Income tax expense (1,300) (220)

PROFIT FOR THE YEAR 3,050 610

Other comprehensive income for the year, net of tax 1,600 180
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 4,650 790
Historically, Sabre had been a significant trading partner of Panther. During 20X4, Panther purchased
$640,000 of goods from Sabre. Of these, $60,000 remained in inventories at the year end. Sabre makes a
mark-up on cost of 20% under the transfer pricing agreement between the two companies. The fair value
of the identifiable net assets of Sabre on purchase were $200,000 greater than their book value. The
difference relates to properties with a remaining useful life of 20 years.
On 1 January 20X4 (to protect its supply lines), Panther had advanced a loan to Sabre amounting to
$800,000 at a market interest rate of 5%. The loan is due for repayment in 20X9.
Statement of changes in equity (extracts) for the two companies:
Panther Sabre
Reserves Reserves
$'000 $'000
Balance at 1 January 20X4 12,750 2,480
Dividend paid (900) –
Total comprehensive income for the year 4,650 790
Balance at 31 December 20X4 16,500 3,270
Panther and Sabre had $400,000 and $150,000 of share capital in issue throughout the period
respectively.
Required
Prepare the consolidated statement of profit or loss and other comprehensive income and statement of
changes in equity (extract for reserves) for the Panther Group for the year ended 31 December 20X4.
No adjustments for impairment losses were necessary in the group financial statements.
Assume income and expenses (other than intragroup items) accrue evenly. (15 marks)

32 Hever 45 mins
Hever has held shares in two companies, Spiro and Aldridge, for a number of years. As at 31 December
20X4 they have the following statements of financial position:
Hever Spiro Aldridge
$'000 $'000 $'000
Non-current assets
Property, plant & equipment 370 190 260
Investments 218 – –
588 190 260
Current assets
Inventories 160 100 180
Trade receivables 170 90 100
Cash 50 40 10
380 230 290
968 420 550
Equity
Share capital ($1 ords) 200 80 50
Share premium 100 80 30
Retained earnings 568 200 400
868 360 480
Current liabilities
Trade payables 100 60 70
968 420 550

Exam question bank 505

 You ascertain the following additional information:
(1) The 'investments' in the statement of financial position comprise solely Hever's investment in Spiro
($128,000) and in Aldridge ($90,000).
(2) The 48,000 shares in Spiro were acquired when Spiro's retained earnings balance stood at
$20,000.
The 15,000 shares in Aldridge were acquired when that company had a retained earnings balance
of $150,000.
(3) When Hever acquired its shares in Spiro the fair value of Spiro's net assets equalled their book
values with the following exceptions:
$'000
Property, plant and equipment 50 higher
Inventories 20 lower (sold during 20X4)

Depreciation arising on the fair value adjustment to non-current assets since this date is $5,000.
(4) During the year, Hever sold inventories to Spiro for $16,000, which originally cost Hever $10,000.
Three-quarters of these inventories have subsequently been sold by Spiro.
(5) No impairment losses on goodwill had been necessary by 31 December 20X4.
(6) It is group policy to value non-controlling interests at full (or fair) value. The fair value of the non-
controlling interests at acquisition was $90,000.
Required
(a) Produce the consolidated statement of financial position for the Hever group (incorporating the
associate). (25 marks)
Hever’s activities are in the field of major construction projects. During the year ended 31 December 20X4,
it enters into three separate construction contracts, each with a fixed contract price of $1,000,000. The
following information relates to these contracts at 31 December 20X4:
Contract
A B C
$'000 $'000 $'000
Payments on account (including amounts receivable) 540 475 400
Costs incurred to date 500 550 320
Estimate costs to complete the contract 300 550 580
Estimate percentage of work completed 60% 50% 35%
Required
(b) Show how each contract would be reflected in the statement of financial position of Hever at 31
December 20X4 under IAS 11.
(c) Show how each contract would be reflected in the statement of profit or loss of Hever for the year
ended 31 December 20X4 under IAS 11. (15 marks)
(Total = 40 marks)

506 Exam question bank

 5 Fair value adjustments
At acq'n At year end
1.7.X4 Movement 31.12.X4
$'000 $'000 $'000
Property 200 (200/20 6/12) (5) 195

