Solution:
(i) Net Assets
At acquisition At Reporting Date

Share Capital 200,000 200,000

Reserves 150,000 648,500
FV of Net Assets 350,000 848,500

498,500
Parent (80%) 398,800 99,700 (NCI 20%)
(ii) Goodwill (Partial)
Consolidated Statement of Financial Position
Consideration Paid 510,000
Net Assets (280,000) Assets Partial Goodwill
Goodwill 230,000 Goodwill 230,000
Property Plant & Equipment 931,000
(iii) NCI (Proportionate share of Net Assets) Investment (BL) 465,000
Account Receivable 80,950
Share of Net Assets (At A 70,000 (350,000 * 20%) Interest Receivable 87,750
Post-Acquisition Earning 99,700 (498,500 * 20%) Dividend Receivable 162,000
169,700 Cash 438,000
(IV) GROUP RESERVES Cash in Transit 68,400
2,463,100
Parent Retained earning 900,000
Post-Acquisition earning 398,800
1,298,800
ings earned before acquisition.

ns out to be less then the consideration goodwill

Financial Position

Partial Goodwill Equity and Liabilities

Share Capital (parent on 500,000
Group Reserves 1,298,800
NCI 169,700
Loan Payable (BL) 150,000
(65000+87750-65000) Interest payable 115,000
(120000+162000-120000) 158,000
Account payable 71,600
(24,800-16,400 + 60,000) 2,463,100
 Intangibles of Subsidiary

On Books off Books

Separate Fair value Separately not Separate FV and Life Separate FV and Life
Available Tradeable is Determinable is not Determinable

Seperately
Take it to FV on Acq date Eliminate on Acquisition Recognised in Treated as Goodwill
& Depreciate it at and Reporting date Consolidated Books & (never depreciated)
Reporting date Amortize thereof.

Illustration # 2:

A Limited Acquired 70% shares in B limited in July 2011 when the R/earns
of the company stood at Rs. 300,000. Statement of Financial Position of
both companies at 31st December 2014 are as under:
ABC DEF
Property Plant & Equipm 1,450,000 720,000
Account Receivable 125,000 191,250
Intangibles 800,000 150,000
Investments 692,000 10,000
Stock 400,000 128,750
3,467,000 1,200,000

Share Capital 1,200,000 300,000

Reserves 1,764,550 775,000
Liabilities 502,450 125,000
3,467,000 1,200,000
Other Information
Breakup of Intangibles of B limited is as under:

Carrying Amount
At Acq At RD Fv at Acq Details
Goodwill 35,000 25,000 Nil Note 1
Software 126,000 63,000 168,000 Note 2
Others 70,000 62,000 70,000 Note 3
231,000 150,000
Note 1
The goodwill in the books of B limited was recognised when it acquired a sole trading
business in 2009. At the date of acquisition the goodwill was appearing in the books
at Rs. 35,000, however it was impaired by Rs. 10,000 subsequently.

Note 2
The Fair value of the software at the acquisition date was Rs. 168,000.
Remaining useful life of the software at the date of acquisition was seven years.

Note 3
Book values and Fair values at the acquisition date for the remaining assets were same.

At the date of acquisition all assets have carrying amount equal to their book values except.

Excess FV Remaining life At Acquisition

Equipment 100,000 5 years
Land 70,000 Indefinite
B Limited has an internally generated customer list. Directors of A limited has identified
its Fair value 48,000 and remaining life 10 years on acquisition date.

Solution:

(i) Net Assets

At acquisitio At Reporting Date
Share Capital 300,000 300,000
Reserves 300,000 775,000
FV - Adjust Software 42,000 21,000
FV - Adjust Goodwill (35,000) (25,000)
FV - Adjust Equipment 100,000 30,000
Land 70,000 70,000
Customer List 48,000 31,200
FV of Net Assets 825,000 1,202,200

377,200
Parent (70% 264,040 113,160 (NCI 30%)

(ii) Goodwill
Consideration Paid 692,000
Net Assets (577,500) (825000*70%)
Goodwill 114,500

(iii) NCI (Proportionate share of Net Assets)

Share of Net Assets (At A 247,500 (825,000 * 30%)

Post-Acquisition Earning 113,160 (377,200 * 30%)
360,660

(IV) GROUP RESERVES

Parent Retained earning 1,764,550

Post-Acquisition earning 264,040
2,028,590

Consolidated Statement of Financial Position

Goodwill 114,500
Property Plant & Equipm 2,270,000 (1,450+720+30+70)
Intangibles 977,200 (800+150+21-25+31.2)
Account Receivable 316,250
Investments (DEF) 10,000
Stock 528,750
4,216,700

Share Capital (parent on 1,200,000

Group Reserves 2,028,590
NCI 360,660
Liabilities 627,450
4,216,700
 Intra - Group Sales

(i) All stock sold

Parent Subsidiary Total
Sales 150 210
Cogs (100) (150)
50 60 110

(ii) All stock not sold

Parent Subsidiary Total
Sales 150 -
Cogs
Opening (100) -
Purchases - (150)
Closing - -
50 - 50
As the parent has earned the profit, due to which group's stock value has increased. Therefore, we needs to adjust it.

Retained Earnings (P) 50

Inventory (S) 50

Illustration # 3:

Statement of Financial Position of both entities at 31 December 2018 are as under:

Salman Haider
Property Plant & Equipment 975,000 720,000
Account Receivables 150,000 250,000
Other Current Assets 400,000 150,000
Investments 750,000 -
Stock 345,000 400,000
2,620,000 1,520,000

Share Capital 500,000 250,000

Retained Earnings 2,078,000 987,500
Liabilities 42,000 282,500
2,620,000 1,520,000

Parent acquired 80% shares in subsidiary few years back when the retained earnings
of the subsidiary was reported to be Rs. 240,000.

During the current year following intra group sales were reported

Amount G.P % Unsold Stock

Parent to Subsidiary 45,000 25% 70%
Subsidiary to Parent 84,000 20% 25%

Required: Consolidated Statement of Financial Position

Solution:
(workings)
(i) Net Assets Un-realized gain (S)
At Acquisition
At Reporting Date Sales 84,000
Share Capital 250,000 250,000 G.P 16,800
Retained Earnings 240,000 987,500 Unsold stock reversal
Un-realized gain (S) (4,200) 4,200
 490,000 1,233,300
743,300

Parent (80%) 594,640 148,660 NCI (20%)

(ii) Goodwill

Consideration paid 750,000

Net Assets (392,000)
Goodwill 358,000

(iii) NCI (iv) Group Reserves

FV of Net Assets 98,000 Pre - acquisition 2,078,000

Post acquisiton earnings 148,660 Post - acquisition 594,640
246,660 Un-realized gain (7,875)
2,664,765
Consolidated Statement of Financial Position

Non - current assets and Liabilities Equity and Liabilities

Goodwill 358,000 Share capital 500,000

PPE 1,695,000 Group reserves 2,664,765
Acc. Receivables 400,000 NCI 246,660
Stock 732,925 Liabilities 324,500
Other current assets 550,000 3,735,925
3,735,925

Investment in Associate
Investment in a company less than 50% is accounted for as investment in associate or equity accounting.
Accounting

Single Financial Statements Multiple Financial

(No subsidiaries only Associate) (Group Accounting)

Equity Accounting Separate Consolidated

F/S F/S

Cost FV - OCI Equity A/C Equity A/C

Any change in accounting policy is applied Retrospectively.

Equity Accounting

(i) Recognition of Income

Booking of share of profit as Income before distribution of dividend (as we can influence the decision of the Board)
In case of subsidiary even un-distributed income is added to Retained Earnings.

(ii) Initial Recognition

Investment is recorded at Cost which is inclusive of Goodwill.
Any impairment will be a reduction in Investment in Associate.

In case, where cost is > share of net assets In case, where cost is < share of net assets

Investment 46 (share of N.A)

Cash 46 Investment 40
Cash 38
 recording at (higher of ) Bar-gain (P/L) 2
(i) Cost
(ii) Share of N.A

(iii) Dividend
As all the profit (share of profit) is recorded initially, therefore, receipt of dividend will be deducted from Investment
Already recorded.

Investment xx
Share of profit xx
(Dividend Received)
Cash xx
Investment xx

Format for recording

Cost or Share of Net assets

(Higher of ) Investment xx
Add: Share of profit xx
Less: Dividend (xx)
Other Adjustments (xx)
xx

(iv) Sale of goods to Associate (Stock - unsold)

Parent Associate

Sales 150 goods 150

Cogs (100)
Profit 50

As we do not consolidate Associate, and record all the assets in the Investment of Associate.
Therefore, in above case stock lies with Associate and Profit in Parent's books.

Group Reserves/Retained Earnings of Parent 20

Investment in Associate (upto extent of unsold goods) 20

(v) Sales of Goods by Associate (Stock unsold)

Associate Parent

Sales 150 goods 150

Cogs (100)
Profit 50

As we do not consolidate Associate, and record all the assets in the Investment of Associate.
Therefore, in above case stock lies with Parent and Profit in Associate books.

Share of Profit 20
Inventory (P) 20

Illustration # 4: (Impairment of Goodwill)

Net Assets 100

Goodwill 20 (Partial of 80% acquired)
Recoverable Amount
 90

Solution:

Gross up goodwill 25

Impairment
Allocation Net Assets
Net Assets 100 (10) 90
Goodwill 20 (20) -
un-recognised G.w 5 (5)
125 90
Recoverable Amou (90)
Impairment 35

Illustration # 5: (Impairment of Goodwill)

Net Assets 700

Goodwill 105 (Partial of 90% acquired)
Recoverable Amount
650

Solution:

Gross up goodwill 117

Impairment
Allocation Net Assets
Net Assets 700 (50) 650
Goodwill 105 (105) -
un-recognised G.w 12 (12)
817 650
Recoverable Amou (650)
Impairment 167

Trading of PPE

(PARENT) (Subsidiary)
PPE CA = 100 Purchased at 150
PPE FV = 150

R/earns (P) 50
PPE 50

Un-Realized gain (net basis)

Parent Subsidiary
Sales 150 Cost 150
Cost (100) Dep (30)
gain on Sale of PP 50 120

If the asset would have been depreciated by Parent it's Depreciation would be 20 per annum (life = 5 years)
But subsidiary have recorded 30 (extra by 10) depreciation.
Thus, if accounting is done on net basis on (years) later, entry would be as follows:

Year 1 Year 2 Year 3

 R/Earns 40 R/Earns 30 R/Earns 20
PPE 40 PPE 30 PPE 20

Illustration # 6:

Parent
Sales 400
Cost (250) 31
gain on Sale of PP 150

Life = 8 years
Today is 1 Jan 19'
Account for the above transaction on 31 Dec 2020'

Solution:

Subsidiary
Cost 400 Cost 400
Dep (50) Dep (100)
350 300

31-Dec-19 31-Dec-20

31-Dec-20
Retained Earnings 112.50
PPE 112.50

OR 112.50 Un realized gain x Life at R.D

total life
ds to adjust it.

Un-realized gain (P)

Sales 45,000
G.P 11,250
Unsold stock reversal
7,875
quity accounting.

e the decision of the Board)

re of net assets
be deducted from Investment
nnum (life = 5 years)
ICAP - PP (June -13)

Solution:

(i) Net Assets

At Acquisition At Reporting Date
Share Capital 500,000,000 500,000,000
Retained Earnings 150,000,000 100,000,000
650,000,000 600,000,000
Post acquisition Loss (50,000,000)

Parent (80%) (40,000,000) (10,000,000) NCI (20%)

(ii) Goodwill

Consideration paid 630,000,000

FV of Net assets (520,000,000)
110,000,000
Impairment (w.2) (30,000,000)
80,000,000

(iii) NCI

FV of net assets 130,000,000

Post acq - loss (10,000,000)
120,000,000
Retained Earnings (620,000)
119,380,000

(iv) Group Reserves (v) Investment in Associate

Parent Retained Earnings 2,900,000,000 Cost of Investment

Subsidiary Adjustments Share of profit
Post acquisition loss (40,000,000) (240 - 224) * 40%
Impairment (30,000,000) Additional depreciation
Un-realized gain on Machine (2,480,000) Inventories loss
Associate Adjustments
Share of profit 6,400,000
(240 - 224) * 40%
Additional depreciation (133,333)
Inventories loss (4,800,000)
2,828,986,667

Consolidated Statement of Financial Position

Non - current assets

Property Plant Equipment 5,546,900,000

Goodwill 80,000,000
Investment in Associate 251,466,667
5,878,366,667
Current Assets 5,880,000,000

Total Assets 11,758,366,667

Liabilities & Equity

Current Liabilities 2,750,000,000

NCI 119,380,000
Group Reserves 2,828,986,667
Share capital 6,060,000,000
11,758,366,667
 Working:
% holding in ML Shares Total Share % of hold Acq date
40,000,000 50,000,000 80% 1-Jan-10
% holding in HL 16,000,000 40,000,000 40% 30-Nov-12

Purchase consideration of HL

Cash consideration 190,000,000

Shares Consideration

No. of shares 4,000,000

Issued price 15 60,000,000
250,000,000

Fair Value Adjustment (w.1) Cost

Life used
Fair value 28,000,000 Cost 1/10/2010 26,000,000
Life 7 depreciation (650,000) 0.25
Time 1 Month C.A at 31-12-10 25,350,000
Parent's share 40% depreciation (2,600,000) 1.25
(133,333) C.A at 31-12-11 22,750,000
depreciation (1,950,000) 2.00
Sale of Machine by Subsidiary to Parent C.A at 1-10-12 20,800,000

Sales Proceeds 24,000,000

Cost (w.1) (20,800,000)
un-realized gain 3,200,000

Post - Acq R/E 3,200,000

PPE 3,200,000
Excess Deprec 100,000
PPE 100,000
R / Earnings 100,000

Sale of Goods by Parent to Associate

Sale of goods 52,000,000

Cost (40,000,000) R / Earnings (P) 4,800,000
Gross profit 12,000,000 Investment 4,800,000
Share of parent 40%

Impairment (w.2)

Net assets 600,000,000

Goodwill 110,000,000 (10,000,000)
un-recog Gwill 27,500,000 (27,500,000)
737,500,000
Recoverable Amount
(700,000,000)
Impairment 37,500,000
ment in Associate

250,000,000
6,400,000

(133,333)
(4,800,000)
251,466,667
Year End
31-Dec-12
31-Dec-12

Remaining

9.75

8.75

8
 Components of Consideration

SH SH

P S

Parent buys shares from shareholders of Subsidiary rather than subsidiary itself.

(i) Cash Consideration → Current

(ii) Cash Consideration → Deffered

1-Jan-19 31-Dec-20
Cash 100 Deff. Consid 110
PV of Deff. 90.91
190.91

Note: Always use the discount rate of parent for deffered consideration.

1-Jan-19 31-Dec-19
Investment 191 Int. Expense 9.09
Cash 100 Payable 9.09
Payable 91 31-Dec-20
Int. Expense 10.00
Payable 10.00
Payable 110
Cash 110

(iii) Issuance of Debentures as Consideration - At market rate

1-Jan-19 31-Dec-20
Cash 100 Redemption
Debt Sec 100
200

Coupon rate 10%

market rate 10%

1-Jan-19 31-Dec-19
Investment 200 Int. Expense 10
Cash 100 Cash 10
F. Liability 100 31-Dec-20
Int. Expense 10
Cash 10

(iv) Issuance of Debentures as Consideration - At less than rate

1-Jan-19 31-Dec-20
Cash 100 Redemption
Fin Liab (w.1) 97
197
Coupon rate 8%
market rate 10%

(w.1)
Year CF's PV @ 10% Year Opening Interest
1 8 7 1 97 9.65
2 108 89 2 98 9.82
97

1-Jan-19 31-Dec-19
Investment 200 Investment 9.65
Cash 100 Cash 8.00
F. Liability 97 F. Liability 1.65
31-Dec-20
Investment 9.82
Cash 8.00
F. Liability 1.82
(v) Issuance as Equity

1-Jan-19

Cash 100
Shares FV 100

Isued (Now)

Investment 200
Cash 100
Equity 100

Deffered issuance

1-Jan-19 31-Dec-20

Cash 100 Share FV 220

Shares FV 100

1-Jan-19 31-Dec-20
Investment 200 Res. For Issue 100
Cash 100 Sh. Cap + prem 100
Res. For issuance 100

Contingent Consideration

Liability Asset Equity

(i) Liability (ii) Asset

Investment 100 Success of Project is recorded as an Asset, if the

Cash 100 project doesn't becomes feasible receivable will
be reversed.
Investment 10
Payable 10 Investment 100
Receivable 20
 Contingent Consideration 30 Cash 120
Best estimat 10
Contingent consideration recorded at the best estimate. Case (1) Target Achieved by Subsidiary
If the project becomes successful remaining will be payable.
P/L 20
Case (1) Project becomes successful. Receivable 20

Payable 10 Case (2) Target not achieved

P/L 20
Cash 30 Cash 20
Any subsequent change in consideration will not Receivable 20
be recorded in Investment.
Case (2) Project didn't met the criteria Note: For the purpose of Consolidation contingent
consideration/payable are accounted for under IFRS-3/10
Payable 10 rather than IAS 37.
P/L 10
ICAEW - Question
Emerald PLC has investments in two companies Amethyst Ltd and Turquoise Ltd, both were acquired
several years ago. Emerald acquired 70% of the ordinary shares of Amethyst Ltd when the retained
earnings of Amethyst Ltd were £232,000 and 40% of the ordinary shares of Turquoise Ltd when the
retained earnings £157,000.

Emerald Plc made a long-term loan to Turquoise Ltd of £100,000 when it acquired its shares in
Turquoise Ltd. That loan is not expected to be repaid in foreseeable future.

The draft summarized statements of Financial Position of the three companies at 30 September 2011
are shown below:

£
Emerald Plc Amethyst Ltd Turquoise Ltd
ASSETS
Non - Current Assets

Property, Plant & Equipment 800,700 815,500 629,000

Investment in Amethyst Ltd 700,000 - -
Investment in Turquoise Ltd 200,000 - -
Loan to Turquoise Ltd 100,000 - -
1,800,700 815,500 629,000

Current Assets

Inventories 567,400 345,500 248,100

Trade and other Receivables 345,200 262,800 202,300
Cash & Cash Equivalents 11,500 5,700 1,300
924,100 614,000 451,700

Total Assets 2,724,800 1,429,500 1,080,700

EQUITY & LIABILITIES

Equity
Ordinary share capital 1,000,000 400,000 200,000
(£1 Shares)
Retained Earnings 1,327,700 611,000 622,500
2,327,700 1,011,000 822,500

Non - Current Liabilities

Loan from Emerald PLC - - 100,000

Current Liabilities
Trade and Other Payables 257,100 298,500 78,200
Taxation 140,000 120,000 80,000
397,100 418,500 158,200

Total Equity & Liabilities 2,724,800 1,429,500 1,080,700

Additional Information

(Workings)
1. The fair value of the assets, liabilities and contingent liabilities of Amethyst Ltd and Turquoise Ltd
at the date of their acquisitions by Emerald Plc were equal to their carrying amounts with the
exception of certain inventories held by Amethyst Ltd. These had a carrying amount at acquisition Cost 35,000
of £52,000, but a fair value of £65,000. All of these inventories were sold in the year following the
acquisition.
Dep for 2 years (17,500)
2. On 1 October 2020, Amethyst Ltd sold a machine to Emerald Plc for £40,000. The machine had
CA 17,500
been purchased by Amethyst Ltd on 1 October 2008 for £35,000. The total useful life of the
machine was originally assessed as four years and that estimate has never changed.
Sales 40,000
3. Included in Emerald Plc’s inventories at 30 September 2011 were goods which had been
gain 22,500
purchased from Turquoise Ltd for £46,000. Turquoise Ltd had paid its supplier £40,000 for these
goods.

4. At 30 September 2011 Emerald plc’s trade receivables included £85,000 due from Amethyst Ltd.
However, Amethyst Ltd.’s trade payables included only £60,000 due to Emerald plc. The
difference was due to cash – in – transit.

5. Amethyst Ltd is a publishing company. It revenue for the current period includes £200,000
 exception of certain inventories held by Amethyst Ltd. These had a carrying amount at acquisition
of £52,000, but a fair value of £65,000. All of these inventories were sold in the year following the
acquisition.

2. On 1 October 2020, Amethyst Ltd sold a machine to Emerald Plc for £40,000. The machine had
been purchased by Amethyst Ltd on 1 October 2008 for £35,000. The total useful life of the
machine was originally assessed as four years and that estimate has never changed.

3. Included in Emerald Plc’s inventories at 30 September 2011 were goods which had been
purchased from Turquoise Ltd for £46,000. Turquoise Ltd had paid its supplier £40,000 for these
goods.
Excess depreciati (11,250)
4. At 30 September 2011 Emerald plc’s trade receivables included £85,000 due from Amethyst Ltd.
However, Amethyst Ltd.’s trade payables included only £60,000 due to Emerald plc. The (for 1 year)
difference was due to cash – in – transit.
Un-realized gain till Acq
5. Amethyst Ltd is a publishing company. It revenue for the current period includes £200,000
received from customers in advance of the publication of a much-anticipated book, due to
11,250
published in December 2011. Un-realized gain till R.D
6. At 30 September 2010, cumulative loss in respect of goodwill arising on the acquisition of 0
Amethyst Ltd of £50,000 had been recognised, along with a £20,000 impairment in respect of
Emerald plc’s investment in Turquoise Ltd. A further impairment loss £15,000 in respect of
Goodwill arising on the acquisition of Amethyst Ltd needs to be recognised in the current year.

Required: Prepare Consolidated Statement of Financial Position of Emerald as at 30 September

2011.

(i) Net Assets Subsidiary Associate

At AcquisitionAt Reporting daAt AcquisitioAt Reporting date
Share capital 400,000 400,000 200,000 200,000
Reserves 232,000 611,000 157,000 622,500
FV - adjustment 13,000 0
un-realized gain on PPE (11,250)
Revenue Reversal (200,000)
645,000 799,750 357,000 822,500
Post acquisition earnings 154,750 465,500

(ii) Goodwill (iii) NCI

Consideration 700,000 FV of net assets
Net Assets (451,500) Post acquisition earnings
Goodwill 248,500
Impairment (65,000)
183,500

(iv) Associate (v) Group reserves

Cost of Investment 200,000 Parent R/Earnings
Share of profit 186,200 Share of profit
386,200 Unrealized P on inventory
Impairment (20,000) post acquisition earnings
366,200 Impairment (P & S)
Impairment (A)
Note: Always take the share of profit at gross amount unless
any SOFP adjustment is overstated in Investment in associate

in the above case, inventory sales adjustment is accounted in Items affecting SOFP
group reserves. (i) Adj in NA + G.R (other than S.C and reserves)
(ii) Receivable & Payable
Statement of Consolidated Financial Position.

