QUESTION 1

P acquired 100% of S on 1 December 2016 paying $5.35 in cash per share. At this date the
balance on S’s retained earnings was $870,000.

On 1 March 2019 P acquired 30% of As ordinary shares. The consideration was settled by
share exchange of 4 new shares in P for every 3 shares acquired in A. The share price of P at
the date of acquisition was $5. P has not yet recorded the acquisition of A in its books.

The statements of financial position of the three companies as at 30 November 2019 are as
follows: P S A

$000 $000 $000

Non-current assets

Property 890 850 900

Plant & Equipment 450 210 150

Investments 2 675 – –

Current assets

Inventory 270 230 200

Receivables 100 340 400

Cash 160 50 140

––––– ––––– –––––

4 545 1 680 1 790

––––– ––––– –––––

Share capital $1 1 800 500 250

Share premium 250 80 –

Retained earnings 1 145 400 1 200

––––– ––––– –––––

3 195 980 1 450

Non-current liablities
10% Loan notes 500 300 –

Current liabilities

Trade payables 520 330 250

Income tax 330 70 90

––––– ––––– –––––

4 545 1 680 1 790

––––– ––––– –––––

The following information is relevant:

(i) As at 1 December 2016, plant in the books of S was determined to have a fair value of
$50 000 in excess of its carrying value. The plant had a remaining life of 5 years at
this time.
(ii) During the year, S sold goods to P for $400 000 at a mark-up of 25%. P had a quarter
of these goods still in inventory at the yearend.
(iii) In September A sold goods to P for $150,000. These goods had cost A $100
000. P had $90 000 (at cost to P) in inventory at the year-end.
(iv)As a result of the above inter-company sales, P’s books showed $50 000 and $20 000
as owing to S and A respectively at the yearend. These balances agreed with the
amounts recorded in S’s and A’s books.
(v) Goodwill in the subsidiary is to be impaired by 40% at the reporting date. An
impairment review found the investment in the associate was to be impaired by $15
000 at the year-end.
(vi)A’s profit after tax for the year is $600 000.

Required:

Prepare the consolidated statement of financial position as at 30 November 2019.

QUESTION 2
Below are the statements of comprehensive income of the Black Ltd group and its associated
companies, as at 31 December 2018.

Black Ltd Kenmark Shell Pvt (Ltd)

 Ltd

$000 $000 $000

Revenue 385 100 60

Cost of sales (185) (60) (20)

___ ___ ___

Gross profit 200 40 40

Operating expenses (50) (15) (10)

___ ___ ___

Profit before tax 150 25 30

Tax (50) (12) (10)

___ ___ ___

Profit for the year 100 13 20

Other comprehensive income – – –

___ ___ ___

Total comprehensive income 100 13 20

___ ___ ___

You are also given the following information;

(i) Black Ltd acquired 60 000 ordinary shares in Shell Pvt (Ltd) for $80 000 when that
company had a credit balance on its retained earnings of $50 000 a number of years
ago. Shell Pvt (Ltd) has 200 000 $1 ordinary shares.
(ii) Black Ltd acquired all of the ordinary shares in Kenmark Ltd a number of years ago
for $70 000 when retained earnings were $20 000.
(iii) During the year Shell Pvt (Ltd) sold goods to Black Ltd for $28 000. Black
Ltd still holds some of these goods in inventory at the year end. The profit element
included in these remaining goods is $2 000.
(iv)Goodwill and the investment in the associate were impaired for the first time during
the year as follows:
 Shell Pvt (Ltd) $2 000

Kenmark Ltd $3 000

Impairment of the subsidiary’s goodwill should be charged to operating expenses.

Required:

Prepare the consolidated statement of comprehensive income for Black Ltd for the year
ended 31 December 2018.