6 Group reserves carried forward (proof)

Panther Sabre
$'000 $'000
Reserves per question 16,500 3,270
PUP (W3) (10)
Fair value movement (W5) (5)
Pre acquisition reserves [2,480 + ((610 + 180) 6/12)] (2,875)
380
Group share of post acquisition reserves:
Sabre (380 60%) 228
16,728

32 Hever
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X4
$’000
Non-current assets
Property, plant & equipment (370 + 190 + (W7) 45) 605
Goodwill (W2) 8
Investment in associate (W3) 165
778
Current assets
Inventories (160 + 100 – (W6) 1.5) 258.5
Trade receivables (170 + 90) 260
Cash (50 + 40) 90
608.5
1,386.5
Equity attributable to owners of the parent
Share capital 200
Share premium reserve 100
Retained earnings (W4) 758.5
1,058.5
Non-controlling interests (W5) 168
1,226.5
Current liabilities
Trade payables (100 + 60) 160
1,386.5

562 Exam answer bank

Workings
1 Group structure
Hever
48,000 15,000
= 60% = 30%
80,000 50,000
Pre-acq'n $20k $150k
reserves
Spiro Aldridge
In the absence of information to the contrary, Spiro is a subsidiary, and Aldridge an associate of
Hever.
2 Goodwill on consolidation - Spiro
$’000 $’000
Consideration transferred 128
Non-controlling interests (at 'full' fair value) 90
Net assets at acquisition:
Share capital 80
Retained earnings 20
Share premium 80
Fair value adjustments (W7) 30
(210)
Goodwill arising on consolidation 8

3 Investment in associate
$’000
Cost of associate 90
Share of post-acquisition retained reserves (W4) 75
165
4 Retained earnings
Hever Spiro Aldridge
$'000 $'000 $'000
Per question 568 200 400
PUP (W6) (1.5) – –
Fair value movement (W7) 15
Pre-acquisition retained earnings (20) (150)
195 250
Group share of post acquisition ret'd earnings:
Spiro (195 60%) 117
Aldridge (250 30%) 75
Less: group share of impairment losses to date (0)
Less: impairment losses on associate to date (0)
758.5
5 Non-controlling interests
$’000
NCI at acquisition (W2) 90
NCI share of post acquisition ret'd earnings ((W4) 195 40%) 78
168
6 Unrealised profit on inventories
Mark-up: $16,000 – $10,000 = $6,000 ¼ $6,000 = $1,500

Exam answer bank 563

 7 Fair values – adjustment to net assets
At At year
acquisition Movement end
Property, plant and equipment 50 (5) 45
Inventories (20) 20 0
30 15 45

(b) Treatment of construction contracts in the statement of financial position of Hever at 31 December
20X4.
A B C Total
$'000 $'000 $'000 $'000
Gross amounts due from customers (Note 1) 80 – – 80
Trade receivables (Note 2) – – – –
Gross amounts due to customers (Note 1) – (25) (45) (70)
Note 1
A B C
$'000 $'000 $'000
Gross amounts due from/to customers
Contract costs incurred 500 550 320
Recognised profits less losses 120 (100) 35
620 450 355
Less: progress billings to date (540) (475) (400)
80 (25) (45)
Note 2
A B C
$'000 $'000 $'000
Trade receivables
Progress billings to date 540 475 400
Less: cash received (540) (475) (400)
– – –

(c)
Contract
A B C Total
$'000 $'000 $'000 $'000
(W1) (W2) (W3)
Revenue 600 500 350 1,450
Expenses (480) (550) (315) (1,345)
Expected loss – (50) – (50)
Gross profit/(loss) 120 (100) 35 55

Workings
1 Contract A
$'000
Statement of profit or loss
Revenue (60% × 1,000) 600
Expenses (60% of 800 (480)
Gross profit 120

564 Exam answer bank

2 Contract B
$'000
Statement of profit or loss
Revenue (50% × 1,000) 500
Expenses (all costs to date) (550)
Expected losses (50)
Gross profit (100)

3 Contract C
$'000
Statement of profit or loss
Revenue (35% × 1,000) 350
Expenses (35% × 900) (315)
Gross profit 35

Exam answer bank 565