Goodwill 183,500
Invest in Associate 366,200
PPE 1,604,950
Loan to A 100,000
Inventory 910,500
Receivable 523,000
Cash 42,200
3,730,350

Share Capital
NCI
Trade Payables
Fin Liab 100
Cash 100
 Cash Closing
(8) 98
(8) 100

31-Dec-20
Fin. Liability 100
Cash 100

as an Asset, if the
ble receivable will
by Subsidiary

olidation contingent
counted for under IFRS-3/10
 193,500
46,425
239,925

1,327,700
186,200
(2,400)
108,325
(65,000)
(20,000)
1,534,825

R (other than S.C and reserves)

Illustration # 7:

On 2 january 2015, P (ltd) acquired 40% of the issued shares of J (Pty) Ltd for 100,000. On the date, the shareholders equity of J (Pty) Lt

Share capital (200,000 shares) 200,000

Retained Earnings 50,000
250,000

P Ltd exercises joint control over the financial and operating policy decisions of J (Pty) Ltd in terms of a joint arrangement.
The abridged consolidated financial statements of P Ltd and its subsidiaries, as well as the abridged Financial Statements
of J (Pty) Ltd for the year ended 31 December 2017, are shown below;

Statement of Financial Position as at 31 December 2017

P Ltd Group J (Pty) Ltd

Assets
Property, Plant & Equipment 750,000 300,000
Investments in J (Pty) Ltd: (80,000 shares at cost) 100,000 -
Inventories 750,000 200,000
Total Assets 1,600,000 500,000

Equity and Liabilities

Share Capital 500,000 200,000
Retained Earnings 700,000 200,000
Non-Controlling interest 150,000 -
Long term Loans 250,000 100,000
Total Equity and Liabilites 1,600,000 500,000

Solution:

Investment

Cost 100,000
OR
Share of Net Assets 100,000

Cost 100,000
Share of profit 60,000
(400,000 - 250,000) x 40%
160,000

Balance Sheet (Joint Venture)

PPE 750,000
Investment in Joint Venture 160,000
Investment 750,000
1,660,000

Share Capital 500,000

R/Earnings 760,000
(700,000 + 60,000)
NCI 150,000
Loan 250,000
1,660,000

Accounting for Joint Operations

At Acquisition At Reporting date

Share capital 200,000 200,000
Retained Earnings 50,000 200,000
250,000 400,000
150,000
Post acquisition earnings 60,000

Goodwill
Consideration 100,000
Share of N.A (100,000)
0

Group Reserves
Parent 700,000
Post acquisition 60,000
760,000

Balance sheet

PPE 870,000
Inventory 830,000
1,700,000
Share capital 500,000
Group Reserves 760,000
NCI 150,000
Loan 290,000
1,700,000

Illustration (when B/S for joint operations is not given)

 Solution:
At Acq At RD
Share capital 240,000 240,000
R/earnings 120,500 319,400
360,500 559,400

198,900
P(80%) 159,120
NCI (20%) 39,780

Goodwill NCI

Consideration 450,000 FV of net assets 72,100

Net assets (288,400) Share of Profit 39,780
161,600 111,880

Group Reserves

Parent Retained Earnings 1,230,000

Post acquisition 159,120
1,389,120

Joint Operation

PPE 150,000
Cash 150,000

Rec from OUL 48,000

Sales 48,000

Cogs 24,800
Receivable 24,800

Op. Expense 4,000

Receivable 4,000

PPE 150,000
Receivable 19,200

Statement of Financial Position

Goodwill 161,600
PPE 1,150,000
Inventory 485,000
Receivables 249,200
Cash 650,000
2,695,800

Share capital 540,000

Group reserves 1,408,320
NCI 111,880
NCL 375,600
CL 260,000
2,695,800

Note: Accounting for Joint venture = Equity accounting (Just like associate)
Accounting for Joint operations = Proportionate accounting (Treatment of subsidiary where NCI FV is not

Where P & S, invests in a joint arrangement it will either result into venture or operations.
shareholders equity of J (Pty) Ltd consisted of the following:

joint arrangement.
ancial Statements
f subsidiary where NCI FV is not given)

re or operations.
 Changes in group structure

Any gain / loss of control will be accounted in P/L.

Any change in retention of control will be dealt in OCE (other component of equity)

Case (1) - Gain of Control

Cost of investment (held under IFRS - 09) 10,000.00 0.05 Cost of Further acquisition (to control )
Disposal to acquire those 50% stake (Mark to market) FV 13,900.00 Marked to Market acquisition
Immediate gain recognition in Consolidated P/L 3,900.00

→ Marked to market means selling an investment and re-buying to gain stake

Consideration for the purpose of Goodwill will be 138,900.

Illustration # 9:

Ayre holds a 10% investment in Byme at $24,000 in accordance with IAS 39.
On 1 June 20x7, it acquires a further 50% of Byme's equity shares at a cost of $160,000.

On this date fair values are as follows:

i. Byme's net assets were $ 200,000

ii. Non controlling interest was $100,000.
iii. Value of 10% investment $ 26,000.

How do you calculate the goodwill arising in Byme

Note: the non-controlling interest is to be valued using the full method.

Solution:

FV of old investment 26,000.00

New Investment 160,000.00
186,000.00
NCI 100,000.00
286,000.00
Net Assets (200,000.00)
Goodwill 86,000.00

FV of old investment 26,000.00

CA of old investment (24,000.00)
Consolidated P/L 2,000.00

Illustration # 10:
Statement of Financial position of two entities Major and Tom as at 31 December 20X6 are as follows:
$ in '000'
Major Tom
Investment 160.00
Sundry Assets 350.00 250.00
510.00 250.00

Equity and Share capital 200.00 100.00

Retained Earnings 250.00 122.00
Liabilities 60.00 28.00
510.00 250.00

Major acquired 40% of Tom on 31 December 20X1 for $ 90,000. At this time the retained earnings of Tom stood
at $76,000. A further 20% shares in Tom was acquired by Major three years later for $70,000.
On this day the Fair value of existing holding in Tom was $105,000.
Tom's retained earnings were $100,000 on the second acquisition date at which the fair value of
Non-controlling interest was $ 90,000. NCI is measured at full fair value.

Required: Consolidated SOFP as at 31 December 20X6.

Solution:

Net Assets At Acquisition At R.D

Share capital 100,000.00 100,000.00

Reserves 100,000.00 122,000.00
200,000.00 222,000.00
22,000.00
Parent (60%) 13,200.00 8,800.00 NCI (40%)

Goodwill

Old Investment FV 105,000.00

New Investment 70,000.00
NCI 90,000.00
FV of Net assets at Acq (200,000.00)
Goodwill 65,000.00

NCI
At acquisition 90,000.00
Post acquisition 8,800.00
98,800.00

Group Reserves

Parent Pre acqu 250,000.00

Post acquisition 13,200.00
Gain on investment 15,000.00
278,200.00

Consolidated Statement of Finacial Position

Non Current & Current assets

Goodwill 65,000.00
Other C.A 600,000.00
665,000.00

Share capital 200,000.00

Group reserves 278,200.00
NCI 98,800.00
Liabilities 88,000.00
665,000.00

Things to remember

Additional Investment of P in accounting goodwill

Gain on FV of Investment in Group reserves.

Case (2) Loss of Control

Full disposal Partial disposal resulting in loss of control.

Accounting Treatment

Consolidated Books Individual books of Parent

Consideration xxx Consideration Received for Investment XXX

Net assets of S (xxx) Cost of investment (XXX)
NCI xxx Gain/loss on Investment xxx
Goodwill (xxx)
Gain/Loss 0.00
Tax on gain

Note: If parent had already booked Individual gain, this gain would be reversed and consolidated gain will be added.
Question No. 10
Rock ahs held a 70% investment in Dog for two year. Rock is disposing of this investment. Goodwill has been
calculated using the full goodwill method. No goodwill has been impaired. Details are:
$
Cost of Investment 2,000
Dog – Fair Value of net assets at acquisition 1,900
Dog – Fair Value of the non-controlling interest at acquisition. 800
Sales Proceeds 3,000
Dog – Net Assets at Disposal 2,400
Required: Calculate the profit / loss on disposal.
(a) In Rock’s individual accounts
(b) In the consolidated accounts

Solution:

Net Assets At acquisition At Reporting date

1,900.00 2,400.00
500.00
Parent (70%) 350.00 150.00 NCI (30%)

Goodwill
Consideration 2,000.00
FV of NCI 800.00
Fv of N.A (1,900.00)
900.00

NCI Group Reserves

 Fv of NCI 800.00 Post acquisition 350.00
Post acq 150.00
950.00

Gain/loss on disposal of Subisidiary [Individual Books]

Disposal Consideration 3,000.00

Cost of Investment (2,000.00)
1,000.00
Tax @ 25% (250.00)
Gain on Disposal 750.00

Consolidated gain

Consideration 3,000.00
Net Assets (2,400.00)
Goodwill (900.00)
NCI 950.00 (This is the benefit for Parent as disposing NCI we will not giving any retu
Tax paid on gain (250.00)
400.00

Reconciliation of gain

Post acq Earnings from S 350.00

Consolidated gain 400.00
750.00

Individual Gain on Disposal 750.00

Question No. 11
Snooker purchased 80% of the shares in Billiards for $100,000 when the net assets of Billiards had a fair value
of $50,000. Goodwill was calculated using the proportion of net assets method amounting to $60,000 and has
not suffered any impairment to date. Snooker has just disposed of its entire shareholding in Billiards for $
300,000h when the not assets were stated at $110,000. Tax is payable by Snooker at 30% on any gain on
disposal of shares.
Required:
 Calculate the gain or loss arising to the parent entity on dispose of shares in Billiards.
 Calculate the gain or loss arising to the group on disposal of the controlling interest in Billiards.

Solution:

Net Assets At acquisition At Reporting date

50,000.00 110,000.00
60,000.00
Parent (80%) 48,000.00 12,000.00 NCI (20%)

Goodwill
Consideration 100,000.00
Fv of N.A (40,000.00)
60,000.00

NCI Group Reserves

At acquisition 10,000.00 Post acquisition 48,000.00
Post acq 12,000.00
22,000.00

Gain/loss on disposal of Subisidiary [Individual Books]

Disposal Consideration 300,000.00

 Cost of Investment (100,000.00)
200,000.00
Tax @ 30% (60,000.00)
Gain on Disposal 140,000.00

Consolidated gain

Consideration 300,000.00
Net Assets (110,000.00)
Goodwill (60,000.00)
NCI 22,000.00
Tax paid on gain (60,000.00)
92,000.00

Reconciliation of gain

Post acq Earnings from S 48,000.00

Consolidated gain 92,000.00
140,000.00

Individual Gain on Disposal 140,000.00

Question No. 12
Hague has held a 60% Investment in Maude for several years, using the full goodwill method to value the non-
controlling interest. Half of the goodwill has been impaired prior to the date of disposal of shares by Hague.
Details are as follows:
Cost of Investment $6 000
Maude – Fair Value of net Assets at Acquisition 2,000
Maude – Fair Value of a 40% Investment at Acquisition Date 2,000
Maude – Net Assets at Disposal 3,000
Maude – FV of a 30% Investment at Disposal Date 3,500

Solution:

Net Assets At acquisition At Reporting date

2,000.00 3,000.00
1,000.00
Parent (60%) 600.00 400.00 NCI (40%)

Goodwill
Consideration 6,000.00
FV of N.A (2,000.00)
FV of NCI 2,000.00
6,000.00
Impairment (3,000.00)
Goodwill 3,000.00

NCI (Full goodwill) Group Reserves

FV of NCI 2,000.00 Post acquisition 600.00
Post acq 400.00 Impairment (P) (1,800.00)
Goodwill (1,200.00) (1,200.00)
1,200.00

Individual Books (gain recognition) Consolidated books gain

Sale Proceeds 3,500.00 Sale Proceeds 3,500.00

Cost (3,000.00) FV of investment retained 3,500.00
Ind. Books gain 500.00 Net asset (3,000.00)
NCI 1,200.00
 Goodwill (3,000.00)
2,200.00
Reconciliation

Consolidated gain 2,200.00

Group Reserves (1,200.00)
1,000.00

Ind. Books gain 500.00

FV increase of Investment 500.00
1,000.00
ICAP - PP (June - 2012)

Holding in Subisidiary

No. of shares acquired

Total shares
% holding

Retained earnings

Contingent Liabilities are recorded only at

However, subsequent to the date of acquis
(because at time of acquisition this liabilit
As the liability is settled before reporting d

Diposal of Subsidiary

Total investment in Tee

Disposed during the year

Total Disposal
Remaining holding

Sale of goods by (S)

Reversal of gain
Sale proceed
Cost
gain to be reversed

Stock adjustment
Stock left over
URP

Solution:
Subsidiary CEE Limited Subsidiary CEE Limited
Net Assets At acquisition At Rep. date At acquisition At Rep. date Goodwill
Consideration
Share capital 2,800.00 2,800.00 1,000.00 1,000.00 Share of NA
Reseves 350.00 1,200.00 100.00 850.00
Cont. Liab (7.00) - Impairment
URP (S) (2.56) Net Goodwill

3,143.00 3,997.44 1,100.00 1,850.00 Post acq

 854.44 750.00 T Ltd profit 200.00
P (90%) 769.00 P (80%) 600.00 Profit / qtr 50.00
NCI (10%) 85.44 NCI (20%) 150.00 T Ltd (disposed at 3rd Quarter, therefore w
R / Earnings 900.00
NCI Group Reserves
CEE TEE Parent 15,800.00
At acquisition 2,828.70 220.00 Post Acq 769.00
NCI post acq 85.44 150.00 Impairment (107.13)
2,914.14 370.00 Post Acq (T) 600.00
Gain on disp 850.00
Reversal of gain (1,100.00)
Gain on Disposal of T Share of Profit 10.00
16,821.87
Individual books Consolidated books

Consideration 2,000.00 Consideration 2,000.00

Cost (900.00) FV of Remaining 650.00 (given in Q)
Gain on Disp 1,100.00 Net assets (1,850.00) (At R.D)
NCI 370.00
Goodwill (320.00)
850.00
Investment in Associate

Cost of Investment 650.00

Share of Profit 10.00
660.00

Consolidated Statement of Financial Position

Goodwill 964.17
PPE 78,400.00
Inv. In Assoc 660.00
Stock 25,797.44
Receivable 19,288.00
Cash 1,500.00 126,609.61

Share capital 44,300.00

NCI 16,821.70
Group reserves 399.74
Long term loan 36,400.00
Trade payable 28,688.00 126,609.44

Furhter Acquisition at Control

already holding NCI

70% 30%

Net assets 600,000.00 NCI 180,000.00

Goodwill 120,000.00
720,000.00

Parent decided to invest 10% more, therefore NCI will be reduced to 20%

NCI Remeasurement 120,000.00

Buying back from NCI holders at consideration of 80,000

Non - controlling interest 60,000.00

Other Comp of Equity (loss) 20,000.00
Consideration paid to NCI 80,000.00
Any transaction of equity (i.e. gain / loss on acquisition or losing of control will be carried to
other component of equity)

Accounting of Net Assets

At Acquisition Further Acq At Reporting date

Illustration # 11:

Net Asset at Acquisition date 100,000.00

Net assets at Disposal date 140,000.00
Net Asset at Reporting date 170,000.00

Consdieration (80%) 125,000.00

Further acquisition (10%) 40,000.00

a) Goodwill
b) NCI
c) Group Reserves

Solution:

Net Assets Goodwill

At Acq At Furth Acq At R.D
Net Assets 100,000.00 140,000.00 170,000.00 Consideration 125,000.00
40,000.00 30,000.00 Share of NA (80,000.00)
P (80%) 32,000.00 P (90%) 27,000.00 45,000.00
NCI (20%) 8,000.00 NCI (10%) 3,000.00

Group Reserves Further Acquisition

Parent - NCI remeasurement 14,000.00

Post acquisition 32,000.00
Post acquisition 27,000.00 NCI 14,000.00
59,000.00 OCE 26,000.00
Cash 40,000.00
cquisition (to control ) 125,000.00 0.50
t acquisition 13,900.00 0.05
138,900.00
n will be added.
we will not giving any return to NCI)
 (i)

252.00
280.00
0.90

350.00

ities are recorded only at the date of Acquisition

uent to the date of acquisition are not recorded.
of acquisition this liability is accounted in the consideration price)
settled before reporting date, therefore it will only adjusted at Acquisition date.

(ii)

0.80
0.75

60%
20% (Making it an Associate)

(iii)

32.00
(25.60)
6.40

40%
2.56

3,900.00 1,200.00
(2,828.70) (880.00)
1,071.30 320.00
(107.13)
964.17
t 3rd Quarter, therefore we are only entitled for 3 Quarters)
 NCI

At Acq 20,000.00
Post Acq 8,000.00
28,000.00
Disposal (14,000.00)
Post acquisition 3,000.00
17,000.00
Question No. 14 Note:
David has owned 90% of Goliath for many years and is considering selling part of its holding, whilst retaining
control of Goliath, at the date of considering disposal of part of the shareholding in Goliath, the NCI has a
(i) If NCI is measured at FV rather than share of Net
carrying value of $7,200 and the net assets and goodwill have a carrying value of $70,000 and $20,000
respectively.
assets, sum of Net assets and goodwill, will be taken
(i) David could sell 5% of the Goliath shares for $5,000 leaving it holding 85% and increasing the NCI to as controlled asset Amount
15%, or
(ii) David could sell 25% of the Goliath shares for $20,000 leaving it holding 65% and increasing the NCI to
(ii) However, if NCI is measured at Share of N.A only
35%. N.A will be taken as controlled assets Amount.
Required:
Calculate the difference arising that will be taken to equity for each situation.

Solution:

As in this case, NCI is measured at FV as only % of share of N.A [70,000 x 10% = 7,000] whereas NCI is carried at 7,200 i.e. its FV
Therefore Consolidated Assets will be given as;

Controlled Assets

Net Assets 70,000.00

Goodwill 20,000.00
90,000.00

This represents 100% of the Controlled assets, out of which 5% is transferred to NCI for a consideration of 5,000

Cash 5,000.00
NCI 4,500.00
Gain (OCE) 500.00

Illustration # 12:

Net Assets 100,000.00

Goodwill 24,000.00
NCI (25%) 28,500.00

case (i) 5% Shares acquired from NCI by paying Rs. 6,500.

case (ii) 5% Shares disposed to NCI by receiving Rs. 8,000.

Solution:

Controlled Asset basis

Net Assets 100,000

Goodwill 24,000
124,000

25% NCI 25,000.00 (as per share of N.A)

25% NCI 28,500.00 (Carried at FV)

Controlled Assets

Net Assets 100,000.00

Goodwill 24,000.00
124,000.00

5% of NCI 6,200

Case (i) Acquisition (Reduce on proportional basis) Case (ii) Disposal

NCI 5,700.00 Cash 8,000.00

 Loss (OCE) 800.00 NCI
Cash 6,500.00 Gain (OCE)

Note: Always reduce on proportional basis, if NCI is measured at share of N.A

Illustration # 13:

FV of NA 100.00
Goodwill 20.00
120.00

As per full goodwill Method

Parent 80% 96.00
NCI 20% 24.00

But in actual
Parent 80% 99.00
NCI 20% 21.00

As with lower control NCI pays less for Goodwill.

Where there is disposal of NCI and assets are measured at Full goodwill method; take the disposal as a % of business

120 x 5% 6.00

New NCI 27.00

When there is acquisition of NCI' share it will be done on the basis of controlled assets.

(21/20*15) 15.75

New NCI 15.75

Question No. 15 (ACCA Advanced Consolidation)
The following draft statements of financial position relate to Robby, Hail and Zinc, all public limited companies,
as at 31 May 2012:
Robby Hail Zinc
$m $m $m
ASSETS
Non-Current Assets:
Property, Plant and Equipment 112 60 26
Investment in Hail 55
Investment in Zinc 19
Financial Assets 9 6 14
Jointly Controlled Operation 6
Current Assets 5 7 12
Total Assets 206 73 52
Equity and Liabilities
Ordinary Shares 25 20 10
Other Components of Equity 11 - -
Retained Earnings 70 27 19
Total Equity 106 47 29
Non-Current Liabilities 53 20 21
Current Liabilities 47 6 2
Total Equity And Liabilities 206 73 52
The following information needs to be taken into account in the preparation of the group financial statements of
Robby:
(i) On 1 June 2010, Robby acquired 80% of the equity interests of Hail. The purchase consideration Working for (iii)
comprised cash of $50 million. Robby has treated the investment in Hail at fair value through other
comprehensive income (OCI). A dividend received from Hail on 1 January 2012 of $2 million has similarly
been credited to OCI.
Journal entries
It is Robby's policy to measure the non-controlling interest at fair value and this was $15 million on 1 June
2010. 1-Jul-11
On 1 June 2010, the fair value of the identifiable net assets of Hail were $60 million and the retained
earnings of Hail were $16 million. The excess of the fair value of the net assets is due to an increase in
PPE
the value of non-depreciable land.
(ii) On 1 June 2009, Robby acquired 5% of the ordinary shares of Zinc. Robby had treated this investment
at fair value through profit or loss in the financial statements to 31 May 2011. PPE
On 1 December 2011, Robby acquired a further 55% of the ordinary shares of Zinc and gained control of
the company. The consideration for the acquisitions was as follows:
Shareholding Consideration ($m)
31-May-12
1 June 2009 5% 2 Cogs
1 December 2011 55% 16
60% 18
At 1 December 2011, the fair value of the equity interest in Zinc held by Robby before the business
combination was $5 million.
It is Robby's policy to measure the non-controlling interest affair value and this was $9 million on 1
December 2011.
The fair value of the identifiable net assets at 1 December 2011 of Zinc was $26 million, and the retained
earnings were $15 million. The excess of the fair value of the net assets is due to an increase in the value
 the value of non-depreciable land.
(ii) On 1 June 2009, Robby acquired 5% of the ordinary shares of Zinc. Robby had treated this investment
at fair value through profit or loss in the financial statements to 31 May 2011.
On 1 December 2011, Robby acquired a further 55% of the ordinary shares of Zinc and gained control of
the company. The consideration for the acquisitions was as follows:
Shareholding Consideration ($m)
1 June 2009 5% 2
1 December 2011 55% 16
60% 18 Other venture
At 1 December 2011, the fair value of the equity interest in Zinc held by Robby before the business
combination was $5 million.
Other Venture
It is Robby's policy to measure the non-controlling interest affair value and this was $9 million on 1
December 2011.
Operating exp
The fair value of the identifiable net assets at 1 December 2011 of Zinc was $26 million, and the retained
earnings were $15 million. The excess of the fair value of the net assets is due to an increase in the value Other venture
of property, plant and equipment (PPE), which was provisional pending receipt of the final valuations.
These valuations were received on 1 March 2012 and resulted in an additional increase of $3 million in 31-May-12
the fair value of PPE at the date of acquisition. This increase does not affect the fair value of the non-
controlling interest at acquisition. PPE is to be depreciated on the straight-line basis over a remaining Depreciation
period of five years.
(iii) Robby has a 40% share of a joint operation, a natural gas station. Assets, liabilities, revenue and costs
are apportioned on the basis of shareholding. Int. Exp

The following information relates to the joint arrangement activities:

PPE
 The natural gas station cost $15 million to construct and was completed on 1 June 2011 and is to Provision
be dismantled at the end of its life of 10 years. The present value of this dismantling cost to the
joint arrangement at 1 June 2011, using a discount rate of 5%, was $2 million.
 In the year, gas with a direct cost of $16 million was sold for $20 million. Additionally, the joint Working for (iv)
arrangement incurred operating costs of $05 million during the year.
Robby has only contributed and accounted for its share of the construction cost, paying $6 million. The
revenue and costs are receivable and payable by the other joint operator who settles amounts
outstanding with Robby after the year end.
Cost of Plant
(iv) Robby purchased PPE for $10 mil ion on 1 June 2009. It has an expected useful life of 20 years and is Depreciation 2009-10
depreciated on the straight-line method. On 31 May 2011, the PPE was revalued to $11 million. At 31
May 2012, impairment indicators triggered an impairment review of the PPE. The recoverable amount of Depreciation 2010-11
the PPE was $7.8 million. The only accounting entry posted for the year to 31 May 2012 was to account
for the depreciation based on the revalued amount as at 31 May 2011. Robby's accounting policy is to C.A as at 31 May 11
make a transfer of the excess depreciation arising on the revaluation of PPE.
(v) Robby held a portfolio of trade receivables with a carrying amount of $4 million at 31 May 2012. At that
Revaluation
date, the entity entered into a factoring agreement with a bank, whereby it transfers the receivables in
exchange for $3.6 million in cash. Robby has agreed to reimburse the factor for any shortfall between the
Depreciation 2011-12
amount collected and $3.6 million. Once the receivables have been collected, any amounts above $3.6
million, less interest on this amount, will be repaid to Robby. Robby has derecognized the receivables
Book value at 31-5-12
and charged $0.4 million as a loss to profit or loss. Recoverable amount
(vi) Immediately prior to the year end, Robby sold land to a third party at a price of $16 million with an option
to purchase the land back on 1 July 2012 for $16 million plus a premium of 3%. The market value of the Impairment
land is $25 million on 31 May 2012 and the carrying amount was $12 million. Robby accounted for the
sale, consequently eliminating the bank overdraft at 31 May 2012.
Required:
Prepare a consolidated statement of financial position of the Robby Group at 31 May 2012 in accordance
with International Financial Reporting Standards. Opening Balance
Depreciation (Increase)