QUESTION 3
P acquired 100% of the equity share capital of S on 1 January 2015. On 1 January 2016 P
acquired 30% of the share capital of X, an entity set up under a contractual arrangement as a
joint venture between P and one of its suppliers. The directors of P have decided to adopt a
policy of proportionate consolidation wherever appropriate and permitted by International
Financial Reporting Standards.

Below are the statements of financial position of P, S and X as at 31 December 2018.

P S X

$000 $000 $000

Non-current assets

Property, plant and equipment 5,650 7,400 1,300

Investments 7,100 − −

Current assets

Inventory 2,800 1,800 850

Receivables 2,980 1,320 640

Bank 1,170 980 430

––––– ––––– –––––

19,700 11,500 3,220

––––– ––––– –––––

Equity

Share capital, $1 shares 2,600 3,000 1,000

Share premium 2,400 − −

Retained earnings 7,250 5,000 750

––––– ––––– –––––

12,250 8,000 1,750

Non-current liabilities

Loans 3,500 1,700 800

Current liabilities

Payables 3,150 1,500 550

Taxation 800 300 120

––––– ––––– –––––

19,700 11,500 3,220

Additional Information

(i) P acquired the investment in S by making a cash payment of $1.5m and issuing two
shares for every three acquired in S. The market value of P’s shares as at 1 January
2015 was $2.50 per share. On the same date the balance on S’s retained earnings was
$1m.
(ii) P acquired the investment in X by making a cash payment of $2 per share acquired.
The balance on X’s retained earnings at 1 January 2016 was $300,000.
(iii) At the dates of acquisition, fair value exercises were carried out. On the
acquisition of S it was determined that property, plant and equipment had fair values
of $2 million in excess of their carrying values. These assets had a remaining life of
10 years as at 1 January 2015. The fair values of X were approximately equal to their
carrying values at the date of acquisition.
(iv)During the year, P sold goods to both S and X at a mark-up of 20%. Details were as
follows:

Sales value Value in inventory Receivables outstanding

S $500 000 $360 000 $250 000

X $275 000 $240 000 $100 000

Required:

Prepare the consolidated statement of financial position of the P Group as at 31 December

2018.

QUESTION 4
The following are the summarised accounts of H, S, and A for the year ended 30 June 2019.

Statements of financial position at 30 June 2019

H S A

$ $ $

Tangible non-current assets 87,000 88,000 62,000

Investments

S (100%) 115,000

A (30%) 15,000

Current assets 74,000 40,000 9,000

_______ _______ _______

291,000 128,000 71,000

_______ _______ _______

Equity capital ($1 shares) 200,000 75,000 35,000

Retained earnings 89,000 51,000 34,000

Liabilities 2,000 2,000 2,000

_______ _______ _______

291,000 128,000 71,000

_______ _______ _______

Statements of comprehensive income for the year ended 30 June 2019

 H S A

$ $ $

Revenue 500,000 200,000 100,000

Operating costs (400,000) (140,000) (60,000)

_______ _______ _______

Profit from operations 100,000 60,000 40,000

Tax (23,000) (21,000) (14,000)

_______ _______ _______

Profit after tax 77,000 39,000 26,000

Other comprehensive income – – –

_______ _______ _______

Total comprehensive income 77,000 39,000 26,000

_______ _______ _______

Additional information

(i) The shares in S and A were acquired on 1 July 2016 when the retained profits of S
were $15,000 and the retained profits of A were $10,000.
(ii) At the date of acquisition, the fair value of S’s non-current assets, which at that time
had a remaining useful life of ten years, exceeded the book value by $10,000.
(iii) During the year S sold goods to H for $10,000 at a margin of 50%. At the
year-end H had sold 80% of the goods.
(iv)At 30 June 2019 the goodwill in respect of S had been impaired by 30% of its original
amount, of which the current year loss was $1,200. At 30 June 2019 the investment in
A had been impaired by $450, of which the current year loss was $150.

Required:
Prepare the consolidated statement of comprehensive income for the year ended 30
June 2019 and consolidated statement of financial position as at 30 June 2019.