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05 DEC Answers

05 DEC Answers

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Published by khengmai

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Published by: khengmai on Dec 31, 2009
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12/31/2009

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Part 2 Examination – Paper 2.5(INT)Financial Reporting (International Stream)December 2005 Answers1
Consolidated balance sheet of Hedra as at 30 September 2005:
$m$m
Non-current assetsProperty, plant and equipment (358 + 240 + 12 + 20 + 5 +15 (w (iv)))650Goodwill (100 20 (w (i)))80Investment in associate (w (v))220Other investments45––––––995Current AssetsInventories (130 + 80)210Trade receivables (142 + 97)239Cash and bank 4453Total assets1,448––––––Equity and liabilitiesEquity attributable to the parentOrdinary share capital (400 + 80 (w (v)))480Reserves:Share premium (40 + 120 (w (v)))160Revaluation (15 + 12 + (5 x 60%) (w (iv)))30Retained earnings (w (ii))261451931Minority interest (w (iii))112––––––1,043Non-current liabilitiesDeferred tax (45 10)35Current liabilitiesBank overdraft12Trade payables (118 + 141)259Deferred consideration (w (i))49Current tax payable 50370Total equity and liabilities 1,448––––––Workings – Note: all working figures in $million.The investment in Salvador represents 60% (72/120) of its equity and is likely to give Hedra control thus Salvador should beconsolidated as a subsidiary. The investment in Aragon represents 40% (40/100) of its equity. Normally this would give Hedrasignificant influence and Aragon would be classed as an associate that should be equity accounted.(i)
Cost of control
Investment at costimmediate195Ordinary shares 72deferred49Share premium (50 x 60%)30Pre acq profit (w (ii))12Fair value adjustments (w (iv))30Goodwill100244244The deferred contingent consideration has now become payable and has to be accounted for.(ii)
Retained earningsHedraSalvadorHedraSalvador
Additional depreciation (w (iv))5Per balance sheet24060Minority interest ((60 5) x 40%)22Post acq profit21Pre-acq profit (20 x 60%)12Share of Aragons profitPost acq profit ((55 20) x 60%)21((300 200) x 6/12 x 40%)20Impairment of goodwill20Balance c/f2612816028160
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