Impairment
Solution:
Accounting for Hail Note: Entry for depreciation has been done by Pa

Net Assets At Acquisition At R.D Goodwill

Share Capital 20.00 20.00 Consideration

Retained Earnings 16.00 27.00 NCI
FV- Adjustment Land 24.00 24.00 Net Assets
60.00 71.00 Goodwill
11.00
P (80%) 8.80 2.20 NCI (20%)

Non - Controlling Interest

FV of NCI 15.00
Post acquisition earnings 2.20
17.20

Accounting for Zinc

Net Assets At Acquisition At R.D Goodwill

Share Capital 10.00 10.00 Consideration - old

Retained Earnings 15.00 19.00 Consideration - new
FV- Adjustment PPE 4.00 3.60 NCI
 29.00 32.60 Net Assets
3.60 Goodwill
P (60%) 2.16 1.44 NCI (40%)

Non - Controlling Interest Group Reserves

FV of NCI 9.00
Post acquisition earnings 1.44 Balance
10.44 Post acquisition
Reversal of URG
Dividend Reversal
Further Inv. Gain (S2)
Post acquisition (S2)
Joint Operations (P/L)
Transfer of Surplus
Impairment
Reversal of Loss
Reversal of gain on land

Consolidated Statement of Financial Position

Rs. in Million

Non - current & Current Assets

Goodwill 6.00
Property Plant & Equipment 241.13 (112+60+26+24+3.6-2.588+6.12+12)
Financial Asset 29.00 (9+6+14)
Current Assets 29.40 (5+7+12+1.4+4)
305.53
Total Equity and Liabilites

Share Capital (Parent only) 25.00

Group Reseves 81.45
Other comprehensive Income 2.00
Non - coontrolling Interest 27.64
Non - Current Liabilites 94.84 (53+20+21+0.84)
Current Liabilities 74.60
305.53
FV rather than share of Net
and goodwill, will be taken

easured at Share of N.A only

trolled assets Amount.

is carried at 7,200 i.e. its FV

onsideration of 5,000
 6,200.00
1,800.00

isposal as a % of business

Working for (v) Working for (vi)

Factoring of Receivables Reversal of Sale of Land

6.00 Entry that is posted Entry that is posted

Cash 6.00 Cash 3.60 Cash 16.00
0.80 Loss 0.40 Land
Provision 0.80 Receivable 4.00 Gain

6.40 Entry to be done Entry to be done

 Other venture 6.40 Cash 3.60 Cash 16.00
8.00 Factor 3.60 Repo Liab
Sales 8.00
0.20 Rectification of Entry Rectification of Entry
Other venture 0.20 Receivable 4.00 Gain 4.00
Factor 3.60 Land 12.00
0.68 Loss 0.40 Repo Liab
Allowance 0.68
0.04
Provision 0.04

6.12 Other Venture 1.40 (Net Receivable)

0.84 P/L 0.68

Plant purchased for PP

10.00
(0.50)
(0.50)
9.00
11.00 Surplus 2.00
(0.61) Rev surplus to Retained earnings 0.11
10.39
(7.80)
2.5889

P/L Rev. Surplus

2.00
(0.11)
1.89
(0.700) (1.89)

for depreciation has been done by Parent already, therefore recording the remaining entries.

50.00
15.00
(60.00)
5.00

5.00
16.00
9.00
 (29.00)
1.00

R/ Earns OCI Gain to book in consolidated books

70.00 11.00 Old investment 2.00
8.80 New investment 16.00
(5.00) 18.00
2.00 (2.00) Already Investment in books 19.00
2.00 Gain already booked 1.00
2.16 Further gain of old investment (5 - 2 3.00
0.68 2.00
0.11 (0.11)
(0.70) (1.89)
0.40
(4.00)
81.45 2.00
Sale of Land

12.00
4.00
16.00

16.00
 Workings

Consideration

Cash (now)
Deffered consideration

Shares
FV

Land - FV
Total Consideration

Land Adjustment

Entry that is posted

Net Assets

Recorded Gain

Rectifying Entry

Gain

Impairment of Subsidiary (be

Net assets
Goodwill

Rec. Amount

Further Acquisition

NCI
Acquisition

NCI
Loss (OCE)

Solution:

Net Assets Goodwill

At Acq At R.D
Share capital 600.00 600.00 Consideration 564.39
Retained Earnings 299.00 442.00 FV of NCI 396.00
FV - Adjustment 16.00 16.00 FV of Net Assets (935.00)
Other reserves 26.00 137.00 25.39
Contingent Liability (6.00) (6.00) Impairment (9.39)
Fv of investments 5.00 Net Goodwill 16.00
935.00 1,194.00
259.00
Other Reserves 111.00 148.00 Retained Earnings
Parent (60%) 66.60 88.80 Parent (60%)
NCI (40%) 44.40 59.20 NCI (40%)

Consolidated Statement of Financial Position

Goodwill 16.00
PPE 1,126.00 (481+735+16-46-60)
Investments 610.61 (1420-563-260+15)
Loan Receivables 20.36
Current Assets 3,753.00
NCA - HFS 65.00
5,590.97

Share capital 1,120.00

NCI 247.92
Group reserves 1,081.53
OCE (12.08)
NCL 511.00
CL 2,464.00
Liability HFS 10.00
Other Reserves 168.60
5,590.97
Consideration Modification of Loan Receivables

100.00 42,005.00 Year Revised CF's PV @ 8.7%

Deffered consideration 82.64 42,735.00 1.00 8.00 7.36
182.64 2.00 8.00 6.77
28.50 3.00 8.00 6.23
11.50 20.36
327.75 Carrying amount 22.00
54.00 Impairment 1.64
Total Consideration 564.39
Non - current assets held for Sale
Land Adjustment
PPE 60.00
Entry that is posted CA 25.00
CL 10.00
Land 46.00
Gain 8.00 CA of Net Assets 75.00
Recorded Gain 54.00 FV - LCTS (55.00)
Impairment 20.00
Rectifying Entry
while preparing consolidated SOFP a new line item of NCA-HFS would be added
54.00 and the relevant items would be deducted from Assets.
Land 46.00
Gain 8.00

Impairment of Subsidiary (before further acquisition)

1,194.00
25.39
1,219.39
Rec. Amount (1,210.00)
9.39

Further Acquisition

495.84
20%

247.92
12.08
Cash 260.00

NCI

At Acquisition 396.00
Post acq - RE 59.20
Post acq - Other Res 44.40
499.60
Impairment (3.76)
495.84
Acquisition (247.92)
247.92

Group Reserves
R / Earning Other Res OCE
Pre - Acquisition 1,066.00 102.00
Post Acquisition 88.80 66.60
Adjustment of Gain (46.00)
Impairment (5.63)
Acquisition (12.08)
Imp. Of Loan Receivables (1.64)
Imapirment of Segment (20.00)
1,081.53 168.60 (12.08)
of NCA-HFS would be added
Question No. 17 (ACCA)
Kutchen, a public limited company, operates in the technology sector and has investments in other entities Workings
operating in the sector. The draft statements of financial position at 31 March 2015 are as follows:
Kutchen House Mach
$m $m $m Consideration to House
ASSETS
Non-Current Assets
Property, Plant and Equipment 216 41 38
Investment in Subsidiary Shares (now)
Mach 52
Finance Lease Receivables 50 14 8 Shares
318 55 46
Current Assets 44 25 64 FV
Total Assets 362 80 110
Equity and Liabilities
Share Capital of $1 Each
Retained Earnings
43
41
13
24
26
15
Shares (Contingent)
Other Components of Equity 12 5 4 Shares
Total Equity 96 42 45
Non-Current Liabilities 67 12 28 Probability
Current Liabilities
Trade and other Payables 199 26 37
Total Current Liabilities 199 26 37
Total Liabilities 266 38 65
Total Equity And Liabilities 362 80 110
The following information is relevant to the preparation of the group financial statements:
1. On 1 October 2014, Kutchen acquired 70% of the equity interests of House, a public limited company.
The purchase consideration comprised 20 million shares of $1 of Kutchen at the acquisition date and 5 FV of NCI (of Mach)
million shares on 31 March 2016 if House's net profit after taxation was at least $4 million for the year
ending on that date. The market price of Kutchen's shares on 1 October 2014 was $2 per share and that
of House was $4.20 per share. It is felt that there is a 20% chance of the profit target being met.
Kutchen wishes to measure the non-controlling interest at fair value at the date of acquisition. At
Profit of Subsidiary
acquisition, the fair value of the non-controlling interest (NCI) in House was based upon quoted market P/E of Pvt Co.
prices. On 1 October 2014, the fair value of the identifiable net assets acquired was $48 million and
retained earnings of House were $18 million and other components of equity were $3 million. The excess NCI's share
in fair value is due to non-depreciable land. No entries had been made in the financial statements of
Kutchen for the acquisition of House.
2. On 1 April 2014, Kutchen acquired 80% of the equity interests of Mach, a privately owned entity, for a
consideration of $57 million. The consideration comprised cash of $52 million and the transfer of non -
depreciable land with a fair value of $5 million. The carrying amount of the land at the acquisition date
was $3 million and the land has only recently been transferred to the seller of the shares in Mach and is
Restructuring of Employees
still carried at $3 million in the financial records of Kutchen at 31 March 2015. The only consideration
shown in the financial records of Kutchen is the cash paid for the shares of Mach.
At the date of acquisition, the identifiable net assets of Mach had a fair value of $55 million, retained Present value of defined benefit obli
earnings were $12 million and other components of equity were $4 million. The excess in fair value is
due to non-depreciable land. Mach had made a net profit attributable to ordinary shareholders of $3 -6
million for the year to 31 March 2014. Value before restructurring
Kutchen wishes to measure the non-controlling interest at fair value at the date of acquisition. The NCI is
to be fair valued using a public entity market multiple methods. Kutchen has identified two companies
who are comparable to Mach and who are trading at an average price to earnings ratio (P/E ratio) of 21.
Kutchen has adjusted the P/E ratio to 19 for differences between the entities and Mach, for the purpose
Reversal of provision
of fair valuing the NCI.
3. Kutchen had purchased an 80% interest in Niche for $40 million on 1 April 2014 when the fair value of
the identifiable net assets was $44 million. The partial goodwill method had been used to calculate NCL
goodwill and an impairment of $2 million had arisen in the year ended 31 March 2015. There were no
other impairment charges or items requiring reclassification. The holding in Niche was sold for $50 million

million on 31 March 2015 and the gain on sale in Kutchen's financial statements is currently recorded in other
components of equity. The carrying value of Niche's identifiable net assets other than goodwill was $60 NCL
million at the date of sale. Kutchen had carried the investment in Niche at cost.
4. Kutchen has decided to restructure one of its business segments. The plan was agreed by the board of
directors on 1 January 2015 and affects employees in two locations. In the first location, half of the factory
units have been closed by 31 March 2015 and the affected employees' pension benefits have been
(Relocation of Liabilities from NCL t
frozen. Any new employees will not be eligible to join the defined benefit plan. After the restructuring, the
present value of the defined benefit obligation in this location is $8 million. The following table relates to
location 1.
Value before Restructuring Location 1 - $m
Present Value of defined Benefit Obligation (10)
Fair Value of Plan Assets 7 Increase in provision
Net Pension Liability (3)
In the second location, all activities have been discontinued. It has been agreed that employees will
receive a payment of $4 million in exchange for the pension liability of $2.4 million in the unfunded pension
scheme. Kutchen estimates that the costs of the above restructuring excluding pension costs will be $6
P/L
million. Kutchen has not accounted for the effects of the restructuring in its financial statements because
it is planning a rights issue and does not wish to depress the share price. Therefore there has been no
formal announcement of the restructuring. The pension liability is shown in non-current liabilities.
5. Kutchen manufactures equipment for lease or sale. On 31 March 2015, Kutchen leased out equipment
under a 10 year finance lease. The selling price of the leased item was $50 million and the net present
Further Expesnse after restructurrin
value of the minimum lease payments was $47 million. The carrying value of the leased asset was $40
million and the present value of the residual value of the product when it reverts back to Kutchen at the
end of the lease term is $2.8 million. Kutchen has shown sales of $50 million and cost of sales of $40 P/L
million in its financial statements.
6. Kutchen has impairment tested its non-current assets. It was decided that a building located overseas
was impaired because of major subsidence. The building was acquired on 1 April 2014 at a cost of 25
million dinars when the exchange was 2 dinars to the dollar. The building is carried at cost. At 31 March
2015, the recoverable amount of the building was deemed to be 17 5 million dinars. The exchange rate Total Expenses
at 31 March 2015 is 2 5 dinars to the dollar. Buildings are depreciated over 25 years.
The tax base and carrying amounts of the non-current assets before the impairment write down were
identical. The impairment of the non-current assets is not allowable for tax purposes. Kutchen has not
made any impairment or deferred tax adjustment for the above. Kutchen expects to make profits for the
Decrease in NCL
foreseeable future and assume the tax rate is 25%.
No other deferred tax effects are required to be taken into account other than on the above non-current
assets. Increase in CL
Required: Prepare the consolidated statement of financial position for the Kutchen Group as at 31 March
2015.
 The tax base and carrying amounts of the non-current assets before the impairment write down were
identical. The impairment of the non-current assets is not allowable for tax purposes. Kutchen has not
made any impairment or deferred tax adjustment for the above. Kutchen expects to make profits for the
foreseeable future and assume the tax rate is 25%.
No other deferred tax effects are required to be taken into account other than on the above non-current
assets.
Required: Prepare the consolidated statement of financial position for the Kutchen Group as at 31 March
2015.

Solution:
Subsidiary House
Net Assets At Acquisition At Rep. date Goodwill

Share Capital 13 13 Consideration - Share Capital

Reserves 18 24 Consideration - Share Premium
Other Component 3 5 Consideration - Deffered *
FV - Adjustment 14 14 NCI (13 * 30% * 4.2)
48 56 FV of N.A
8.00
R / Earns 6.00 2.00 OCE * Reserves for issuance
Parent (70%) 4.20 1.40 Parent (70%)
NCI (30%) 1.80 0.60 NCI (30%)

Group Reserves NCI

R / Earns OCE FV of NCI

Post Acquisition
Parent Retained Earns 41.0 12.0
Post acquisition S1 4.2 1.4
Gain on Disposal 2.0
Post acquisition S2 2.4
Post acquisition S 3 12.8
Impairment (2.0)
Reversal of Ind gain (10.0)
Consolidated loss (0.8)
Reversal of Lease sales (0.2)
Impairment (5.0)
Deff tax income 1.3
55.7 3.4

Working for Niche

NCI
Net Assets At Acquisition At Rep. date At Acquisition
Post acquisition
Net Assets 44 60
44 60
16.00
Parent (80%) 12.80 3.20 NCI (20%)

Goodwill Individual gain

Consideration 40 Cost of Subsidiary

Share of Net Assets (35) Sale of Subsidiary
Goodwill 4.80
Impairment (2)
2.80
Consideration to House Working for Sale and Lease

Shares (now) Entry that is posted

20
2 40 S.C 20 Lease Receivable 50
S.P 20 Sales 50
Shares (Contingent) Cost of goods 40
5 Inventory 40
20% 2
Rectification Entry
42
Sales 3
Lease Rec 0.20
FV of NCI (of Mach) Cogs 2.80

Profit of Subsidiary 3.60

P/E of Pvt Co. 19
20%
13.68

Restructuring of Employees (Location 1)

Present value of defined benefit obligation at date of restructurring (8)

Value before restructurring (10)

Reversal of provision

2
P/L 2

1 (Net of Plan Assets)

CL 1
(Relocation of Liabilities from NCL to CL)

(Location 2)

Increase in provision

1.60 NCL 4
NCL 1.60 CL 4

Further Expesnse after restructurring

6.00
CL 6.00

Total Expenses 5.60 Combined Entry

Decrease in NCL (5.40) P/L 5.60

NCL 5.40
Increase in CL 11.00 CL 11.00
 Subsidiary Mach
Net Assets At Acquisition At Rep. date

20 Share Capital 26 26 Consideration (52 + 5)

20 Reserves 12 15
2 Other Component 4 4
16 FV - Adjustment Land 13 13
(48) 55 58
10.38 3.00
R / Earns 3.00 - OCE
Parent (80%) 2.40 0.60 NCI (20%)

16
2
19

8.80
3.20
12.00

Consolidated gain

(40) Consideration 50
50 Net Assets (60)
10 Goodwill (3)
NCI 12
(0.80)
Entry that needs to be done

Lease Receivable* 49.8

Cost of goods sold 37.2
Sales 47.0
Inventory 40.0

* lower of FV and PV of LP

Working for NCA impairment USD in '000'

Cost (25 / 2) 12.50

Depreciation (0.50)
12

Rec Amount (17.5 / 2.5)

7.00
Impairment 5.0

Deff. Tax Asset 1

Def. tax Income 1

tax authorities will be allowing extra depreciation in future years

 Goodwill NCI

Consideration (52 + 5) 57.00 FV of NCI 13.68

FV of NCI 13.68 Post Acquisition 0.60
FV of N.A (55) 14.28
15.68
 Complex Group

Parent Effective holding in S2

70% * 60% 42%
70%
Subsidiary Note: Effective holding will only be relevant for profit distri
60%
Subsidiary 2

Note 2: Parent Investments is eliminated to consolidate it with Subsidiary, subsidiary investments is elimin

Question No. 18
The draft statements of financial position of David, Colin and John, as at 31 December 20X4, are as follows:
D C J D C J
Asset Liabilities
$000 $000 $000 $000 $000 $000
Sundry Assets 280 180 130 Equity Capital 200 100 50
Retained Earnings 100 60 30
Shares in Subsidiary 120 80 - Liabilities 100 100 50
400 260 130 400 260 130
You ascertain the fallowing:
 David acquired 75,000 $1 shares in Colin on 1 January 20X4 when the retained earnings of Colin
amounted to $40,000. At that date, the fair value attributable to the non-controlling interest in Colin was
valued at $38,000.
 Colin acquired 40,000 $1 shares in John on 30 June 20X4 when the retained earnings of John amounted
to $25,000, they had been £20,000 on the date of David's acquisition of Colin. At that date the fair value
of the non-controlling interest in John (both direct and indirect), based upon effective shareholdings, was
valued at $31,000.
 Solution:
Goodwill has suffered no impairment.
Question No. 19 David
75%
The following are the statements of financial1-Jan-04
position at 31 December 20X7 for H group companies:

Collin
80% 30-Jun-04
John

Effective holding of Parent in John 60%

The inter-company shareholdings were acquired on 1 January 20X1 when the retained earnings of S were
$10,000 and those of T were $8,000. At that date, theSubsidiary
fair value of the non-controlling interest in S was $20,000.
The fair value ofNet
theAssets Parent
non-controlling interest in T (75%) NCI (25%)
based on effective shareholdings was $50,000. Net Assets
Required: Prepare the consolidated statement of financial position. It is group policy to value the non-
controlling interest at acquisition at fair value.
At Acq At R.D

Share Capital 100.00 100.00 Share Capital

Reserves 40.00 60.00 Reserves
140.00 160.00
20.00

P (75%) 15.00 5.00 NCI (25%)

Goodwill

Colin John (60%)

Consid. By parent 120.00 60.00

Share of Net Assets (105.00) (45.00)
15.00 15.00 30.00
Group Reserves

Parent retained earning 100.00

Post acquisition - Collin 15.00
Post acquisition - John 3.00
118.00

Consolidated Statement of Financial Position

Goodwill 30.00
Sundry Assets 590.00
620.00

Share capital 200.00

Group reserves 118.00
NCI 52.00
Liability 250.00
620.00
y be relevant for profit distribution. For the purpose of consolidation it will be consolidated 100%.

idiary investments is eliminated to consolidate it with Sub-Subsidiary.

as follows:
C J
0 $000
0 50
0 30
0 50
0 130

ngs of Colin
in Colin was

hn amounted
the fair value
holdings, was

s:

gs of S were
was $20,000. Sub - Subsidiary
Parent (60%) NCI (40%)
e non-

At Acq At R.D

Share Capital 50.00 50.00

25.00 30.00
75.00 80.00
5.00

P (60%) 3.00 2.00 NCI (40%)

Non - Controlling Interest

Collin John
At acquisition 35.00 30.00
Post acquisition 5.00 2.00
40.00 32.00
Indirect holding Adjust*
(80 x 25%) (20.00)
20.00

* Adjustment of Indirect holding is eliminated as that investment is not consolidated

Question No. 19
The following are the statements of financial position at 31 December 20X7 for H group companies:
H S T
$000 $000 $000
45,000 Shares in S Ltd 65
30,000 Shares in T Ltd 55
Sundry Assets 280 133 100
345 188 100
Equity Share Capital ($1 Shares) 100 60 50
Retained Earnings 45 28 25
Liabilities 200 100 25
345 188 100
The inter-company shareholdings were acquired on 1 January 20X1 when the retained earnings of S were
$10,000 and those of T were $8,000. At that date, the fair value of the non-controlling interest in S was $20,000.
The fair value of the non-controlling interest in T based on effective shareholdings was $50,000.
Required: Prepare the consolidated statement of financial position. It is group policy to value the non-
controlling interest at acquisition at fair value.

Solution:
Subsidiary
Net Assets Parent (75%) NCI (25%) Net Assets

At Acquisition At R.D
Share Capital 60 60 Share Capital
Reserves 10 28 Reserves
70 88
18.00
Parent 13.50 4.50 NCI Parent

Goodwill Group Reseves

Subsidiary Sub - Subsidiary Parent

Consideration 65.00 41.25 Post acquisition - S1
Net Assets (52.50) (26.10) Post acquisition - S2
12.50 15.15 27.65

NCI
Subsidiary Sub - Subsidiary

At Acquisition 17.50 31.90

Post acquisition 4.50 9.35
Indirect holding adjust (13.75)
8.25 41

Consolidated Statement of Financial Position

Goodwill 27.65
Sundry Assets 513
540.65

Share Capital 100.00

Group Reserves 66.15
NCI 49.50
Liabilities 325.00
540.65

Question No. 20
As 1 January Mersey bought 40% of Irwell. On 1 July 20X8 Dee acquired 75% of Mersey and 25% of Irwell.
Goodwill has an infinite life and has not been impaired. It is the group’s policy so value the NCI at fir value. Fair
value of the NIC and retained earnings were as follows:
Fair Value of NCI Retained Earnings
01 January 20X8 01 July 20X8 01 January 20X8 01 July 20X8
Mersey 49 62 90 100
Irwell 72 83 135 150
The statements of financial position at 31 st December 20X8 are as follows:
Dee Mersey Irwell
$000 $000 $000
Investment in Mersey 200 - -
Question No. 20
As 1 January Mersey bought 40% of Irwell. On 1 July 20X8 Dee acquired 75% of Mersey and 25% of Irwell.
Goodwill has an infinite life and has not been impaired. It is the group’s policy so value the NCI at fir value. Fair
value of the NIC and retained earnings were as follows:
Fair Value of NCI Retained Earnings
01 January 20X8 01 July 20X8 01 January 20X8 01 July 20X8
Mersey 49 62 90 100
Irwell 72 83 135 150
The statements of financial position at 31 st December 20X8 are as follows:
Dee Mersey Irwell
$000 $000 $000
Investment in Mersey 200 - -
Investment in Irwell 70 80 -
Net Assets 600 112 180
870 192 180
Share Capital ($1 each) 100 20 10
Reserves 770 172 170
870 192 180
Required: Prepare the Statement of Financial Position for the group as at 31 December 20X8.

Parent
75%
Subsidiary
40%
P to Sub - Subsidiary Total Holding of the group in Sub - subsidiary
Sub - subsidiary 25%

Note: Effective holding is only for profit sharing, but if Investment Is more than 50% of the group then it will be treated as Subsidi

Solution: Mersey Irwell

Parent (75%) NCI (25%) Parent (55%)
Net Assets At Acquisition At R.D At Acquisition

Share Capital 20 20 10
Retained earnings 100 172 150
120 192 160
72 20
Parent (75%) 54 18 NCI (25%) Parent (55%) 11

Goodwill
Mersey Irwell
Consideration - Parent 200 70
Consideration - Subsidiary 60 (upto Parent's share in Subsidiary)
Net Assets (90) (88)
110 42 152

NCI Mersey Irwell

At Acquisition 30 72
Post acquisition 18 9
Indirect Holding Adjustment* (20)
28 81 109

* Investment that is not consolidated is eliminated (Subsidiary's NCI share x Investment)

Consolidated Statement of Financial Position

Goodwill 152
Net Assets 892
1,044

Share capital 100

Group Reserves 835
NCI 109
1,044
 Sub -Subsidiary
Parent (75 * 60%) NCI (55%)

At Acquisition At R.D
50 50
8 25
58 75
17.00
7.65 9.35 NCI

45
14
8
66.15
 55.00%

en it will be treated as Subsidiary and will be consolidated

Irwell
NCI (45%)
At R.D

10
170
180
20
9 NCI (45%)

Group Reserves

Parent 770
Post acquisition - Mersey 54
Post acquisition - Irwell 11
835
 Subsidiary ML
1-Jul-14 1-Jul-16 30-Jun-17
(1) Net Assets At Acquisition At Disposal date At Reporting date Goodwill

Share capital 2,200 2,200 2,200 Consideration

Retained Earnings 900 900 900 Share of Net Assets
Share premium 1,400 2,500 3,200
4,500 5,600 6,300 Impairment
1,100 700 Net Goodwill
Parent (80% ; 60%) 880 420
NCI (20% ; 40%) 220 280

Workings

Disposal by Parent of Subsidiary's share(First Disposal)

 1-Jul-16
Disposal by Parent of Subsidiary's share
Controlled Assets 5,600
20% acquisition by NCI 1,120 Individual Gain

Individual Gain Consideration 2,926

Cost (1,925)
Consideration 1,188 gain on Sale 1,001
Cost (1,100)
gain on Sale 88 Consolidated Gain

Cash 1,188 Cash Received

OCE 68 Fv of remaining investments (w.1)*
NCI 1,120 NCI
Net assets
Consolidated Gain Goodwill

Cash Received 1,188

NCI (increased by) (1,120)
Consolidated gain 68

Note: when control is retained Goodwill is not eliminated from

Consolidated books

Subsidiary BL

Net Assets At Acquisition At Reporting date Goodwill

Share capital 10,000 10,000 Consideration 7,500

Retained Earnings (bal.) 2,600 6,000 Share of Net assets (7,680)
Fv - Adjustment 200 175 Bargain income (180)
Un realized gain (4)
Share of Net Assets
Joint Operations Subsidiary* 58
12,800 16,229
3,429
2,057 1,372
Stock Un - realized gain Joint Operation

Sales Invoice 50 PPE 620

Margin -10 Cash 620
Cost 40 Receivable 440
Value in P book's 44 Revenue 440
Un - realized gain 4 Cost of goods 268
Receivable 268
* It won't be carried to group reserves as it is only S share's. Op. Expenses 52
Receivable 52
Depreciation 62
Allowance 62

Consolidated Statement of Financial Position

Property Plant & Equipment 28,233

Investment in Associate (S1) 1,980
Stock in trade 4,160
Receivables 4,120
Cash 3,500
41,993

Share capital 20,000

Share premium 1,000
Group Reserves 8,963
OCE 68
NCI 6,492
Liabilities 5,470
41,993 0
 NCI Group Reserves
At Acquisition 900
4,400 Post acquisition 220 Parent
(3,600) 1,120 Post acquisition
800 Increase in Acquisition 1,120 Gain on sale by parent
(160) 2,240 Impairment
640 Post acq (June 30) 280 Gain on Consolidated books
NCI at 30 June 17 2,520 Post acquisition - 30 June
Gain on sale by parent
Gain on Consolidated books
Bargain Purchase of S2
Joint operations
idiary's share (second Disposal)

(w.1)

2,926 Shares 55
1,980 FV (given) 36
2,520 * remeasurement of Investment before sale
(6,300)
(640)
486

NCI

At acquisition 5,120
Post acquisition 1,372
6,492

PPE 558
Receivable 120
P/L 58
Retained Earnings Other Comp. Equity
6,189 -
880
(88)
(160)
68
420
(1,001)
486
180
2,057
8,963 68
Question No. 21 (ACCA)
Trailer, a public limited company, operates in the manufacturing sector. Trailer has investments in two other
companies. The draft statements of financial position at 31 May 2013 are as follows:
Trailer Park Caller
$m $m $m
ASSETS
Non-Current Assets
Property, Plant and Equipment 1,440 1,100 1,300
Investments In Subsidiaries
Park 1,250
Caller 310 1,270
Financial Assets 320 21 141
3,320 2,391 1,441
Current Assets 895 681 150
Total Assets 4,215 3,072 1,591

EQUITY AND LIABILITIES

Share Capital 1,750 1,210 800
Retained Earnings 1,240 930 350
Other Components of Equity 125 80 95
Total Equity 3,115 2,220 1,245
Non-Current Liabilities 985 765 150
Current Liabilities 115 87 196
Total Liabilities 1,100 852 346
Total Equity and Liabilities 4,215 3,072 1,591
The following information is relevant to the preparation of the group financial statements:
1. On 1 June 2011, Trailer acquired 14% of the equity interests of Caller for a cash consideration of $260
million and Park acquired 70% of the equity interests of Caller for a cash consideration of $1,270 million.
At 1 June 2011, the identifiable net assets of Caller had a fair value of $990 million, retained earnings
were $190 million and other components of equity were $52 million. At 1 June 2012, the identifiable net
assets of Caller had a fair value of $1,150 million, retained earnings were $240 million and other
components of equity were $70 million. The excess in fair value is due to non-depreciable land.
The fair value of the 14% holding of Trailer in Caller was $280 million at 31 May 2012 and $310 million
at 31 May 2013. The fair value of Park's interest in Caller had not changed since acquisition.
2. On 1 June 2012, Trailer acquired 60% of the equity interests of Park, a public limited company. The
purchase consideration comprised cash of $1,250 million. On 1 June 2012, the fair value of the identifiable
net assets acquired was $1,950 million and retained earnings of Park were $650 million and other
components of equity were $55 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 acquisition at its proportionate share of
the fair value of the subsidiary's net assets.
3. Goodwill of Park and Caller was impairment tested at 31 May 2013. There was no impairment
relating to Caller. The recoverable amount of the net assets of Park was $2,088 million. There was no
impairment of the net assets of Park before this date and any impairment loss has been determined to relate
to goodwill and properly, plant and equipment.

4. Trailer has made a loan of $50 million to a charitable organization for the building of new sporting facilities.
The loan was made on 1 June 2012 and is repayable on maturity in three years' time. Interest is to be
charged one year in arrears at 3%, but Trailer assesses that an unsubsidized rate for such a loan would
have been 6%. The only accounting entries which have been made for the year ended 31 May 2013 are
the cash entries for the loan and interest received which have resulted in a balance of $48-5 million being
shown as a financial asset.
5. On 1 June 2011, Trailer acquired office accommodation at a cost of $90 million with a 30 year estimated
useful life. During the year, the property market in the area slumped and the fair value of the
accommodation fell to $75 million at 31 May 2012 and this was reflected in the financial statements.
However, the market recovered unexpectedly quickly due to the announcement of major government
investment in the area's transport infrastructure. On 31 May 2013, the valuer advised Trailer that the
offices should now be valued at $105 million. Trailer has charged depreciation for the year but has not
taken account of the upward valuation of the offices. Trailer uses the revaluation model and records any
valuation change when advised to do so.
6. Trailer has announced two major restructuring plans. The first plan is to reduce its capacity by the closure
of some of its smaller factories, which have already been identified. This will lead to the redundancy of
500 employees, who have all individually been selected and communicated with. The costs of this plan
are $9 million in redundancy costs, $4 million in retraining costs and $5 million in lease termination costs.
The second plan is to reorganize the finance and information technology department over a one-year
period but it does not commence for two years. The plan results in 20% of finance staff losing their jobs
during the restructuring. The costs of this plan are $10 million in redundancy costs, $6 million in retraining
costs and $7 million in equipment lease termination costs. No entries have been made in the financial
statements for the above plans.
7. The following information relates to the group pension plan of Trailer:
1 June 2012 ($m) 31 May 2013 ($m)
Fair Value of Plan Assets 28 29
Actuarial Value of defined Benefit Obligation 30 35
The contributions for the period received by the fund were $2 million and the employee benefits paid in
the year amounted to $3 million. The discount rate to be used in any calculation is 5%. The current service
cost for the period based on actuarial calculations is $1 million. The above figures have not been taken
into account for the year ended 31 May 2013 except for the contributions paid which have been entered
in cash and the defined benefit obligation.
Required: Prepare the group consolidated statement of financial position of Trailer as at 31 May 2013.
 Solution:

Consolidated Statement of Financial Position

Goodwill 398
PPE 3,780.59 (1400+1100+1300+35+40-167+11.59+21)
Financial Asset 480.75 (320+21+141-1.25)
Current Assets 1,726
6,385

Share Capital 1,750

Group Reserves 1,256
OCE 175
NCI 892
Long term debt 1,900
Short term Lia 412
6,385

Net Assets Park 56% Caller

At acquisition At Reporting date At acquisition

Share capital 1,210 1,210 800

Retained Earnings 650 930 240
OCI 55 80 70
FV Adjustment (bal.) 35 35 40
1,950 2,255 1,150
305 135
Parent (60%) 183.00 Parent (56%)
NCI (40%) 122.00 NCI (44%)

Goodwill Park Caller

Consideration - old 0 280

Consideration - Now 1,250 762
Share of NA (1,170) (644)
Goodwill 80 398
Impairment (80)
0

NCI Park Caller

At acquisition 780 506

Post acquisition 122 59
Indirect holding adjustment (508)
Impairment of PPE (67)
327 565
Impairment Testing
Allocation
Net Assets 2,255 (167) PPE
Un - recog Goodwill 133 (133)
2,388
Recoverable Amount (2,088)
Impairment 300

Loan Receivables PPE at Revaluation Model

Year CF's PV @ 6% 1-Jun-11

1 1.50 1.42
2 1.50 1.33
3 51.50 43.24 31-May-12
45.99
Loan Amount 50
Loss on Receivable 4.01

Year Opening Interest @ 6% Cash Closing

1 45.99 2.76 (1.50) 47.25
2 47.25 2.83 (1.50) 48.58
3 48.58 2.92 (1.50) 50.00

Entries to be done Entries done so far

Loss 4.01 Loan Receivable 50

Loan Receivable 45.99 Cash 50
Cash 50
Cash 1.50
Cash 1.50 Loan Receivable 1.50
Loan Receivable 1.26
Interest Incom 2.76 Rectification Entry

Loss 4.01
Loan Receivable 2.51
Interest Income 2.76
 D shape group

Trailer
1-Jun-12 1-Jun-11
60%
14%
Park
1-Jun-11
70%
Caller 56%
Effective holding
 44% Group Reserves
At Reporting date R/ Earns OCE
Parent 1,240 125
800 Post acquisition 183 25
350 Impairment of Goodwill (80)
95 FV adj. of old Invstment* (30)
40 Impairment of PPE (100)
1,285 Post acquisition - Caller 61.60 14.00
135 Loss on Loan Receivable (4)
75.60 Interest Income 2.76
59.40 Reversal of loss 12
Revaluation Surplus 21
Restructuring Loss (14)
1,270.74 185.00

* being consolidated

893
PE at Revaluation Model

Cost 90
Depreciation (3) * Reversal
CA at 31 May 12 87
Rev. Loss (12) Revaluation loss 12.00
Revalued Amount 75 Reduced Depreciation (0.41)
Depreciation (2.59) 11.59
72.41
CA at 31 May 13 105
Reversal of loss* 11.59
Rev. Surplus 21.00 P/L
33 OCI

Restructuring Plans

First Plan
Second Plan
Redundancy cost 9.00
Lease Termination 5.00 No provision, since no formal announcement has been made.
Total Provision 14.00
 Solution:

Consolidated Statement of Financial Position

Goodwill 283.0
PPE 8,531.0
Investment Property 188.0
Current Assets 6,340.0
15,342.0

Share capital 5,500.0

Retianed Earnings 2,444.8
OCE 40.0
NCI 2,631.3
Gratutiy 25.0
Current liability 4,701.0
15,342.0
BL
Net Assets 1-Jan-15 1-Apr-17 31-Dec-17 Goodwill
 At Acq Further Acq Reporting date
Share capital 4,000.0 4,000.0 4,000.0 Consideration
Retained Earnings 520.0 815.0 1,314.0 Share of Net assets
FV adjustment Land (20.0) (15.5) (14.0)
Reversal of Depreciation on IP* 5.0
Gain on Remeasurement of IP** 8.0
4,500.0 4,799.5 5,313.0
299.5 513.5
Parent (65 ; 75) 194.7 385.1
NCI (35 ; 25) 104.8 128.4

Reversal * Gain on Remeasurement **

Carrying amount at 1 jan 17 50.0 Carrying amount 31 dec 17 50.0

Depreciation (5.0) Fair value 58.0
Carrying amount at 1 july 17 45.0 8.0

Note: IP will be carried at FV in accordance with the

group's policy (i.e. parent's policy)

FL
Net Assets At AcquisitionAt Reporting Goodwill

Share Capital 2,500.0 2,500.0 Consideration 1,800.0

Retained Earnings 1,150.0 1,000.0 Share of Net assets (1,620.0)
Contingent Liability* (50.0) (40.0) 180.0
3,600.0 3,460.0 Impairment (72.0)
(140.0) 108.0
Effective HoldingShare of Loss
Parent 45% (63.0)
NCI 55% (77.0)
(140.0)

* Contingent Liability is recorded at the payment value because for the purpose of Consolidation
group accounts are not closed before Subsidiary's account, therefore for Fair presentation recording
it at actual value.
NCI
 Share of NCI 1,575.0
3,100.0 Post Acquisition 104.8
(2,925.0) 35% share at 1-Apr-17 1,679.8 Journal Entry*
175.0
Acquisition by Parent ( (480.0) NCI 480.0
1,199.9 Cash paid 440.0
Further Acquisition 128.4 Gain on Acq 40.0
1,328.3
Indirect Holding (600.0)
728.3

Group Reserves
R/Earnings OCE
Parent 2,000.0
Post acquisition 194.7
Gain on Acquisiion 40.0
Further acquisition 385.1
nce with the Post acquisition (63.0)
Impairment of Gwill (72.0)
2,444.8 40.0

NCI
Share of NCI 1,980.0
Post Acquisition (77.0)
1,903.0

Impairment Testing Imapirment

Recognised Goodwill 180.0 (72.0)

Un-recognised goodwill 220.0 (88.0)
400.0 160.0
Net Assets 3,460.0
3,860.0
Recoverable Amount (3,700.0)
160.0
 Consolidated Statement of Comprehensive Income

Illustration
Parent Subsidiary Adjustments In Consolidated Books
Sales 1,500.0 1,000.0
Cost of goods sold (600.0) (400.0)
Gross Profit 900.0 600.0
Interest Income 100.0
Operating Expenses (200.0) (100.0)
Operating Profit 800.0 500.0
Tax @ 30% (240.0) (150.0)
560.0 350.0

Other Information Sales Price Gross Profit Stock left

(i) Sales by Parent to Subsidiary 150.0 20% 30%
70.0 25% 25%
(ii) Excess depreciation due to increased Fair value of Plant and Machine was 20 & 30 respectively.
(iii) Interest Income includes interest receivable from Subsidiary amounting to 25.

Required Consolidated Statement of Comprehensive Income

Solution

Consolidated Statement of Comprehensive Income

For the year ended 28 February 20XX

Parent Subsidiary Adjustments In Consolidated Books

Sales 1,500.0 1,000.0 (150.0) (70.0)
Cost of goods sold (600.0) (400.0) (150.0) 9.0 (70.0) 4.4
Gross Profit 900.0 600.0
Interest Income 100.0 (25.0)
Operating Expenses (200.0) (100.0) 20.0 30.0
Operating Profit 800.0 500.0
Tax @ 30% (240.0) (150.0)
560.0 350.0

Un - sold stock adjustment

P→S 9.0
S→P 4.4

Note: Treatment of Dividend Income and Payable

Dividend Income (Receivable of Parent from Subsidiary) will be cancelled out

Whereas, payable of Subisidiary will be reduced in SOCE of Subsidiary.
Consolidated Books
2,280.0
(1,206.6)
1,073.4
75.0
(250.0)
1,300.0
(390.0)
910.0
 Solution:

Golden Limited Yellow Limited Adjustments

Sales 875 350 (40)
Cost of good sold (567) (206) (4.00) 40 (2.40) (0.60)
 Gross Profit 308 144
Selling Expenses (33) (11)
Admin Expense (63) (40)
Interest Expenses (30) (22)
Other Income 65 - (36)
Tax (73) (15)
Impairment of GW (9.18) (29.80)
Share of Profit - A (33)
174 56
Parent (bal.)
NCI
Total Income
Workings
Consideration to YL Consideration to BL

Shares acquired 18 Shares acquired 6

Shares issued 14 FV of each share 12
FV of each share 20 72
288

Net Assets of YL
P (90%) Share of Subisidiary
Net Assets At acquisition
Share capital 200 Subsidiary's profit 56
Reserves 24 FV depreciation (4)
FV - adjustment - Land 22 NCI % 10%
FV - adj - Machines 20 5.20
FV - adj- Investment 3
269

Goodwill Fair value - ADJUSTMENT MACHINE

Consideration 288 Machine gain 20

Share of Net Assets (242) Life 5
Goodwill 46 Fv - Adjustment each year (4)
Impairment (9)
37

Stock Adjutsment Dividend Adjustment

Sales and Cost of goods reversal (40) Share capital of YL

Dividend Decalred
Un -realized gain (S) Un -realized gain (A)
S→P P→A Parent's share
Sales 40 Sales 20
Markup 25% Markup 15%
Gain 8 Gain 2.61
Stock 30% Stock 11.50
Reversal (2.40) Reversal 1.50
P's share 0.60

Decreasing closing stock will Cost of goods (P) 0.60

increase COGS. Investment in Associate 0.60

Investment in Associate
Consideration 72 Share of Net Assets for Associate
Bargain Income 4 At acq At 1 July 07
Share of Net Assets 76 Share Capital 150 150
Share of Profit 27 Retained Earnings 40 108
Opening Investment 103 190 258
Share of Loss FTY (32.80) % of Parent's share 40%
Stock Reversal (0.60) Share of N.A 76
Closing Investment 69.80
Impairment (29.8) Share of Profit 68
Closing Investment 40 % of Parent's share 40%
27.20
Consolidated P/L
1,185
(740)
 445
(44)
(103)
(52)
29
(88)
(39)
(33)
115.22
Parent (bal.) 110.02
5.20
Total Income 115.22

200
20%
40
90%
36
 Dis-continued Operations

Illustration

Parent Subsidiary Subsidiary 2

Sales 300 150 120
Cost of goods sold (120) (50) (45)
Gross Profit 180 100 75
Operating Expense (50) (25) (25)
Investment Income 15 2
Profit Before tax 145 77 50
Tax (25) (21) (20)
Profit After tax 120 56 30

Types of Disclosure

In accordance with IFRS - 5, there are two types of disclosures.

Full disclosure Discontinued Operations

Single Line Disclosure

Other Information

Subsidiary 2 was sold in the middle of the year, details of Disclousre are as follows;

Goodwill at disposal date 40

Net Asset at disposal date 300
NCI at disposal 50
FV of remaining Investment 15
Consideration 450

Solution:

Full Disclosure
Subsidiary 2
Parent Subsidiary Continued Dis-Continued
Sales 300 150 450 60.0
Cost of goods sold (120) (50) (170) (22.5)
Gross Profit 180 100 280 37.50
Operating Expense (50) (25) (75) (13)
Investment Income 15 2 17 0
Diposal Gain (W.1) 175
Share of Profit -
Profit Before tax 145 77 222 200
Tax (25) (21) (46) (10)
Profit After tax 120 56 176 190

W.1

Consolidated gain 450

FV of remaining 15
Net Assets (300)
Goodwill (40)
NCI 50
175
Share of Profit will be calculated if Disposal is to the extent of Investment in Associate.

Full Disclosure - Consolidated Income Statement

Parent Subsidiary Consolidated

Sales 300 150 450
Cost of goods sold (120) (50) (170)
Gross Profit 180 100 280
Operating Expense (50) (25) (75)
Investment Income 15 2 17
Income from Discontinued operations 190
Share of Profit 0
Profit Before tax 145 77 412
Tax (25) (21) (46)
Profit After tax 120 56 366
 Solution
Adjusment for
Consolidated Books Panther Limited
Tiger Leopard Consolidated Dis-Continued
Sales 6,760 426 (60) 7,126 284.0
Cost of goods sold (4,370) (218) 60 (4) (4,532) (208.0)
Gross Profit 2,390 208 2,594 76.00
Operating Expenses (1,270) (132) (1,402) (27)
Investment income 730 10 (300) (42) 398 -
Cons. Gain on Disposal 0 146.80
Impairment of S2 (7) (7)
Taxation (400) (17) (417) (10)
1,450 69 1,519 185.80 1,704.8
Attributed to : 1,677.5
Parent (Bal.) 27.3
NCI

Disposal of LP (Diposed during the Mid of the year)

At acq At R.D *Opening 270.0

Share capital 800.0 800.0 half Profit FTY 39.0
Retained Earnings* 55.0 309.0 309.0
855.0 1,109.0
254.0
P (80%) 203.2 50.8 NCI (20%)

Goodwill NCI NCI's share of Earning

Consideration 1,000.0 At acquisition 171.0 Profit FTY

Share of Net Assets (684.0) Post acquisition 50.8 Adjustments - URP
 316.0 221.8
Impairment Last year (50.0) % holding
Net goodwill 266.0 Share of Profit

Disposal Gain

(A) Individual Books (B) Consolidated Gain

Consideration 1,300.0 Consideration 1,300.0

Cost (1,000.0) Net Asset (1,109.0)
300.0 NCI 221.8
Goodwill (266.0)
146.8
Un - realized gain
S→P
Dividend by LL
Cost 50.0
Markup 20% Dividend Paid 60.0 (from SOCE)
Gross Profit 10.0 Parent's share 70%
Dividend Reversal 42.0
un sold stock 40%

Reversal of gain 4.0

NCI's share of Earning
PL LL
39.0 69.0
Adjustments - URP (4.0)
 39.0 65.0
20% 30%
Share of Profit 7.8 19.5 27.3
Question No. 25 (ACCA P2 Past Paper)
The following financial statements relate to Ashanti, a public limited company.
Ashanti Group: Statements of comprehensive income for the year ended 30 April 2010.
Ashanti Bochem Ceram
$m $m $m
Revenue 810 235 142
Cost of Sales (686) (137) (84)
Gross Profit 124 98 58
Other Income 31 17 12
Distribution Costs (30) (21) (26)
Administrative Expenses (55) (29) (12)
Finance Costs (8) (6) (8)
Profit before Tax 62 59 24
Income Tax Expense (21) (23) (10)
Profit for the Year 41 36 14

Other Comprehensive Income for the Year, net of Tax:

Available-for-Sale Financial Assets (AFS) 20 9 6
Gains (Net) on PPE Revaluation 12 6 -
Actuarial Losses on Defined Benefit Plan (14) - -
Other Comprehensive Income for the Year, net of Tax 18 15 6
Total Comprehensive Income and Expense for Year 59 51 20

Solution Consolidated Statement of Comprehensive Income

Ashanti Adjustments
Bochem in Consolidated SOCI Continued
Revenue 810 235 (15) (5) 1,025
Cost (686) (137) (2) 15 -1.00 (811)
Gross Profit 124 98 214
Other Income 31 17 48
Distribution Cost (30) (21) (51)
Admin (55) (29) (3) (0.212) (1.60) (89)
Finance (8) (6) (14)
Impairment (2.20) (2)
Disposal Gain 0.00
Share of Profit (Ceram) 2.10 2.10
Investment Loss (4.99) (5)
Tax (21) (23) (44)
41 36 59.10
Other Comprehensive Income
Revaluation 12.00 6.00 1.60 19.60
Actuarial gain/Loss (14.00) 0.00 (14.00)
(2.00) 6.00 5.60

Total Comp. Income 39 42 64.70

Approtionment of Income*
70% 30%
Parent (Bal.) NCI Profit FTY
PAT - Continued (59.10) 45.85 13.25 Impairment
 PAT - Dis-Continued (3.8) 2.66 1.14 FV depreciation
OCI - Continued (6) 4.20 1.80 Share of profit (A)
OCI - Dis-Continued - -
Total Comp Income - Continued 50.05 15.05 Share of NCI
Total Comp Income - Dis - Continued 2.66 1.14

Bochem (Workings)

Net Assets At Acquisition At Rep. Date Goodwill

Share Capital 55 Consideration 150.00

Retained Earnings 85 FV of NCI 54.00
OCE 10 Share of NA (160)
FV - Adjustment 10 6 Goodwill 44.00
160 216 Imapirment 15% LY (6.60)
56 Imapirment 5% CY (2.20)
P (70%) 39.20 35.20
NCI (30%) 16.80

Cream (Workings)

Net Assets At Acquisition At Rep. Date Goodwill

Net Assets 115 160 Consideration 95 (136*70%)

Change 45 FV of NCI 26
121
Parent Holding 56% 25.20 Share of NA (115)
NCI Holding 44% 19.80 6.20

Consolidated Gain Individual Gain

Consideration 90 Consideration 90
FV of Remaining Investment 45 Cost of Sub (85) (Total cost apportioned for the D
Net Assets (160) 5
NCI 35
Goodwill (6)
3.80

Other Adjustments

Revaluation of Bond Sales to a Bankcrupt Person

Revised CF's Reversal of Sale 5

Year CF's PV @ 10% Booking of Bad debts 3
1 1.60 1.45
2 1.40 1.16 As at the time of Sale it was known about the
3 16.50 12.40 Bankcruptcy of the Perso, therefore Sales should have
15.01 not recorded.
Carrying Amount 20
Revaluation Loss (4.992) OCI
P2 Past Paper) The following information is relevant to the preparation of the group statement of comprehensive incom
1. On 1 May 2008, Ashanti acquired 70% of the equity interests of Bochem, a public limited compa
purchase consideration comprised cash of $150 million and the fair value of the identifiable net
was $160 million at that date. The fair value of the non-controlling interest in Bochem was $54 m
em Ceram 1 May 2008. Ashanti wishes to use the 'full goodwill' method for all acquisitions. The share cap
$m $m retained earnings of Bochem were $55 million and $85 million respectively and other compon
35 142 equity were $10 million at the date of acquisition. The excess of the fair value of the identifiable ne
37) (84) at acquisition is due to an increase in the value of plant, which is depreciated on the straight-line
98 58 and has a five year remaining life at the date of acquisition. Ashanti disposed of a 10% equity int
17 12 the non-controlling interests (NCI) of Bochem on 30 April 2010 for a cash consideration of $34
21) (26) The carrying value of the net assets of Bochem at 30 April 2010 was $210 million before any adjus
29) (12) on consolidation. Goodwill has been impairment tested annually and as at 30 April 2009 had red
(6) (8) value by 15% and at 30 April 2010 had lost a further 5% of its original value before the sale of the
59 24 interest to the NCI. The goodwill impairment should be allocated between group and NCI on the b
23) (10) equity shareholding.
36 14 2. Bochem acquired 80% of the equity interests of Ceram, a public limited company, on 1 May 20
purchase consideration was cash of $135 million. Ceram's identifiable net assets were fair valued
million and the NCI of Ceram attributable to Ashanti had a fair value of $26 million at that date
9 6 November 2009, Bochem disposed of 50% of the equity of Ceram for a consideration of $90
6 - Ceram's identifiable net assets were $160 million and the fair value of the NCI of Ceram attribu
- - Bochem was $35 million at the date of disposal. The remaining equity interest of Ceram held by B
15 6 was fair valued at $45 million. After the disposal, Bochem can still exert significant influence. G
51 20 had been impairment tested and no impairment had occurred. Ceram's profits are deemed to
evenly over the year.
3. Ashanti has sold inventory to both Bochem and Ceram in October 2009. The sale price of the in
was $10 million and $5 million respectively. Ashanti sells goods at a gross profit margin of 20% t
companies and third parties. At the year-end, half of the inventory sold to Bochem remained uns
the entire inventory sold to Ceram had been sold to third parties
4. On 1 May 2007, Ashanti purchased a $20 million five-year bond with semi annual interest of 5
payable on 31 October and 30 April. The purchase price of the bond was $21-62 million. The effective
interest rate is 8% or 4% on a semi annual basis. The bond is classified as available-for-sale. At 1 May 2
the amortized cost of the bond was $21.05 million and the loss recognised in equity was
Dis-continueed
71
(42) FV Adjustment of Depreciation
29
6
(13)
(6)
(4)

3.80

(5)
10.80

-
-
-
-
11

Bochem Ceram
36 7
(2.20)
 (2.00)
2.10
34 7
30% 44%
10.17 3.08

NCI 10% Disposal

At acquisition 54.00 Consideration 34

Post Acquisition 16.80 Investing Cost (21)
70.80 12.57
Impairment (2.64) No need for consolidated gain, as no details of OCE are given.
Net NCI 68.16

NCI

To the extent of Parent holding % CA of NCI 35 At disposal date (given)

{As holding in Cream is still 30% therefore it'll be treated as Associate}

Share of Profit

Profit for the Last 6 Months 7

(Total cost apportioned for the Disposal portion) Subsidiary's share 30%
Share of profit 2.10

PPE Adjustment PPE Rev. Surplus Employee Benefits (IAS 19)

1-May-08 Cost of PPE 12
Depreciation (1.2) Salary Expense FTY
10.80 Working days
30-Apr-09 Surplus 2.20 2.20 Per day expense
Revaluation 13
s should have 30-Apr-10 Depreciation (1.44) (0.24) Leave Days allowed
11.56 1.96 Chances of utilization
Surplus Reverse (1.96) (1.96)
Revaluation loss* (1.60) Provision/Expense
Revaluation 8 0
*Loss charged to OCI, whereas it needs to be reversed and charge in P/L
 4. On 1 May 2007, Ashanti purchased a $20 million bond with annual interest of 8%
nt of comprehensive income:
effective rate, payable on 30 April. The bond was classified as fair value through profit or lo
em, a public limited company. The 2010, the carrying amount of the bond is $20 million and interest has just been received a
value of the identifiable net assets $0.6 million, resulting in a carrying value of $20.45 million (no change to the effective annual
are reports that issuer of the bond is in financially difficulty. The market rate is now 10% a
rest in Bochem was $54 million on issuer of the bond did not pay the interest due on 31 October 2009 and 30 April 2010.
estimates
as that 2010,
at 30 April the only amount
the bond isthat will be received
impaired and thatinthe
settlement of the bond
best estimates will future
of total be as fo
cquisitions. The share capital and
ectively and other components of
Million on 30 April 2011, $1.4 million on 30 April 2012 and $16.5 million on
$2.34 million on 30 April 2011 and $8 million on 30 April 2012. The current interest 30 April 2013.ra
value of the identifiable net assets accounting
cash entries
flows as at 30made
April in the is
2010 financial
10%. No statements for entries
accounting the above bond
have beensince 30 April
made in the200
fin
eciated on the straight-line method account
for for the
the above interest
bond received.
since 30 April 2009.
sposed of a 10% equity interest to 5. Ashanti sold $5 million of goods to a customer who recently made an announcement tha
cash consideration of $34 million. its debts with its suppliers including Ashanti. It is probable that Ashanti will not reco
210 million before any adjustments outstanding. The goods were sold after the announcement was made although the orde
as at 30 April 2009 had reduced in to the announcement. Ashanti wishes to make an additional allowance of $8 million
value before the sale of the equity receivable balance at the year end, of which $5 million relates to this sale.
een group and NCI on the basis of
6. Ashanti owned a piece of property, plant and equipment (PPE) which cost $12 million an
on 1 May 2008. It is being depreciated over 10 years on the straight-line basis with ze
ed company, on 1 May 2008. The On 30 April 2009, it was revalued to $13 million and on 30 April 2010, the PPE was reva
net assets were fair valued at $115 The whole of the revaluation loss had been posted to the statement of comprehen
e of $26 million at that date. On 1 depreciation has been charged for the year. It is Ashanti's company policy to make all ne
for a consideration of $90 million. for excess depreciation following revaluation.
of the NCI of Ceram attributable to
interest of Ceram held by Bochem 7. The salaried employees of Ashanti are entitled to 25 days paid leave each year. The en
xert significant influence. Goodwill evenly over the year and unused leave may be carried forward for one year. The holiday
m's profits are deemed to accrue as the financial year. At 30 April 2010, Ashanti has 900 salaried employees and the
holiday entitlement is three days per employee. 5% of employees leave without taking
and there is no cash payment when an employee leaves in respect of holiday entitleme
09. The sale price of the inventory working days in the year and the total annual salary cost is $19 million. No adjustment h
ross profit margin of 20% to group the financial statements for the above and there was no opening accrual required for ho
d to Bochem remained unsold but
8. Ignore any taxation effects of the above adjustments and the disclosure requirement
h semi annual interest of 5% current assets held for sale and discontinued operations.
1-62 million. The effective annual Required: Prepare a consolidated statement of comprehensive income for the year ended 3
ailable-for-sale. At 1 May 2009, the Ashanti Group.
n equity was
 Controlled assets
Cash 34
Goodwill 35.20 NCI 25.12
Net assets 216.00 OCE 9
251
details of OCE are given. 10% disposed 25.12

Un - realized gain on Profit

Sales by Parent
Bochem Ceram
Sales 10 5 15
Profit 2 1 3
Un - sold 1.00 - 1

Benefits (IAS 19)

19
255
0.0745

3
95%

0.21
 bond with annual interest of 8% which is also the
d as fair value through profit or loss. At 30th April
interest has just been received as normal, but there
change to the effective annual interest rate). The
ty. The market rate is now 10% and Ashanti
ctober 2009 and 30 April 2010. Ashanti feels that
ettlement
e of the bond
best estimates will future
of total be as follows: $1.6
cash receipts are
dril$16.5 million on 30 April 2013. The only
2012. The current interest rate for discounting
he
ntriesabove
havebond
beensince 30 April
made in the2009 were statements
financial to correct

ntly made an announcement that it is restructuring

bable that Ashanti will not recover the amounts
ent was made although the order was placed prior
ditional allowance of $8 million against the total
relates to this sale.
(PPE) which cost $12 million and was purchased
n the straight-line basis with zero residual value.
30 April 2010, the PPE was revalued to $8 million.
o the statement of comprehensive income and
's company policy to make all necessary transfers

ys paid leave each year. The entitlement accrues

orward for one year. The holiday year is the same
00 salaried employees and the average unused
employees leave without taking their entitlement
s in respect of holiday entitlement. There are 255
st is $19 million. No adjustment has been made in
opening accrual required for holiday entitlement.
and the disclosure requirements of IFRS 5 Non-
s.
ve income for the year ended 30 April 2010 for
Question No. 26 (ICAEW Past Paper - June 2010)
At 1 April 2009 Jennings plc had investments in three companies: Ferrars Ltd, Brandon Ltd and Palmer Ltd. 1. The issued share capitals
Extracts from the draft individual financial statements of the four companies for the year ended 31 March 2010 plc were as follows:
are shown below:
INCOME STATEMENTS Jennings plc
Jennings plc Ferrars Ltd Brandon Ltd Palmer Ltd Ferrars Ltd
Brandon Ltd
£'000 £'000 £'000 £'000 Palmer Ltd
Revenue 67,600 56,800 42,500 27,600
No company has any res
Cost of Sales (43,700) (41,600) (21,750) (14,300)
Gross Profit 23,900 15,200 20,750 13,300 2. Jennings plc acquired its
when the retained earnin
Operating Expenses (12,700) (5,400) (13,200) (5,400)
of its shares in Ferrars L
Profit from Operations 11,200 9,800 7,550 7,900 31 March 2009 cumulativ
Investment Income 7,300 - 1,000 - combination with Ferrars
Profit before Taxation 18,500 9,800 8,550 7,900 3. Jennings plc acquired its
Income Tax Expense (4,000) (2,000) (1,700) (1,500) Ltd were £10.4 million. A
Profit for the Year 14,500 7,800 6,850 6,400 goodwill acquired in the b
STATEMENTS OF CHANGES IN EQUITY (EXTRACTS) 4. Jennings plc acquired its
Ltd were £600,000. Jenn
Retained Earnings in Palmer Ltd of £100,000
Jennings plc Ferrars Ltd Brandon Ltd Palmer Ltd 5. During the year Brandon
£'000 £'000 £'000 £'000 Ltd £3 million. Half of the
At 1 April 2009 23,800 2,700 10,400 4,550 6. Investment income in Jen
Ordinary Dividends Paid - - (2,000) (1,000) in Ferrars Ltd and dividen
Total Comprehensive Income for the year 14,500 7,800 6,850 6,400
Requirements:
At 31 March 2010 38,300 10,500 15,250 9,950
Additional information: (a) Prepare the consolidated
should assume that the
IFRS 5, Non-current Asse
Effective Holding % (b) Calculate consolidated
Jennings
Ferrars 80%
Brandon 70%
Palmer 40%

Solution: Consolidated Statement of Comprehensive Income

Jennings PLC Brandon Ltd Consolidated Adjustments

Revenue 67,600.0 42,500.0 (3,600.0)

Cost of Sales (43,700.0) (21,750.0) 3,600.0 (300.0)
Gross profit 23,900.0 20,750.0

Operating Expenses (12,700.0) (13,200.0)

Investment Income 7,300.0 1,000.0 (5,000.0) (400.0)
Disposal Gain
Impairment of Brendon (700.0)
Share of Profit 2,560.0 (100.0)
Taxation (4,000.0) (1,700.0)
14,500.0 6,850.0

NCI's
Brandon Ltd Ferrrars
Profit FTY 6,850 3,900
Un - realized profit (300.00)
6,550 3,900
Share of NCI 30% 20%
1,965.00 780.00 2,745.0

Ferrars (working)
 Several yrs ago 30-Sep-09

Net Assets At acquisition At Year Start* At Disposal Date

Share capital 8,000.0 8,000.0 8,000.0
Retained Earnings 550.0 2,700.0 6,600.0
8,550.0 10,700.0 14,600.0
2,150.00 3,900.00

Parent (80%) 1,720.0 3,120.0

NCI (20%) 430.0 780.0

*To find the value of (impaired NCI) including last impairment, for Disposal gain and for SOCE purpose.

Individual gain Consolidated Gain

Consideration 15,000.0 Consideration

Cost of Subsidiary (10,000.0) Net assets
5,000.0 Goodwill
NCI

Brendon (working)

1-Apr-09 31-Mar-20
Net Assets At acquisition At Reporting date

Share capital 6,000.0 6,000.0

Retained earnings 10,400.0 15,250.0
Un- realized gain* (300.0)
16,400.0 20,950.0
4,550.0
Parent (70%) 3,185.0
NCI (30%) 1,365.0

* Un - realized gain Reversal of Dividend

Cost 3,000.0 Dividend Declared

Markup 20% Parent' s share
Profit 600.0

Stock Left 50% As we're consolidating whole Income and Expenses, there

URP 300.0

Palmer (working)

Investment in Associate Dividend Declared

Share of Parent
Retained Earnings at Acq 600.0
Retained Earnings at Start of Year 4,550.0 As in case of Associate, share of Prof
3,950.0
Share of Jennings Plc 40% Investment in Associate (Impairmen
1,580.0

Profit for Current year 6,400.0

Share of Profit 2,560.0

Consolidated Statement of Changes in Equity

Share Capital Group Reserves Non - controlling Interest

Opening balance 1 April 2009 10,000.0 26,600.0 2,140.0
Profit for the year 17,825.0 2,745.0
Dividend Declared (600.0)
Acquisition 4,920.0
Disposal during the year (2,920.0)
Closing balance 31 Mar 2010 10,000.0 44,425.0 6,285.0

Additional working (not required)

Group reserves balance at year end

Parent R/earnings year end 38,300.0

Post acqusition - Ferrars 4,840.0

Impairment (500.0)
Gain on Disposal - Individual (5,000.0)
Gain on Disposal - Consolidated 660.0

Post acquisition - Brendon 3,185.0

Imapirment (700.0)

Post acquisition - Palmer 3,740.0

Imapirment (100.0)

Group Reserves at year end 44,425.0

 1. The issued share capitals of the four companies at 1 April 2009 and number of shares held by Jennings
plc were as follows:
Number of Ordinary Shares
Issued £1 Ordinary Shares
held by Jennings plc
Jennings plc 10 million -
Ferrars Ltd 8 million 6.4 million
Brandon Ltd 6 million 4.2 million
Palmer Ltd 4 million 1.6 million
No company has any reserves other than retained earnings. The fair values of the assets and
2. Jennings plc acquired its shares in Ferrars Ltd several years ago for total consideration of £10 million
when the retained earnings of Ferrars Ltd were £550,000. On 30 September 2009 Jennings plc sold all
of its shares in Ferrars Ltd for £15 million. Ferrars Ltd's profits accrued evenly over the current year. At
31 March 2009 cumulative impairment losses of £500,000 in respect of goodwill acquired in the business
combination with Ferrars Ltd had been recognised.
3. Jennings plc acquired its shares in Brandon Ltd on 1 April 2009 when the retained earnings of Brandon
Ltd were £10.4 million. At 31 March 2010 an impairment loss of £700,000 was identified in respect of
goodwill acquired in the business combination with Brandon Ltd and needs to be recognised.
4. Jennings plc acquired its shares in Palmer Ltd several years ago when the retained earnings of Palmer
Ltd were £600,000. Jennings plc has calculated that impairment in the carrying amount of its investment
in Palmer Ltd of £100,000 arose in the current year and needs to be recognised.
5. During the year Brandon Ltd sold goods to Jennings plc at a mark-up of 20%. The goods cost Brandon
Ltd £3 million. Half of these goods were still in Jennings plc’s inventories at the year end.
6. Investment income in Jennings plc’s individual income statement includes its profit on the sale of shares
in Ferrars Ltd and dividends received from Brandon Ltd and Palmer Ltd.
Requirements:
(a) Prepare the consolidated income statement of Jennings plc for the year ended 31 March 2010. You
should assume that the disposal of Ferrars Ltd constitutes a discontinued activity in accordance with
IFRS 5, Non-current Assets Held for Sale and Discontinued Operations.
(b) Calculate consolidated retained earnings brought forward at 1 April 2009.

Ferrrars
solidated Adjustments Continued Dis - Continued
-
106,500.0 28,400.0
(62,150.0) (20,800.0)
44,350.0 7,600.0
-
(25,900.0) (2,700.0)
(1,400.0) 1,500.0 -
- 660.0
(700.0)
2,460.0
(5,700.0) (1,000.0)
16,010.0 4,560.0

Continued Dis - continued Total

Parent 13,265.0 4,560.0 17,825.0
NCI 2,745.0 - 2,745.0
Total 16,010.0 4,560.0 20,570.0
 Goodwill
Disposal
Opening balance 2,700.0 Consideration 10,000.0
During the year (half) 3,900.0 Share of Net Assets (6,840.0)
6,600.0 3,160.0
Impairment LY (500.0)
2,660.0

15,000.0
(14,600.0)
(2,660.0)
2,920.0
660.0

Non - controlling Interest

At acquisition 4,920.0
Post acquisition 1,365.0
6,285.0

2,000.0
0.7
1,400.0

ng whole Income and Expenses, therefore such incomes are already inclusive of Dividend income

Dividend Declared 1,000.0

Share of Parent 400.0

As in case of Associate, share of Profit is recognised in lieu of any other Income.

Investment in Associate (Impairment)

(100.0)
 Opening
Parent Earnings 23,800.0
Post acquisition Ferrars 1,720.0
Post acquisition Palmer 1,580.0
Impairment (500.0)
26,600.0
Non - controlling Interest

At acquisition 1,710.0
Post acquisition 430.0
2,140.0
Post Acq - CY 780.0
2,920.0
 Foreign Currency Consolidation

Currencies

Functional Foreign Currency Presentation

Currency in which the companies Curreny in which the F/s are prepared and
operations are majorly carried out. presented. (Same as of Functional)

Currency other than the functional currency

Item

Monetary Non - Monetary

To be settled in cash Not to be settled in cash
Re-measure every year at closing rate Re-measure only if carried at Revaluation Model
Gain carried in P/L Gain is carried, where gain of Revaluation is carried

Foreign Currency Implications on Consolidation

Assets:
All assets are measured at the 'Closing rate' for Consolidation purpose.
Liabilities:
All liabilities are measured at the 'Closing rate' for Consolidation purpose.

Income & Expenses

Income and Expenses are measured at the average rate being evenly incurred during the year.

Note: Foreign Currency gain & loss for every transaction will carried to 'other comprehensive income'
In consolidated Books
Illustration

An entity acquired 100% of an Entity at 1 Jan 2019

Consideration $1,000
Net Assets ($800)
Goodwill $200
Spot 105

31-Dec-19
Net assets $1,100
Goodwill $200
Spot 121

Average rate for the year 115

Solution:

1-Jan-19 31-Dec-19

Net Assets 84,000 133,100 Net Assets

Goodwill 21,000 24,200 Goodwill
 105,000 157,300
Increase 52,300

The increase in Net assets is earned over the period, therefore we'll use average rate.

Net increase in Assets in $ terms $300

Average rate 115

Net Increase 34,500

Reconciliation through Exchange Reserves

Net Assets USD Rate Rupees Goodwill

Opening 800 105 84,000 Opening

Increase (Income) 300 115 34,500 Impairment
OCI / Exchange reserves (bal.) 14,600 OCI / Exchange reserves (bal.)
Closing 1,100 121 133,100 Closing

Total gain (OCI) 17,800

Gain from P/L 34,500
52,300
Presentation

ch the F/s are prepared and

me as of Functional)

Revaluation Model
Revaluation is carried

d during the year.

prehensive income'
 USD Rate Rupees

200 105 21,000

Impairment 0 0 0
OCI / Exchange reserves (bal.) 3,200
200 121 24,200
Question No. 27
Parent is an entity that owns 80% of the ordinary shares of its foreign subsidiary that has the Shining as its the
functional currency. The subsidiary was acquired at the start of the current accounting period on 1 January 20X7
when its reported reserves were 6,000 Shillings.
At that date the fair value of the net assets of the subsidiary was 20,000 Shillings. This included a fair value
adjustment in respect of land of 4,000 Shillings that the subsidiary has not incorporated into its accounting
records and still owns.
Parent wishes the presentation currency of the group accounts to be $. Goodwill is to be accounted for on a
fair value basis, which is unimpaired at the reporting date. At the date of acquisition, the non-controlling
interest in Overseas had a fair value of 5,000 Shillings.

Statements of Parent Overseas

Financial Position $ Shillings
Investment (21,000 S 3,818 -
Assets 9,500 40,000
13,318
26,636 40,000
Equity and Liabilities
Equity Capital 5,000 10,000
Retained Earnings 6,000 8,200
Liabilities 2,318 21,800
13,318
26,636 40,000

Statement of Parent Overseas

Comprehensive
Income $ Shillings
Revenue 8,000 5,200
Costs (2,500) (2,600)
Profit before tax 5,500 2,600
Tax (2,000) (400)
Profit for the year 3,500 2,200
Neither entity recognised any cither comprehensive income in their individual accounts in the period.
Relevant exchange rates (Shillings to $1) are:

Exchange Rate - (Shillings to

Date $ 1)
01 January 20X 7 5.5
31 December 20X7 5
Weighted average
for year 5.2

Solution: Consolidated Statement of Financial Position

Goodwill 1,200
PPE 18,300 (9,500 + 44,000/5)
19,500

Share capital 5,000

Group Reserves 6,338
Exchange Reserves 392
NCI 1,092
Liabilities 6,678 (2,318 + 21,800/5)
19,500

Consolidated Statement of Comprehensive Income

 Parent Subsidiary Adjustments Consolidated P/L

Revenue 8,000 1,000 - 9,000

Cost of goods sold (2,500) (500) - (3,000)
Gross Profit 5,500 500 - 6,000
Taxation (2,000) (77) - (2,077)
3,500 423 - 3,923
Attributable to:

Parent (bal.) 3,838

NCI 85

Shillings '000'

Net Assets At acquisitionAt Reporting date Goodwill

Share capital 10,000 10,000 Consideration

Reserves 6,000 8,200 FV of NCI
FV - adjustment Land 4,000 4,000 Net Assets
20,000 22,200
2,200
As the profit earned = Retained earnings (No declaration of Dividend)

$ in '000'
Group Reserves

Retained Earnings OCI

Parent Retained earnings 6,000
Post acquisition - P/L 338
Post acquisition - OCI 392
6,338 392

Extra Working - Exchange Reserves $ in '000'

80%
Net Assets USD Rate Dollars Parent

Opening 20,000 5.50 3,636

Profit FTY 2,200 5.20 423 338
Dividend Declared 0 0 0
4,059
Exchange Reserves - OCI 381 304
Closing Balance 22,200 5 4,440
$ in '000'

$ in '000'
Consideration 21,000
5,000
(20,000)
6,000

Non - controlling Interest

At acquisition 909
Post acqusisition - P/L 85
Post acqusisition - OCI 98
1,092

20%
NCI Goodwill USD Rate Rupees 80%
Parent
Opening 6,000 5.50 1,091
85 Impairment 0 0 0
OCI / Exchange reserves (bal.) 109 87
Closing 6,000 5 1,200
76
20%
NCI

22
Question No. 28
On 1 July 20X1 H acquired 80% of ABC Inc. whose functional currency is KRs. The cost of gaining control was KR
7,500. Their financial statements at 30 June 20X2 were as follows:
H ABC
Statement of Financial Position
$ KR
Assets
Investment In ABC 5,000 -
Non Current Assets 10,000 3,000
Current Assets 5,000 2,000
20,000 5,000
Equity And Liabilities
Equity Capital 6,000 1,500
Retained Earnings 4,000 2,500
Liabilities 10,000 1,000
20,000 5,000

M ABC
Income Statement
$ KR
Revenue 25,000 35,000
Operating Costs (16,000) (26,250)
Profit before Tax 10,000 8,750
Tax (8,000) (7,450)
Profit For The Year 2,000 1,300

Solution: in USD

Consolidated Statement of Financial Position

Goodwill 1,350.00 Share Capital

PPE 13,150.00 Group Reserves
Current Assets 5,600.00 (Less Loan) Exchange Reserves
20,100.00 NCI
Liabilities

Consolidated Statement of Comprehensive Income

H ABC Adjustments
Revenue 25,000.00 20,000.00 (1,000.00)
Operating Costs (16,000.00) (15,000.00) 1,000.00
Gross Profit 9,000.00 5,000.00
Forex Losses
Taxation (8,000.00) (4,257.14)
Profit FTY 1,000.00 742.86

Other Comprehensive Income

Exchange Reserves Loss

Attributable to; Parent NCI Subsidiary's Profit

Profit 1,598.86 144.00 Exchange loss
OCI (1,322.00) (218.00)
Total 276.86 (74.00) NCI' Share
 in ''KR'' in ''KR''

Net Assets At Acquisition At Rep. Date Goodwill

Share capital 1,500.00 1,500.00 Consideration

Reserves 1,200.00 2,500.00 Share of NA
FV- Adjustment Land 3,300.00 3,300.00 Goodwill
Exchange Loss - Loan* (40.00)
6,000.00 7,260.00
1,260.00
Closing R.E - Profit FTY Group Reserves

Exchnage loss KR
Parent
Opening Loan 760.00 Post - acquisition
Closing Loan 800.00 OCI - NA
Exchange Loss 40.00 OCI - Goodwill

Exchange Reserves

Net Assets 80% 20%

KR Rate USD Parent NCI
Opening Net Assets 6,000.00 1.50 4,000.00 3,200.00 800.00
Profit FTY 1,260.00 1.75 720.00 576.00 144.00
4,720.00
(1,090.00) (872.00) (218.00)
Closing Net Assets 7,260.00 2.00 3,630.00
aining control was KR Neither entity recognised any components of other comprehensive income in their individual accou
period.
H ABC The following information is applicable.
$ KR
(i) At the date of acquisition the fair value of the net assets of ABC were KR 6,000, The increase in th
is attributable to land that remains earned by ABC at its historical cost.
5,000 -
0,000 3,000 (ii) During the year H sold goods on cash terms for $1,000 to ABC.
5,000 2,000
(iii) On 1 June 20X2 H made a short-term loan to ABC of $400. The liability is recorded by ABC at the h
0,000 5,000
The loan is recorded within current assets and liabilities as appropriate
6,000 1,500 (iv) The non-controlling interest is valued using the proportion of net assets method.
4,000 2,500
0,000 1,000
0,000 5,000 Exchange rates to $1 -
KR
M ABC 1 July 20X1 1.50
$ KR Average rate 1.75
5,000 35,000 1 June 20X2 1.90
000) (26,250) 30 June 20X2 2
0,000 8,750 Required:
000) (7,450) Prepare the group statement of financial position, income statement and statement of other
2,000 1,300 comprehensive income.

6,000.00
4,576.00
(1,322.00)
726.00
10,120.00
20,100.00

djustments Consolidated P/L

44,000.00
(30,000.00)
14,000.00
(22.86) (22.86)
(12,257.14)
1,742.86

(1,540.00)

sidiary's Profit 742.86

xchange loss (22.86)
720.00
144.00
 in USD

Non - Controlling Interest

onsideration 7,500.00 At acquisition 800.00

(4,800.00) Post Acquisition 144.00
2,700.00 Post Acquisition - OCI (218.00)
726.00

Group Reserves in USD

R/Earnings OCI
4,000.00
ost - acquisition 576.00
(872.00)
OCI - Goodwill (360.00)
4,576.00 (1,232.00)

Goodwill 80% 20%

KR Rate USD Parent NCI
Opening 2,700.00 1.50 1,800.00 1,440.00 360.00
Impairment 0.00 1.75 0.00
1,800.00
(450.00) (360.00) (90.00)
Closing Net Assets 2,700.00 2.00 1,350.00
n their individual accounts in the

,000, The increase in the fair value

ecorded by ABC at the historic rate.

method.

statement of other
Question No. 29 Note: There were no items, of other
On the 1 July 20X1 Saint acquired 60% of Albans, whose functional currency is Ds. The presentation currency of the entity.
Saint group is the dollar ($). The financial statements of both entities are as follows:
Statements of Financial Position as at 30 June 20X2
The following information is appli

Saint Albans (i) Saint purchased the shares in

acquisition the retained earnin
Assets $ D 1,000. The fair value adjustme
Investment in Albans 5,000.0 - plant remains held by Albans a
Loan to Albans 1,400.0 -
(ii) Just before the year-end Sain
Property Plant and Equipme 10,000.0 15,400.0 Albans for cash at a mark up of
Inventories 5,000.0 4,000.0
(iii) On 1 June X2 Saint lent Alban
Receivables 4,000.0 500.0 liabilities of Albans.
Cash and Cash Equivalents 1,600.0 560.0
(iv) No dividends have been paid.
27,000.0 20,460.0
Equity and Liabilities (v) Goodwill is to be accounted
goodwill had reduced in value
Equity Capital ($1/D1) 10,000.0 1,000.0
value of the non-controlling in
Share Premium 3,000.0 500.0
Retained Earnings 4,000.0 12,500.0 (vi) On 1 July 20X1, Saint receive
towards the costs of training
Non-Current Liabilities 5,000.0 5,460.0 expenses by the full $ 4,000.
Current Liabilities 5,000.0 1,000.0
(vii) On 30 June 20X2, Saint sold $2
27,000.0 20,460.0 any amounts not collect
received against receivables.
Statements of profit or loss for the year ended 30 June 20X2 (viii) Exchange rates are as follows:
Saint Albans
$ D 01 July 20X1
Revenue 50,000 60,000 Average Rate
Cost of Sales (20,000) (30,000) 01 June 20X2
Gross Profit 30,000 30,000 30 June 20X2
Dist & Admin Expenses (20,000) (12,000) Required:
Profit before Tax 10,000 18,000 Prepare the group statement of fi
Tax (8,000) (6,000) or loss and other comprehensive
Profit for the Year 2,000 12,000

Solution: in 'USD'

Consolidated Statement of Financial Position

Goodwill 2,700.0 Share Capital

PPE 14,050.0 Share Premium
Inventory 5,600.0 Reserves
Receivables 5,625.0 OCI
Cash 1,740.0 NCI
29,715.0 Liabilities
Current Liabilities
Deffered grant

Consolidated Statement of Comprehensive Income

Saint Albans Adjustments

Revenue 50,000.00 20,000.00 (1,200.00)
Cost of Sales (20,000.00) (10,000.00) (66.67) 1,200.00
Gross Profit 30,000.00 10,000.00
Dist & Admin Expenses (20,000.00) (4,000.00) (400.00)
Profit before Tax 10,000.00 6,000.00
Forex Loss (46.67)
 Tax (8,000.00) (2,000.00)
Profit for the Year 2,000.00 4,000.00

Exchange loss OCI (4,621.67)

Attributable to; Parent NCI Subsidiary's Profit

Profit 1,513.33 1,573.33 FV Depreciation
OCI (2,773.00) (1,848.67) Impairment of Goodwill
Total (1,259.67) (275.33) Revaluation of Liability

NCI' Share

Net Assets At Acquisition At Reporting date

Share Capital 1,000.0 1,000.0

Share premium 500.0 500.0
Retained Earnings 500.0 12,500.0
FV - Adjustment 1,000.0 800.0
Exchange loss* (140.0)
3,000.0 14,660.0
11,660.0
Exchange loss*

USD Rate D
Opening Loan 1,400.0 3.9 5,460.0
Closing Loan 1,400.0 4.0 5,600.0
(140.0)

Exchange Reserves (Working)

Net Assets
60%
in D Rate in USD Parent
Opening Net Assets 3,000.0 2.0 1,500.0
Profit FTY 11,660.0 3.0 3,886.7 2,332.0
5,386.7
Exchange loss (1,721.7) (1,033.0)
Closing Net Assets 14,660.0 4.0 3,665.0

Un - realized Profit (P to S) Government grant

Cost 800.0 Grant Income 2,000.0

Markup 50% Deff. Grant income
Profit 400.0

Sales to reverse 1,200.0

There were no items, of other comprehensive income within the individual financial statements of either

llowing information is applicable:

Saint purchased the shares in Albans for D 10,000 on the first day of the accounting period. At the date of
acquisition the retained earnings of Albans were D 500 and there was an upward fair value adjustment of D
1,000. The fair value adjustment is to plant with a remaining five-year life as at the date of acquisition. This
plant remains held by Albans and has not been revalued.
Just before the year-end Saint acquired some goods from a third party at a cost of $800, which it sold to
Albans for cash at a mark up of 50%. At the reporting date all these goods remain in the inventories of Albans.
On 1 June X2 Saint lent Albans $1,400. The liability is recorded at the historic rate within the non-current
liabilities of Albans.
No dividends have been paid.
Goodwill is to be accounted using the full goodwill method. An impairment review was performed and
goodwill had reduced in value by 10% at 30 June 20X2. Impairment is to be charged to cost of sales. The fair
value of the non-controlling interest at the date of acquisition was D5.000.
On 1 July 20X1, Saint received a government grant for $4,000. This grant was provided as a contribution
towards the costs of training employees over the next two years. Saint has reduced its administrative
expenses by the full $ 4,000.
On 30 June 20X2, Saint sold $2.000 of receivables to a factor for $ 1,500. Saint must reimburse the factor with
any amounts not collected by 31 December 20X2. Saint has credited the proceeds
received against receivables.
Exchange rates are as follows:
D: $1
01 July 20X1 2.00
Average Rate 3.00
01 June 20X2 3.90
30 June 20X2 4.00
red:
re the group statement of financial position as at 30 June 20X2 and the group statement of profit
s and other comprehensive Income for the year ended 30 June 20X2.

in 'USD'

10,000.0
3,000.0
3,692.0
(2,773.0)
2,046.0
5,000.0
6,750.0
2,000.0
29,715.0

Adjustments Consolidated P/L

68,800.00
(400.00) (29,266.67)
39,533.33
(2,000.00) (26,400.00)
13,133.33
(46.67)
 (10,000.00)
3,086.67

sidiary's Profit 4,000.00

Depreciation (66.67)
rment of Goodwill (160.0)
uation of Liability (46.7)
3,933.33
1,573.33

Goodwill

Consideration 10,000.0
FV of NCI 5,000.0
Net Assets (3,000.0)
12,000.0
Impairment (1,200.0)
10,800.0

in USD
NCI Group Reserves
At acquisition 2,500.0
Post acquisition - P/l 1,554.7 Parent
Post acquisition - OCI (1,848.7) Post acquisition - P/L
Impairment (160.0) Impirment of Goodwill
2,046.0 Post acquisition - OCI
Un - realized profit
Grant Income

Goodwill
40% 60% 40%
NCI in D Rate in USD Parent NCI
Opening 12,000.0 2.0 6,000.0
1,554.7 Impairment (1,200.0) 3.0 (400.0) (240.0) (160.0)
5,600.0
(688.7) (2,900.0) (1,740.0) (1,160.0)
Closing GW 10,800.0 4.0 2,700.0

Factoring of Receivables

Cash 1,500.0
Deff. Grant income 2,000.0 Factoring Liability 1,500.0

Cash 1,500.0
Receivables 1,500.0
 R/ Earns OCI
4,000.0
2,332.0
(240.0)
(2,773.0)
(400.0)
(2,000.0)

3,692.0 (2,773.0)

Rectification

Receivables 1,500.0
Factor 1,500.0
Illustration # 1

On 1 July 2018, Company I acquired Company U for a cost of 300 USD.

Share Capital 120 (10 USD each share)

Retained Earnings 160
NCI at Acquisition 90
Acquisition % 75%

Today is 30 June 2020

Impairment of Goodwill 10
Closing Retained earnings 280
Profit for the year 30
Dividend Declared 15% 1-Jan-20

Foreign currency rates are given as;

Rs / USD
Acq date 15
30-Jun-19 16.80
1-Jan-20 16.90
30-Jun-20 17.30

Avg rate 2020 17 Last year Ex.Reserves on Goodwill 148.50

Last year Ex.Reserves on Net Asse 463.50
Solution:

Net Assets At acq At start of year At Rep. date

Share capital 120 120 120

Retained Earnings 160 268 280
280 388 400
108 12
Goodwill

Consideration 300
FV of NCI 90
390
Share of Net Assets (280)
110
Impairment (10)
Net Impairment 100

Exchange Reserves for the Year 2020

Goodwill 75% 25%

USD Rate (Rs / USD) Local Parent NCI
Opening Goodwill 110 17 1,848
Impairment (10) 17 (170) (127.5) (42.5)
1,678
Exchange Reserve 52
Closing 100 17.30 1,730

Working for OCI

 Last year C/f balance 149 (Parent only)

OCI Reserve for group 198

Reserve for the year 52
Balance As at 30 Jun 20 250 188 63

Note: In case where acquisition is other than current year, last year exchange reserve would be given in question.
Gross up the reserves/adjustment amount and find the OCI balance as at Closing date.

Net Assets 75% 25%

USD Rate (Rs / USD) Local Parent NCI
Opening Assets 388 16.80 6,518
Profit FY 30 17.00 510
Dividend (18) 16.90 (304) 154.4 51.5
6,724

Exchange Reserve 196 147 49

Closing 400 17.30 6,920

Working for OCI

Last year C/f balance 464 (Parent only)

OCI Reserve for group 618

Reserve for the year 196
Balance As at 30 Jun 20 814 610 203

USD Rate Local Currency

(At acq) Opening 280 15 4,200
(At R.D) Closing 400 17 6,920
Total Earned from Subsidiary (Post acq & OCI) 2,720
OCI as At (814)
Post acquisition 1,906

Illustration # 2

1-Jan-14 31-Dec-14 31-Dec-15

Share Capital 160 160 160
Retained Earnings 120 240 290
280 400 450

In 2015 Foreign currency rate

Profit for the year 125 1-Jan-14 18
31-Dec-14 19
Consideration 350 (70% shares) 30-Jun-15 21
FV of NCI 150 31-Dec-15 22
Impairment 20 (in 2015) Avg rate 20

Opening Exchange reserves - goodwill 100

Opening Exchange reserves - Net Assets 356

Solution:
Goodwill
Net Assets 1-Jan-14 31-Dec-14 31-Dec-15 Consideration
Share Capital 160 160 160 FV of NCI
 Retained Earnings 120 240 290 FV of Net Assets
280 400 450
Impairment

Exchange Reserves - Goodwill

USD Rate (Rs / USD) Rs.

Opening 220 19 4,180
Impairment (20) 20 (400)
3,780
Exchange Reserve - OCI 620
Closing Goodwill 200 22 4,400

Last year Reserves 143 (100 / 70%)

For the year 620
763 534 229

Net Assets 70% 30%

USD Rate (Rs / USD) Local Parent NCI
Opening Assets 400 19.00 7,600
Profit FY 125 20.00 2,500
Dividend (75) 21.00 (1,575) 144.1 61.7
8,525

Exchange Reserve 1,375 962 413

Closing 450 22.00 9,900

USD Rate Local Currency Working for OCI

(At acq) Opening 280 18 5,040
(At R.D) Closing 450 22 9,900 Last year C/f balance
Total Earned from Subsidiary (Post acq & OCI) 4,860
OCI as At (1,884) OCI Reserve for group
Post acquisition 2,976 Reserve for the year
Balance As at
 Opening 268
Profit 30
Dividend (18)
Closing 280
e would be given in question.

Consideration 350
150
FV of Net Assets (280)
220
Impairment (20)
200

356 (Parent only)

509
1,375
1,884
 %
Cost
R/Earns

Note:

Reversal of Exchange gain reco

(i) Parent →

Investment

(ii) Subsidiary

Investment

Investment Property (in Group

GL
IP (IAS 40)

As the IP is used within the group

(being used in group operations)

Consolidated Statement of Financial Position

Goodwill 1,134
PPE 25,200 (14900+3000+800+325*20)
Current Assets 15,260 (6660+2500+305*20)
41,594

Share capital 11,400

Group Reserves 15,103
NCI 1,096
Liabilities 12,560 (6360+2300+195*20)
OCI 1,435
 41,594

Green Limited
1-Jan-15 31-Dec-16
Net Assets At acq At R.D

Share capital 1,500 1,500

R/earnings 3,500 7,900
Ex gain Reversal (810)
Depreciation on PPE (32.5)
Reversal of FV gain (150)
Revaluation of surplus 182.5
5,000 8,590
3,590.00

P/L Rev Surp

P (90%) P (90%)
3,066.75 3,407.5 182.5 164.25

S (10%) S (10%)
340.75 18.25

Yellow Limited T$

1-Apr-16 31-Dec-16
Net Assets At acq At R.D Goodwill

Share capital 225 225 Old Investment

R/earnings 90 210 Re-measurement gain*
315 435 Investment by GL

*Re-measurement gain Share of Net Assets

Old Investment 75 Re-measure

Shares 4.50
FV per share 23
103.50
FC Rate LC
Investment 75.00 16.00 1,200.00
Investment 103.50 17.00 1,759.50
28.50 559.50

Exchange Reserves

Goodwill Net Assets

FC Rate LC Parent NCI
Opening 57 17 964 Opening
Impairment - - Profit (bal.)
Exchange gain* 170 170 - Dividend
Closing 57 20 1,134
Exchange gain*
Only transferred to Parent being full goodwill Closing
 Holding % of Companies
1-Jan-16 1-Jan-16
90% WL % 20%
4200 Cost 75 T$
3500 R/Earns 50 T$
GL YL

% 80%
Cost 270 T$
R/Earns 90 T$
1-Apr-16

Effective holding in YL

Direct Investment 20.0%

Indirect 72.0%
92.0%

In case of further acquisition (gaining control) old Investment is remeasured.

Reversal of Exchange gain recognised on Investment in Subsidiary

(i) Parent → Sub- subsidiary (75 T$) 1-Jan-16

FC Rate LC
75 16 1200
75 20 1500
Exchange gain to reverse in GR 300

(ii) Subsidiary → Sub- subsidiary (75 T$) 1-Apr-16

FC Rate LC
270 17 4590
270 20 5400
Exchange gain 810 (Reversal through Net Assets in Subsidiary)

Investment Property (in Group) PPE IP

Cost 650.00 650.00
WL Dep (32.50) 0.00
IFRS - 16 (Rent exp) 617.50 650.00
Gain 182.50 150.00
As the IP is used within the group, it'll be treated as same as IAS - 16 PPE Revalue 800.00 800.00
(being used in group operations)
 Goodwill Non - Controlling Interest
GL YL
Consideration 4,200 At acquisition 500.0 428.40
Share of Net Assets' (4,500) Post acquisition 340.8 171.90
Bargain Purchase gain (300) Post acquisition-OCI 18.3 96
Indirect Holding Adj (459.0)
Transfer to Group Reserves 400.0 696.0

Group Reserves
R/ Earns
Parent Retained Earnings 9,500
Post acquisition 3,067
Post acquisition - OCI
Reversal of gain (300)
Re-measurement gain 559.50
Exchange reserves - Goodwill
Exchange reserves -Net Assets
Exchange reserves - Dividend 1,977
Bargain Purchase gain 300
15,103

T$
Old Investment 75
Re-measurement gain* 28.50
Investment by GL 243
346.50
Share of Net Assets (289.80)
57

92%
FC Rate LC Parent 8%
315 17 5,355 NCI
142.50 18 2,565
(22.50) 18.50 (416) 1,976.85
7,504 171.90
Exchange gain* 1,196 1,100.55 -
435 20 8,700 95.70
FV gain 150.00 Reversal

Dep 32.5 Charge

Surplus 182.50 Charge
OCI

164

170
1,101

1,435
Question No. 32
Memo, a public limited company, owns 75% of the ordinary share capital of Random, a public limited company
which is situated in a foreign country. Memo acquired Random on 1 May 2003 for 120 million crowns (CR) when
the retained profits of Random were 80 million crowns. Random has not revalued its assets or issued any share
capital since its acquisition by Memo. The following financial statements relate to Memo and Random:
Balance Sheets at 30 April 2004
Capital and
Memo Random
Reserves
Ordinary Shares of
$m CRm 60 32
$1/1CR
Tangible Non Share Premium
297 146 50 20
Current Assets Account
Investment in
48 - Accumulated Profit 360 95
Random
Loan to
5 - 470 147
Random
Non Current
Current Assets 355 102 30 41
Liabilities
705 248 Current Liabilities 205 60
705 248
The following information is relevant to the preparation of the consolidated financial statements of Memo:
(a) The directors wish to treat goodwill in accordance with recent proposals as a foreign currency asset.
Goodwill is written off over five years.
(b) During the financial year Random has purchased raw materials from Memo and denominated the
purchase in crowns in its financial records. The details of the transaction are set out below:
Profit Percentage on Selling
Date of Transaction Purchase Price $m
Price
Raw Materials 1 February 2004 6 20%
At the year end, half of the raw materials purchased were still in the inventory of Random. The inter-
company transactions have not been eliminated from the financial statements and the goods were
recorded by Random at the exchange rate ruling on 1 February 2004. A payment of $6 million was made
to Memo when the exchange rate was 2-2 crowns to $1. Any exchange gain or loss arising on the
transaction is still held in the current liabilities of Random.
(c) Memo had made an interest free loan to Random of $5 million on 1 May 2003. The loan was repaid on
30 May 2004. Random had included the loan in non-current liabilities and had recorded it at the exchange
rate at 1 May 2003.
(d) The fair value of the net assets of Random at the date of acquisition is to be assumed to be the same as
the carrying value.
(e) Random operates with a significant degree of autonomy in its business operations.
(f) The following exchange rates are relevant to the financial statements:
Crowns to $
30 April / 01 May 2003 2.5
1 November 2003 2.6
1 February 2004 2
30 April 2004 2.1
Average rate for year to 30 April 2004 2
(g) Memo has paid a dividend of $8 million during the financial year and this is not included in the income
statement.
(h) The group uses the allowed alternative treatment in IAS 22 'Business Combinations' to allocate the cost
of the acquisition.
Required: Prepare a consolidated income statement for the year ended 30 April 2004 and a consolidated
balance sheet at that date in accordance with International Financial Reporting Standards.

Solution

Adjustment of Inventory Adjustment of Loan

1-Feb-04 1-May-03
Inventory 12 Cash 13
Payable 12 Loan Payable

Payable 13.20 Loan Payable 2

Cash 13.20 Exchange gain (2.5-2.1)

Rectification Un - realized profit on stock

Ex. Loss 1.20 Sales 6 USD

Payable 1.20 Margin 20%
 1
Workings Stock Left 50% 0.60

Net Assets At Acq At Rep - date Goodwill

Share capital 32 32 Consideration

Share premium 20 20 FV of NCI
Retained Earnings 80 95 FV of Net Assets
Inventory Adj (1.2)
Exchange gain 2 Impairment
132 148

Non - controlling Interest

At acquisition 15.20
Post acq - OCI 0.51
Impairment (0.32)
Post acq - OCI (NA) 2.42
Post acq - P/L 1.98
19.78

Exchange Reserves

FC Rate (CR / USD) LC Parent NCI

Opening Goodwill 26 2.50 10 8 2
Impairment (2.60) 2.00 (1.30) (0.98) (0.32)
9.10
Exchange gain 2.04 1.53 0.51
Closing Goodwill 23.40 2.10 11.14 8.91 2.23

FC Rate (CR / USD) LC Parent NCI

Opening NA 132 2.50 53 42 11
Profit 15.80 2.00 7.90 5.93 1.98
Dividend 0 60.70

Exchange gain 9.68 7.26 2.42

Closing NA 147.80 2.10 70.38 56.30 14.08

Consolidated Statement of Financial Position Consolidated Statement of Comprehensive incom

Goodwill 11.14
PPE 366.52 Revenue
Current Assets 402.97 Cost of goods
780.64 Gross Profit
Distribution
Share capital 60 Interest Income
Share premium 50 Interest Expense
Group reserves 364 Exchange loss/gain
Other comp income 9 Impairment
Non- cont interest 20 Taxation
Non - current liab 44
Current liab 234 Other comprehensive income
780.64 Total Comprehensive income
Profit Attributable to;

Parent
NCI

OCI Attributable to

Parent
NCI

Total comprehensive income

Parent
OCI
Income Statements for year Ended 30 April 2004
Memo Random
$m CRm

Revenue 200 142

Cost Of Sales (120) (96)

Gross Profit 80 46

Distr and Admin Exp (30) (20)

Operating Profit 50 26
Interest Receivable 4 -
Interest Payable - (2)
Profit Before Taxati 54 24
Income Tax Expense (20) (9)
Profit After Taxation 34 15

13

2
 Group Reserves
R/earns OCI
120 Parent R/earnings 360
38 Post acquisition - P/L 5.93
(132) Impairment (0.98)
26 Post acquisition - OCI 7.26
(2.60) Post acquisition - OCI (GW) 1.53
23 Unrealized profit on stock -0.60
364.35 8.79

Non-controlling Interest

Subsidiary 7.50
Impairment (1.30)
Exchange gain 0.40
6.60
NCI % 25%
1.65

d Statement of Comprehensive income

Memo Random Adjustment Consolidated P/L

200 71 (6) 265
(120) (48) 6 0.60 (161)
80 23 104
(30) (10) (40)
4 - 4
- (1) (1)
(0.60) 1.00 0
(0.98) (0.32) (1)
(20) (5) (25)
34 4 41.20
ehensive income 11.72
ehensive income 52.92
 39.55
1.65

8.79
2.93

rehensive income

48.34
4.58
52.92
 Statement of changes in Equity

Format

Consolidated Statement of Changes in Equity

For the year ended
31 Decemeber 2022
Parent Only
Share capital Share Premium
Balance as at 1 Jan 22 5,000,000 1,000,000
Subsidiary acquired During the YR
Consolidated Profit
Dividend Declared by Subsidiary
Dividend Declared by Parent
Subsidiary disposed During the YR
Balance as at 31 Dec 22 5,000,000 1,000,000

Note: If opening balances are not given, we've to work back for it.
From Acquisition date to Previous Reporting date.

Subsidiary Acquired 1 Jan 2018

1-Jan-18 31-Dec-21
At Acquisition At Reporting date
Share capital 1,000,000 1,000,000
Retained earnings 2,000,000 5,600,000
3,000,000 6,600,000
Post acquisition 3,600,000
Parent 2,880,000
NCI 720,000

Group Reserves

Retained earnings at 31 Dec 21 12,000,000

Post acquistion 2,880,000
14,880,000

NCI
Share at acquisition 600,000
Post acqusition 720,000
1,320,000

Question # 5 (With Intra group Adjustments and Dividend by Subsidiary)

Company A acquired company B's 70% shares on January 1, 2016 when retained earnings of B were Rs. 700,000 and share

Share capital of Company A as at 31 December 2017 600,000

Profit for the year ended 31 December 2018

A B
Sales 2,500,000 3,500,000
Cost of goods sold (500,000) (700,000)
 2,000,000 2,800,000
Operating expenses (400,000) (560,000)
Investment income 600,000 840,000
Finance Cost (300,000) (420,000)
Profit before tax 1,900,000 2,660,000
Tax @ 30% (570,000) (798,000)
Profit after tax 1,330,000 1,862,000

Other Information

(i) Sales of goods Company A → Company B

Sales 275,000 Inventory Left

Margin 25%

(ii) Sales of goods Company B → Company A

Sales 125,000 Inventory Left

Margin 30%

(iii) Excess of Building from it's carrying amount 2,000,000

Life of builidng 10 years

(iv) During the year impairment review indicated Impairment

(v) During the year Company B declared 20%

Retained Earnings as at December 31, 2018

Company A 5,400,000
Company B 8,100,000

Required: Prepare consolidated statement of Changes in Equity for the year ended 31 December 2018.

Solution:
Consolidated Statement of Changes in Equity
For the year ended
31 Decemeber 2018
Parent Only
Share capital Share Premium
Balance as at 1 Jan 2018 600,000 -
Subsidiary acquired During the YR
Consolidated Profit
Dividend Declared by Subsidiary
Dividend Declared by Parent
Subsidiary disposed During the YR
Balance as at 31 Dec 22 600,000 -

Step # 1 Calculate opening Balances of Equity

Opening Group Reserves & NCI

Net Assets of subsidiary

1-Jan-16 31-Dec-17 31-Dec-18

 At acquisition Year before R.D Reporting date

Share capital 300,000 300,000 300,000

Retained earnings 700,000 6,298,000 8,100,000
Fair value adjustment 2,000,000 1,600,000 1,400,000
3,000,000 8,198,000 9,800,000
Post acquisition 5,198,000
Parent (70%) 3,638,600
NCI (30%) 1,559,400

Group Reserves
Retained Earnings 4,070,000 as at 31 December, 2017
Post acquisition 3,638,600
7,708,600

NCI
Share of Net Assets 900,000 as at 31 Decemeber, 2017
Post acquisition 1,559,400
2,459,400

Consolidated Adjustments

Intra group sales

Margin Inventory left
(i) Parent to Subsidiary 275,000 68,750 34,375
(ii) Subsidiary to parent 125,000 37,500 13,125
 (Might be given)
Group Reserves NCI Total
14,880,000 1,320,000 22,200,000
xxxx xxxx
xxxx xxxx xxxx
(xxxx)* (xxxx)* *Netted off to the Extent of Parent's share
(xxxx) (xxxx)
(xxxx) (xxxx)
14,880,000 1,320,000 22,200,000

(assumed)

dend by Subsidiary)

ngs of B were Rs. 700,000 and share capital was Rs. 300,000.
 50%

35%

70,000 (Partial goodwill method)

ear ended 31 December 2018.

Group Reserves NCI Total

7,708,600 2,459,400 10,768,000
- -
2,337,838 494,663 2,832,500
(18,000) (18,000)
- -
- -
10,046,438 2,936,063 13,582,500

Step # 2 Consolidated Statement of Comprehensive Income

Un-adjusted P/L Adjustments

Sales 6,000,000 (275,000) (125,000)
Cost of goods sold (1,200,000) 275,000 125,000 (34,375) (13,125)
Gross profit 4,800,000 Depreciation Impairment
Operating Expenses (960,000) (200,000) (70,000)
Investment Income 1,440,000 (42,000)
Finance Cost (720,000)
Profit before tax 4,560,000
Tax @ 30% (1,368,000)
Profit after tax 3,192,000

Parent (bal.)
NCI (w.1)

(W.1) Calculated Share of NCI

Subsidiary's profit 1,862,000

Less: URP S - P (13,125)
Less: Inc depreciation (200,000)
1,648,875
NCI's share 30% 494,663
ents Consolidated P/L
5,600,000
(847,500)
4,752,500
(1,230,000)
 1,398,000
(720,000)
4,200,500
(1,368,000)
2,832,500

2,337,838
494,663
2,832,500
Question # 6 (With intra group adjustments and dividend by subsidiary + new subsidiary acquired)

Babu limited (BL) acquired Lal chand's limited (LC) 80% shares on January 1, 2017 by paying Rs. 1,200,000 when retained
limited were Rs. 500,000 and share capital was Rs. 400,000. There is no change in share capital of LC limited since the date

Share capital of BL as at December 31, 2020 were 900,000

Share capital of SL as at December 31, 2020 were 600,000

Profit for the year ended December 31, 2020:

BL Limited LC Limited
Sales 2,500,000 3,500,000
Cost of sales (500,000) (700,000)
Gross Profit 2,000,000 2,800,000
Operating Expenses (400,000) (560,000)
Investment Income 600,000 840,000
Finance Cost (300,000) (420,000)
Profit before tax 1,900,000 2,660,000
Tax @ 30 (570,000) (798,000)
Profit after tax 1,330,000 1,862,000

Other Information

(i) Excess of Building from it's carrying amount

Life of builidng 5 years
(ii) On April 1, 2020 BL acquired 75% shares of Shahzar Limited (SL) for Rs.
Fair value of all Assets were equal to its Carrying amount except for a building
Excess of Building from it's carrying amount
Life of builidng 4 years
(iii) Sales of goods Company BL → Company LC

Sales 275,000 Inventory Left

Margin 30%
(iv) Sales of goods Company LC → Company BL

Sales 125,000 Inventory Left

Markup 25%
(v) Sales of goods Company SL → Company BL

Sales 120,000 Inventory Left

Markup 20%
(vi) Impairment reviewed goodwill of LC has been impaired by
(vii) During the year on Sept 01, 2020 LC limited Declared interim dividend of

Retained Earnings as at December 31, 2020

BL limited 5,400,000
LC Limited 8,100,000
SL Limited 4,526,500

Required Prepare consolidated Statement of Changes in Equity for the year ended 31 December 2020.

Solution:

Consolidated Statement of Changes in Equity

For the year ended
31 Decemeber 2020
Parent Only
Share capital Share Premium
Balance as at 1 Jan 2020 900,000 -
Subsidiary acquired During the YR
Consolidated Profit
Dividend Declared by Subsidiary
Dividend Declared by Parent
Subsidiary disposed During the YR
Balance as at 31 Dec 22 900,000 -

Step # 1 Calculate opening Balances of Equity

Opening Group Reserves & NCI

Net Assets of subsidiary

1-Jan-17 31-Dec-19 31-Dec-20

At acquisition Year before R.D Reporting date

Share capital 400,000 400,000 400,000

Retained earnings 500,000 6,298,000 8,100,000
Fair value adjustment 500,000 200,000 100,000
1,400,000 6,898,000 8,600,000
Post acquisition 5,498,000
Parent (80%) 4,398,400
NCI (20%) 1,099,600

NCI Impairment (Review)

Share of Net Assets 280,000
Post acquisition 1,099,600 Consideration
1,379,600 Share of Net assets
Goodwill
Impairment @ 10%
Group Reserves as at 1 Jan 2020 Net Goodwill

Opening Balance 4,070,000

Post acquision LC 4,398,400
8,468,400

Step # 2 Consolidated Statement of Comprehensive Income

Un-adjusted P/L Adju

Sales 8,100,000 (275,000)
Cost of goods sold (1,620,000) 275,000
Gross profit 6,480,000 Depreciation
Operating Expenses (1,296,000) (100,000)
Investment Income 1,944,000 (48,000)
Finance Cost (972,000)
Profit before tax 6,156,000
Tax @ 30% (1,846,800)
Profit after tax 4,309,200
 NCI's share (w.1)

LC's NCI SL's NCI

Subsidiary's profit 1,862,000 Subsidiary's profit 1,117,200
FV adjustment (100,000) FV adjustment (41,250)
URP on sales (10,000) URP on sales (12,000)
1,752,000 1,063,950
NCI's share 350,400 NCI's share 265,988
w subsidiary acquired)

7 by paying Rs. 1,200,000 when retained earnings of LC

share capital of LC limited since the date of acquisition.

(no change since acquisition)

SL Limited
2,800,000
(560,000)
2,240,000
(448,000)
672,000
(336,000)
2,128,000
(638,400)
1,489,600

500,000

ed (SL) for Rs. 3,000,000

except for a building
220,000

50%

40%

60%

10%
rim dividend of 15%

he year ended 31 December 2020.

 Group Reserves NCI Total
8,468,400 1,379,600 10,748,000
1,057,325 1,057,325
3,432,313 616,388 4,048,700
(12,000) (12,000)
- -
- -
11,900,713 3,041,313 15,842,025

Subsidiary Acquired during the year

At acquisitionAt Reporting date

1-Apr-20 31-Dec-20
Share capital 600,000 600,000
Retained Earnings 3,409,300 4,526,500
FV - Adjustment Plant 220,000 178,750
4,229,300 5,305,250
Post acquisition 1,075,950
Parent (75%) 806,963
NCI (25%) 268,988

NCI
1,200,000 Share of Net Assets 1,057,325
(1,120,000) Post acquisition 268,988
80,000 1,326,313
(8,000)
72,000

Adjustments Consolidated P/L

(125,000) (120,000) 7,580,000
(41,250) 125,000 (10,000) 120,000 (12,000) (1,163,250)
Depreciation Impairment 6,416,750
(41,250) (8,000) (1,445,250)
1,896,000
(972,000)
5,895,500
(1,846,800)
4,048,700

Parent (bal.) 3,432,313

NCI (w.1) 616,388
4,048,700
Illustration #

Following are the statement of Profit or Loss for A company, B company and C company as at December 31, 2018.

A B C
Sales 1,500,000 1,800,000 2,160,000
Cost of Sales (450,000) (540,000) (648,000)
Gross Profit 1,050,000 1,260,000 1,512,000
Selling and Distribution (73,500) (88,200) (105,840)
Admin Expenses (75,000) (90,000) (108,000)
Other Operating Expenses (120,000) (144,000) (172,800)
Profit from Operations 781,500 937,800 1,125,360
Finance Cost (94,500) (113,400) (136,080)
Investment Income 780,000 360,000 432,000
Profit Before tax 1,467,000 1,184,400 1,421,280
Tax @ 30% (440,100) (355,320) (426,384)
Profit after tax 1,026,900 829,080 994,896

Further information

1. Company A acquired Company B's 80% and Company C's 70% shares on January 1, 2016 and January 1, 2017

Details of acquisition and disposal

B C
Share capital (of Rs. 10 each) 1,000,000 2,000,000
Retained Earnings on Acquisition 500,000 800,000
Retained Earnings at December 31, 2018 1,500,000 2,010,000

Details of Share Price

Share Price at January 1, 2016 25 12
Share Price at January 1, 2017 30 18
Share Price at January 1, 2018 31 25

2. During the year 2018 impairment testing of C has been carried out and it is revealed that goodwill of C has been impaired

3. C sold goods to A at a price of Rs. 150,000 at a margin of 40%. 50% of the goods sold are still in the inventory of A.

4. On June 30, 2018 A company sold its entire shareholding in B.

5. During the year company C declared dividend @ 10%.

6. Group policy is to measure NCI at its proportionate share.

7. Retained earnings of A as at December 31, 2018 was 3,000,000 and share capital Rs. 6,000,000

Required: Prepare Consolidated Statement of Comprehensive Income.

Solution:

Consolidated Statement of Comprehensive Income

Un-adjusted P/L Individual gain Impair/Dividend Sales / Cost

Sales 3,660,000 (150,000)
Cost of Sales (1,098,000) 150,000
Gross Profit 2,562,000
 Selling and Distribution (179,340)
Admin Expenses (183,000)
Other Operating Expenses (292,800) (56,000)
Profit from Operations 1,906,860
Finance Cost (230,580)
Investment Income 1,212,000 (480,000) (140,000)
Profit Before tax 2,888,280
Tax @ 30% (866,484)
Profit from Continued operations 2,021,796
Profit from Dis-Continued opera. 426,172
Consolidated Profit after tax

Profit Attributable to
Parent (bal.)
NCI

Share of NCI

B's company
Separate book's profit
Share of NCI

Step # 1 Calculate opening Balances of Equity

Opening Group Reserves & NCI

Net Assets of subsidiary B Company

1-Jan-16 31-Dec-17 30-Jun-18
At acquisition Year before R.D Dipsosal Date

Share capital 1,000,000 1,000,000 1,000,000

Retained earnings 500,000 670,920 1,085,460
Fair value adjustment - - -
1,500,000 1,670,920 2,085,460
Post acquisition 170,920 585,460
Parent (80%) 136,736 468,368
NCI (20%) 34,184 117,092

Goodwill

Consideration 2,000,000
Net Assets (1,200,000)
Goodwill 800,000

NCI

Share of NA 300,000 Share of NA 300,000

Post acquisition 34,184 Post acquisition 117,092
At 31 Dec 17 334,184 At Diposal date 417,092

Group Reserves
Retained Earnings at 31-12-17 1,973,100
Post acquisition
Post acquisition of B-CO 136,736
Post acquisition of C-CO 290,573
2,400,409

Consolidated Statement of Changes in Equity

For the year ended
31 Decemeber 2018
Parent Only
Share capital Share Premium Group Reserves
Balance as at 1 Jan 2018 6,000,000 - 2,400,409
Subsidiary acquired During the Year
Consolidated Profit 1,369,591
Dividend Declared by Subsidiary
Dividend Declared by Parent -
Subsidiary disposed During the Year -
Balance as at 31 Dec 2018 6,000,000 - 3,770,000

Disposal of Company B Disposal of Company B (Consolidated Books

Cash Received for Disposal 2,480,000 Consideration Received

Investment at cost (2,000,000) Share of Net Assets
Individual book gain 480,000 Goodwill
NCI
Consolidated gain
Profit for the 6M
Profit from discontinued
ember 31, 2018.

January 1, 2017 respectively.

will of C has been impaired by 10%.

the inventory of A.

Profit reversal Adjusted P/L

3,510,000
(30,000) (978,000)
2,532,000
 (179,340)
(183,000)
(348,800)
1,820,860
(230,580)
592,000
2,182,280
(866,484)
1,315,796
426,172
1,741,968

1,369,591
372,377
1,741,968

C's company
414,540 Separate book's profit 994,896
82,908 Less: URP of goods (30,000)
964,896
Share of NCI 289,469

C company

At acquisition Year before R.D Reporting date

1-Jan-17 31-Dec-17 31-Dec-18
Share capital 2,000,000 2,000,000
Retained Earnings 800,000 1,215,104 2,010,000
FV - Adjustment Plant - -
2,800,000 3,215,104
Post acquisition 415,104
Parent (70%) 290,573
NCI (30%) 124,531

Goodwill NCI

Consideration 2,520,000 Share of NA 840,000

Net Assets (1,960,000) Post acquisition 124,531
Goodwill 560,000 964,531
Impairment (56,000)
504,000
 NCI Total
1,298,715 9,699,124
- -
372,377 1,741,968
(60,000) (60,000)
-
(417,092) (417,092)
1,194,000 10,964,000

y B (Consolidated Books)

2,480,000
(2,085,460)
(800,000)
417,092
11,632
414,540
426,172
 For Consolidated Cash Flows

Given data:

Consolidated Balance sheet & Consolidated Comprehensive Income

Summary for transactions

(i) Receivables
Nature
Increase Decrease
Treatment
Less* Add**

* Greater receivables indicates that Sales are more than the cash received. Therefore, this increase is deducted from Cash Fl
** Decrease in receivables is added, because it indicates recovery of cash.

(ii) Inventory
Nature
Increase Decrease
Treatment
Less* Add**

*Increase in inventory is deducted as, these are the purchases for which cash is not paid.
**Decrease in inventory is added because, this inventory was purchased last year (for which payment would have been mad

(iii) Payables
Nature
Increase Decrease
Treatment
Add* Less*

*Increase is reduced as for this expense payment has not been made yet.
**Decrease resulted in payment of payables of previous years.

Illustration # Shabo Limited

Given below are the consolidated balance sheet and the consolidated Profit and Loss account for Shabo Limited

Consolidated Statement of Financial Position

2014' 2013'
Rs. in 000
Fixed Assets 350 300
Investment in Associate 80 75
Current Assets 140 120
Bank Balance 30 15
Current Liabilities (40) (30)
560 480
Minority Interest (97) (90)
463 390

Ordinary share capital of Rs. 1 each 250 250

Group Reserves 213 140
 463 390

Consolidated Statement of Comprehensive Income

For the year ended 31 Dec 14
Rs. in 000
Profit before tax 133
Share of Profit from Associate 30
163
Tax Shabo and subsidiaries 40
Tax on share of profit from Associate company 15 (55)
Profit after tax 108
Minority shareholders interest (10)
98
Dividends paid (25)
73

Tax charge for the year and the dividends have all been paid.
Group depreciation is Rs. 30
There was no disposal of fixed asset during the year.

Required: Prepare Consolidated Cash flow for the year ended 31 December 2014

Solution:

Statement of Cash Flows

For the year ended 2014

Operating Activities
Profit before tax 163

Adjustments
Share of profit from Associate (30)
Depreciation 30

Working capital changes

Increase in Current assets (20)
Increase in Current liabilities 10
Cash from operations 153
Tax Paid (55)
Net cash from operations 98

Investing activities
Purchase of PPE (80)
Dividend from associate 25
(55)
Financing Activities
Dividend paid to NCI (3)
Dividend paid by parent to P sh (25)
(28)
Net cash inflow 15
Cash & Cash Equivalents
Opening cash balance 15
Cash & Cash Equivalents 30
Closing cash balance 30
 Fixed Assets Investment in Associate
Opening 300 Opening 75
Depreciation 30 from
Addition (bal.) 80 Share of Profit 30 Associate

Closing 350 Closing

380 380 105

Minority Interest group Reserves

Opening 90 Opening
Profit 10 Profit
Dividend to NCI 3 Dividend paid 25

Closing 97 Closing 213

100 100 238
ncrease is deducted from Cash Flow statement to reconcile cash balance.

h payment would have been made last year) . No cash impact.

nt for Shabo Limited

n Associate

25

80
105

serves
140
98

238
 Haleema Aunty Limited

Acquisition of Subsidiary
Consolidated balance sheet of Haleema Aunty Limited

2011' 2012'
Rs. in 000
Ordinary share capital of Rs 1 each. 2,000 2,400
share premium 500 900
Group reserves 1,400 2,280
10% debentures 800 2,600
Creditors 300 550
Tax payable 180 320
Dividends payable by Haleema Aunty Limited 200 320
Dividend payable by S1 to minority SH 20 30
Dividend payable by S2 to minority SH - 20
Minority shareholders interest S1 550 640
Minority shareholders interest S2 - 510
5,950 10,570

Fixed assets 3,800 7,240

Goodwill 200 580
Stock 900 1,200
Debtors 600 900
Bank 450 650
5,950 10,570

Consolidated Profit and Loss Statement for the year ended 31 December 2012

2012'
Rs. in 000
Turnover 10,000
Cost of Sales (6,000)
4,000
Expenses (2,220)
1,780
Taxation (280)
1,500

Minority shareholder interest S1 (120)

Minority shareholder interest S2 (180)
1,200
Dividends (320)
880

Other Information

1. Expenses include Amortization of goodwill, gain/loss of fixed asset and depreciation of Rs. 410,000
2. On 1 October, 2012 Haleema Aunty Limited acquired 80% interest in another subsidiary S2 by issuing 800,000 debenture
at Rs. 2 each and payment of cash of Rs. 400,000.

The Net assets of Haleema Limited on 01 October,2012 were as follows;

Fixed Assets 1,000

Stock 300
Debtors 250
Bank 350
Creditors (150)
Minority share holder's interest (350)
1,400

3. Group policy is to amortize goodwill over 5 years. S1 was acquired in 2010.

4. During the year asset costing Rs. 750,000 was sold for Rs. 800,000.

Required: Prepare consolidated Cash Flows for the year ended 2012.

Solution:

Statement of Cash Flows

For the year ended 2014

Operating Activities
Profit before tax 1,780

Adjustments
Gain on disposal (50)
Impairment 220
Depreciation 410

Working capital changes

Increase in Creditors 100
No movement in Inventory 0
Increase in Receivables (50)
Cash from operations 2,410
Tax Paid (140)
Net cash from operations 2,270

Investing activities
Purchase of PPE (3,600)
Acquisition of Subsidiary (50)
Proceeds from Disposal of PPE 800
(2,850)
Financing Activities
Issuance of shares 800
Dividend paid to NCI (20)
Proceeds from debentures 200
Dividend paid by parent to P sh (200)
780
Net cash inflow 200
Cash & Cash Equivalents
Opening cash balance 450
Cash & Cash Equivalents 650
Closing cash balance 650

Entry for Acquisition

Goodwill 600
Fixed Assets 1,000 Net Assets
Stock 300 Assets 1,900
Debtors 250 Liability (150)
Bank 350 1,750
 Creditors 150
NCI at FV 350 Goodwill
Cash 400 Consideration 2,000
Debentures 1,600 FV of NCI 350
FV of business 2,350
Net Assets (1,750)
Goodwill 600

Cash Outlfow Cash Inflow Net Outflow

(400) 350 (50)

Share Capital + Premium Group Reserves

Opening 2,500
Cash issuance 800 Dividend declared 320

Closing 3,300 Closing 2,280

3,300 3,300 2,600

10% Debentures NCI (both)

Opening 800
Sub acq 1,600 Div. declared 50
Cash received 200 Share of Profit

Closing 2,600 Closing 1,150

2,600 2,600 1,200

Goodwill
Opening 200
Acquisition 600
Impairment 220

Closing 580
800 800
n of Rs. 410,000
diary S2 by issuing 800,000 debentures in Haleema Limited
Group Reserves Dividend Payable - Parent Tax payab
Opening 1,400 Opening 200
Profit 1,200 Dividend paid 200 Dividend Declared 320 Tax Paid

Closing 320 Closing

2,600 520 520

NCI (both) Dividend Payable - NCI Fixed Asse

Opening 550 Opening 20 Opening
Creation of NCI 350 Dividend paid 20 Dividend Declared 50 Acquisition
Share of Profit 300
Acquired
Closing 50
1,200 70 70
 Tax payable
Opening 180
140
Tax Exp 280

320
460 460

Fixed Assets
3,800
1,000 Dipsosal 750
Depreciation 410
3,600
Closing 7,240
8,400 8,400
 Disposal Of Subsidiary

Illustration #

Given below are the consolidated financial statements of Majeed Pariwar Limited for the year ended 31 December;

Consolidated Balance Sheet as at 31 December

Year 4 Year 5
Rs. in 000
Ordinary share capital of Rs. 1 each 3,000 3,500
Share premium 800 1,000
Group Reserves 2,000 3,940
5,800 8,440
Minority Interest 1,200 800
Total Equity 7,000 9,240
Tax payable 500 600
Dividend payable 400 500
Creditors 300 200
Total Equity & Liabilities 8,200 10,540
Fixed Assets 5,250 6,940
Investment in Associate 800 950
Stock 1,200 900
Debtors 750 700
Bank 200 1,050
Total Assets 8,200 10,540

Consolidated Balance sheet as at 31 December year 5

Profit before tax 3,000

Share of profit from associate 250
3,250
Taxation
Group 500
Associates 50 (550)
2,700
Minority Interest (260)
2,440
Dividend (500)
1,940

Additional Information

1. Profit for the year includes depreciation charge of Rs. 350,000, gain on sale of subsidiary and gain on disposal of Fixed As

2. Fixed Assets of book value Rs. 800,000 were sold for 1,000,000.

3. During the year Majeed Pariwar Limited sold 75% interest in Bhatti Limited for Rs. 2,600,000, purchas price was
settled in cash. On the date of disposl net assets of Bhatti Limited were;

Fixed Assets 2,000

Stock 200
Debtors 100
Bank 300
Creditors (100)
 2,500
Minority Interest (625)
1,875

4. All goodwill on consolidation has been fully amortized.

Required: Prepare Consolidated Statement of Cash Flows.

Solution:

Statement of Cash Flows

For the year ended 2014

Operating Activities
Profit before tax 3,250

Adjustments
Share of Profit from Associate (250)
Gain on disposal (200)
Depreciation 350
Gain on disposal of Subsidiary (725)

Working capital changes

Increase in Creditors* 0 *No movement as creditors amounting to Rs. 100 were re
Decrease in Inventory 100
Increase in Receivables* (50) *Increase in receivables for which no cash was received du
Cash from operations 2,475
Tax Paid (450)
Net cash from operations 2,025

Investing activities
Purchase of PPE (4,840)
Disposal of subsidiary 2,300
Dividend from associate 100
Proceeds from Disposal of PPE 1,000
(1,440)
Financing Activities
Issuance of shares 700
Dividend paid (435)
265
Net cash inflow 850
Cash & Cash Equivalents
Opening cash balance 200
Cash & Cash Equivalents 1,050
Closing cash balance 1,050

Entry for Disposal

Cash 2,600
Creditors 100
NCI 625
Fixed Assets 2,000
Stock 200
Debtors 100
Bank 300
Gain on Disposal 725
Cash Infow Cash Outflow Net inflow
2,600 (300) 2,300

Share Capital + Premium Group Reserves

Opening 3,800 Opening
Cash issuance 700 Dividend declared 500 Profit

Closing 4,500 Closing 3,940

4,500 4,500 4,440

Tax payable Fixed Assets

Opening 500 Opening 5,250 Dipsosal Sub
Tax Paid 450 Acquisition 4,840 Dipsosal
Tax Exp 550 Depreciation

Closing 600 Closing

1,050 1,050 10,090
 ended 31 December;

gain on disposal of Fixed Assets.

000, purchas price was

mounting to Rs. 100 were reduced because of disp of subsidiary.

hich no cash was received during the year.

erves NCI Dividend Payable
2,000 Opening 1,200
2,440 Disposal 625 Dividend paid 435
Div Declared 35 Share of Profit 260

Closing 800 Closing 500

4,440 1,460 1,460 935

sets Investment in Associate

2,000 Opening 800
800 Profit 250 Dividend 100
350

6,940 Closing 950

10,090 1,050 1,050
Dividend Payable
Opening 400
Dividend Declared 535

935
Foreign Subsidiary - Cash Flows

Notes: [Where multiple subsidiaries are accounted for , inclusive of Foreign subsidiary]
(1) In case of Foreign subsidiary, any increase in Net assets (due to re-translation) of Foreign currency shall
be shown seperately, to vouch the differential in the opening/closing balances (as a result of cash flow).

Property Plant & equipment

Opening 200
Depreciate 50
OCI* 40

Addition 190 Closing 380

430 430

*This balance indicates the exchange gain and it is shown seperatly to show the effect of cash outflow.

(2) Receivables
2008' 2007'
Closing Opening
Receivables 180 100

During the year, as a result of exchange gain, receivables increased by Rs. 50.

In such case this increase will be reduced from the closing balance resulting in,
2008' 2007'
Closing Opening
Receivables 130 100

the differential amounting to Rs. 30 will be reduced from CF's.

Illustration#

Saeed group recognised a gain of Rs. 160,000 on the translation of Financial Statements of a 75% owned foreign
subsidiary for the year ended December 2017. This gain is found to be made up as follows;

Gain on Operating Net Assets Rs.

Non - current assets 90,000
Inventory 30,000
Receivables 50,000
Payables (40,000)
Cash 30,000
160,000

The overseas subsidiary made no profit or loss this year. No goodwill arose on acquisition.
Saeed group recognised a loss of Rs. 70,000 on retranslating the parent entity's foreign currency
loan. This loan has been recorded in the statement of profit and loss.

Consolidated Statement of Financial Position as at 31 December 2017.

2017' 2016'
Rs. in 000
Non - current assets 2,100 1,700
Inventory 650 480
Receivables 990 800
Cash and cash Equivalents 500 160
 4,240 3,140

Share capital 1,000 1,000

Group reserves 1,600 770
2,600 1,770
Non- Controlling interest 520 370
Equity 3,120 2,140

Long term loan 250 180

Payables 870 790
Total Equity and Liabilities 4,240 3,110

There were no non-current asset disposals during the year.

Consolidated statement of Profit or loss for the year ended 31 Decemebr 2017

Rs. in 000
Profit before tax (After depreciation of Rs. 220,000) 2,100
Tax @ 31% (650)
Group Profit for the year 1,450
Profit attributable to:
Owners of the parent 1,190
Non-Controlling interest 260

Dividend paid by the parent company of the Saeed group during the year was Rs. 400,000.

Required: Statement of Consolidated Cash flows

Solution:

Profit before tax 2,100

Adjustments
Depreciation 220
Exchange loss 70

Working capital changes

Inventory (170)
Receivables (190)
Trade Payables 80

Tax paid (650)

Cash from Operations 1,460

Investing Activities

PPE acquistion (530)

(530)
Financing Activities

Dividend paid by NCI (150)

Dividend paid by Parent (480)
(630)
Net inflows 300

Cash & Cash Equivalents

Opening cash balance 160
Closing cash balance 460
OCI Adjustment 30

Closing as per FS 500

Loan Property Plant & Equipment
Opening 180 Opening 1,700 Depreciation
Ex. Loss 70
OCI Exch. Gain 90
Addition 530
Closing 250 Closing
250 250 2,320

Non controlling Interest Group Reserves

Opening 370 Opening
Dividend bal. 150 Ex. gain 40 Dividend bal. 480 Ex. gain
OCI OCI
Profit 260 Profit
Closing 520 Closing 1,600
670 670 2,080
n subsidiary]
ation) of Foreign currency shall
ances (as a result of cash flow).

ow the effect of cash outflow.

of a 75% owned foreign

t & Equipment
220

2,100
2,320

Reserves
770
120

1,190

2,080
 Shughal Group of Companies

Set out below is the consolidated statement of Profit or loss and other comprehensive income for the year ended
31 December 2007 of shughal group of Companies.

Rs. in 000
Revenue 44,754
Cost of sales and other expenses (39,613)
Profit from operations 5,141
Income from associates 30
Finance cost (305)
Profit before tax 4,866
Tax (2,038)
Profit for the period 2,828
OCI - gain on translation of subsidiary (note 6) 302
Total Comprehensive Income 3,130
Profit for the year (attributable to)
Parent 2,805
NCI 23
2,828
Total comprehensive income (Attributable to)
Parent 3,107
NCI 23
3,130

Summary of the changes in equity attributable to the owners of Parent for the year;

Equity Opening 14,164

Profit for the year 2,805
Exchange differences 302
Dividends paid (445)
Closing 16,826

Statement of Financial Position

2007' 2006'
Rs. in 000
Non - current asset
Goodwill 500 -
Property, plant & Equipment (N-1) 11,157 8,985
Investment in Associate 300 280
11,957 9,265
Current Assets
Inventories 9,749 7,624
Receivables 5,354 4,420
Short term Investments (N-2) 1,543 741
Cash 1,013 394
Total Assets 29,616 22,444

Share capital 1,997 1,997

Share premium 5,808 5,808
Group Reserves 9,021 6,359
16,826 14,164
Non-Controlling interest 170 17
Equity 16,996 14,181

Non-Current Liabilities

Current liabilites (Note -3 ) 9,228 5,646

Loans 2,102 1,682
Provisions (Note - 4) 1,290 935
29,616 22,444
Notes to the accounts

1. Property, plant & Equipment

Rs. in 000
Carrying amount of disposals 305
Proceeds from disposal 854
Depreciation charge for the year 907

2. Short term Investments

Short term investments are readily convertible into cash and there is insignificat risk that their value will chang

3. Current Liabilities

2007' 2006'
Rs. in 000
Bank overdraft 1,228 91
Trade payables 4,278 2,989
Tax 3,722 2,566
9,228 5,646

4. Provisions
Legal Provision Deffered taxation
Rs. in 000
At 31 Decemeber 2006 246 689
Exchange rate differences 29 -
Increase in Provision 460
Decrease in provision (134)
At 31 Decemeber 2007 735 555

5. Acquisition of Subsidiary
During the year companu acquired 82% of the issued equity of Merchant Limited
for a cash consideration of Rs. 1,268,000. The Fair value of assets and liabilities of Merchant Limited
were as follows;

Rs in 000
Property, plant, eqp 208
Inventories 612
Trade receivables 500
cash in hand 232
Trade Payables (407)
Debenture Loan (312)
833

6. Exchange gain

The breakup of the net gain on re-translation is as follows;

Property, plant & equipmen 138
Legal provisions (29)
Inventories 116
Trade receivables 286
Trade payables (209)
Net exchange gain 302

7. Non-controlling interest

NCI is valued using proportionate share of net assets method.

Required: Consolidated Cash flow statement

Solution:

Profit before tax 4,866

Adjustments
Gain on Disposal (549)
Depreciation 907
Impairment 85
Share of Profit (30)

Working capital changes

Inventory (1,397)
Receivables (148)
Trade payables 673
Provision 460

Profit from Operation 4,867

Tax Paid (1,016)

3,851
Investing activities
Acquisiton of PPE (3,038)
Disposal of PPE 854
Subsidiary acquired (1,036)
Dividend from associate 10
(3,210)

Financing activities
Dividend to P holders (445)
Dividend to NCI (20)
Procceds from loan 108
(357)

Net Inflows 284

Cash & Cash Equivalents
Opening balance 1,044
Closing balance 1,328

Closing as per F/S 1,328

Property Plant & Equipment Goodwil

Opening 8,985 Depreciation 907 Opening
 Addition 3,038 Disposal 305 Acquisition
Exch. Gain 138
Acquistion 208
Closing 11,157
12,369 12,369

Inventory Account Receiv

Opening 7,624 Opening

OCI 116 OCI

Acquisition 612 Acquisition

W.Cap Changes 1,397 Closing 9,749 W.Cap Changes

9,749 9,749

Non Controlling Interest Trade Paya

Opening 17

Dividend 19.94 NCI at acq 149.94

Profit 23

Closing 170 Closing

189.94 189.94

Tax payable / Deffered tax Legal Provis

Opening 3,255

Tax paid 1,016

Tax Expense 2,038

Closing 4,277 Closing

5,293 5,293
or the year ended
sk that their value will change.

Merchant Limited
Journal Entry for acquisition

PPE 208
Inventory 612
Receivables 500
Cash 232
Goodwill 585
Cash 1,268
NCI 150
Payables 407
Debentures 312

Cash Outlfo Cash Inflow Net Outflow

(1,268) 232 (1,036)

Goodwill Investment in Associate

0 Opening 280
 584.94 Impairment 84.94 Share of Profit 30.00 Dividend 10

Closing 500 Closing 300

584.94 584.94 310 310

Account Receivables Group Reserves

4,420 Opening 6,359

286 Dividend 445 Profit 3,107

500

148 Closing 5,354 Closing 9,021

5,354 5,354 9,466 9,466

Trade Payables Loan/Debenture stock

Opening 2,989 Opening 1,682

OCI 209
Acquisition 407 Acquisition 312

4,278 W.Cap Changes 673 Closing 2,102 Cash 108

4,278 4,278 2,102 2,102

Legal Provision
Opening 246

OCI 29

735 W.cap changes 460

735 735
 Comparison Between Indirect & Direct Method

Indirect Method

Profit before tax xxxx No concept of profit before tax

Adjustments Cash received from customers (N-1)

Cash paid to suppliers (N-2)
Depreciation xxx cash paid to employees / others
Impairment xxx
Gain on disposal (xxx) Cash generated from operations

Working capital adjustments Tax paid

Account receivable (xxx)/xxx Interest paid
Account payable (xxx)/xxx
Inventory (xxx)/xxx Net cash generated from operations

Cash generated from operations xxxx

Tax paid (xxxx)

Interest paid (xxxx)

Net cash generated from operations (xxxx)

Note:
The only difference between both methods is to find the cash generated from operations.
As in indirect method we convert profit and related heads to cash, whereas in, Indirect method direct conv

N-1: Cash Received from Customers N - 2: Cash paid to suppliers

Account Receivable Accounts payable

Opening xxx

Credit sales xxx cash received xxx Cash paid xxxx

Closing xxx Closing xxxx

xxx xxx

Cash Sales xxxx where purchases are to be calculated as follows;

Add: Cash from credit sales xxxx
Cash received from customers xxxx Opening Inventory + Purchases - Closing stock = co

Purchases x (% of credit ) = credit purchases

Cash Purchases
Add: Cash paid for credit purchase
Cash paid to suppliers
Direct Method

Direct Method

No concept of profit before tax

Cash received from customers (N-1) xxxx

Cash paid to suppliers (N-2) (xxxx)
cash paid to employees / others (xxxx)

Cash generated from operations xxxx

(xxxx)
Interest paid (xxxx)

Net cash generated from operations xxxx

rated from operations.

whereas in, Indirect method direct conversion of cash is accounted for.

N - 2: Cash paid to suppliers

Accounts payable
Opening xxx

Credit purchases xxx

hases are to be calculated as follows;

ventory + Purchases - Closing stock = cost of goods sold

x (% of credit ) = credit purchases

(xxxx)
aid for credit purchase (xxxx)
xxxx
 Solution:

Property Plant & Equipment Long term loan

Opening 900 Depreciation 90

Long term loan 250

PPE acquired 40
Closing 1,100 Closing 440
1,190 1,190 440

Trade and Other payables Inventory

Opening 3,960 Opening 4,280
Cash paid to supp/others 63,652 (3,970 - 10)
Cash based exp* 2,866 Purchases 61,450
Purchases 61,450

Closing 4,624
(4,688 - 140 x 40% - 8 68,276 68,276 65,730.00

* Cash based operating expenses Closing balance of Inventory

Operating expenses 3,000 Given balance

Depreciation (90) URP adjustment
Bad debts (44) Sales 140
2,866 Markup 25%
Profit 28
Inventory left 30%

Reversal
Financial charges
Opening 30
Cost of goods sold
Expenses paid 885 Finance Expense 890
Given 59,110
Intra sales (140)
Closing 35 URP adjustment
920 920
Reversal 8.40
58,978
 Long term loan Trade Receivables Long term re
Opening 145 Opening 5,421 Cash received 62,759 Opening
Sales 64,860 Bad debts exp 44
PPE 250 (65,000 - 140)
Cash 45

Closing 7,478
440 70,281 70,281

Inventory Other receivables Group Res

Cost of goods* 58,978 Opening 725
Cash received 1,825
Other Income 2,000 Bonus issuance
Dividend Declared

Closing* 6,751.60 Closing 900 Closing

65,730.00 2,725 2,725

e of Inventory Share capital Dividend by

Opening 500
6,760
 Bonus shares 50 Div paid

Closing 550 Closing

550 550

(8)
6,751.60 Non controlling Interest Deffered tax +
Opening 120

Div paid 185 Profit 300 Tax paid

Closing 235 Closing

420 420
Long term receivables
Cash from
29 5
Employees

Closing 24
29 29

Group Reserves
Opening 3,600

50 Profit 2,500
100

5,950
6,100 6,100

Dividend by Parent
Opening 10
 102 Div declared 100

8
110 110

Deffered tax + Taxation

Opening 35

825 Tax expense 1,200

410
1,235 1,235
Fair Value of Net Assets of FL

Particulars At Acquisition At Reporting Date Changes

Share Capital 360.00 360.00 -
Retained Earnings 400.00 354.00 (46.00)

Goodwill
Consideration for old interest 400.00
Less: Net assets old
Share Capital (216.00)
Retained Earnings (150.00)
34.00
Less: Impairment 15% (5.10)
Goodwill 28.90