CONSOLIDATION REVIEW QUESTIONS

QUESTION ONE
A. The objective of IFRS 10: Consolidated Financial Statements is to establish principles
for the presentation and preparation of consolidated financial statements when an
entity controls one or more other entities. IFRS 10 requires a parent company to
present consolidated financial statements.
Required
State the conditions under which a parent company needs not to present
consolidated financial statements.

B. The statements of financial position of P and S at 31 December 2018 are shown

below.

ASSETS P S
Non-Current Assets TZS “000” TZS “000”
Property, Plant and Equipment 400,000 300,000
Investment in S 270,000 -
Current assets
Accounts receivables 50,000 20,000
Other current assets 40,000 80,000
Total assets 760,000 400,000
EQUITY AND LIABILITIES
Share capital: equity shares of TZS 250 each 150,000 100,000
Retained earnings 490,000 270,000
Current liabilities
Accounts payables 10,000 10,000
Other liabilities 110,000 20,000
760,000 400,000

i. P acquired 320,000 shares in S many years ago when the retained earnings of
S were TZS 120,000,000. The accounting policy of P is to value non-controlling
interests in S at fair value. The market price of each share of S just before
acquisition was TZS 600.

ii. Goodwill impairment test reveals that, at the end of 2018, it has been
impaired by 25%.

iii. During the year S sold goods to P at a standard mark-up of 50% on cost for
TZS 160,000,000 and at the end of the year TZS 24,000,000 of this was still held
as inventory by P.
 iv. At 31 October 2018 S has receivables of TZS 10,000,000 million owed by P
v. The recorded revenue and profit after tax of P and S for the year to 31
December 2018 were:

P S
TZS TZS
Revenue 600,000,000 480,000,000
Profit after tax 50,000,000 40,000,000

Required
1) Prepare a consolidated statement of financial position as at 31 December 2018.
2) Calculate the revenue and the profit after tax for the year that will be reported in the
consolidated statement of profit or loss and other comprehensive income

QUESTION TWO
A. IFRS 10 Consolidated Financial Statements establishes principles for the
presentation and preparation of consolidated financial statements when an entity
controls one or more other entities.
Required
Discuss why parent company is required to prepare consolidated financial
statements.

B. ALEXIS Plc holds shares in YAVA Plc. On 1st April 2014, ALEXIS purchased 600,000
shares in YAVA at a cost of TZS 1,600 per share. The fair value of YAVA’s tangible
assets on 1st April 2014 was TZS 126,000,000 more than book value. The retained
profits of YAVA on 1st April 2014 were TZS 120,000,000. The excess of fair value
over book value was attributed to buildings held by YAVA.

On 1st April 2014, the buildings had an estimated remaining useful life of 21 years.
The draft summarized financial statements for the two entities as of 31st March 2018
are given below:

SUMMARIZED STATEMENT OF FINANCIAL POSITION AS AT

31st MARCH, 2018:
ALEXIS YAVA
ASSETS TZS “000” TZS “000”
Non-Current Assets
Property, plant and equipment 1,210,000.00 700,000.00
Investment in YAVA at cost 960,000.00
 2,170,000.00 700,000.00
Current Assets
Sundry debtors 1,780,000.00 620,000.00
Current account with YAVA ltd 80,000.00
1,860,000.00 620,000.00
Total assets 4,030,000.00 1,320,000.00
EQUITY AND RESERVES
Equity shares of TZS 1,000 each 2,000,000.00 600,000.00
Retained earnings 400,000.00 300,000.00
2,400,000.00 900,000.00
Current Liabilities
Trade payable 1,630,000.00 360,000.00
Current account with ALEXIS - 60,000.00
1,630,000.00 420,000.00
Total equity and liabilities 4,030,000.00 1,320,000.00

SUMMARIZED STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME FOR THE YEAR ENDED 31st MARCH 2018:
TZS “000” TZS “000”
Revenue 910,000.00 390,000.00
Cost of sales (461,000.00) (171,000.00)
Gross profit 449,000.00 219,000.00
Other income - dividends received 50,000.00 -
Expenses (110,000.00) (43,000.00)
Finance cost (30,000.00) (22,000.00)
359,000.00 154,000.00
Taxation (43,000.00) (12,000.00)
Profit for the year 316,000.00 142,000.00

Additional information:
i. YAVA paid an interim dividend of TZS 50,000,000 on 31st December 2017.
ii. YAVA sent a cheque for TZS 20,000,000 to ALEXIS on 30th March 2018.
iii. ALEXIS occasionally trades with YAVA. In November 2017 sold goods to YAVA
for TZS 90,000,000. ALEXIS uses a markup of 50% on cost. On 31st March 2018,
YAVA had not paid for the goods and they were all still in YAVA’s closing
inventory.
Required:
Prepare a consolidated Statement of Profit or loss and other Comprehensive Income for
the year ended 31st March 2018 and a consolidated Statement of Financial Position for
the ALEXIS group of entities as at 31st March 2018.

QUESTION THREE
A. The objective of IFRS 10 “Consolidated Financial Statements” is to establish principles
for the presentation and preparation of consolidated financial statements when an
entity controls one or more other entities.

Required
Discuss why groups are required to publish consolidated financial statements.

B. Set out below are the draft statements of profit or loss of Prunes and its subsidiary
company Sultanas for the year ended 31 December 2017. On 1 January 2016 Prunes
purchased 75,000 ordinary shares in Sultanas from an issued share capital of 100,000
TZS 1,000 ordinary shares.
The following additional information is relevant:

Statements of profit or loss for the year ended 31 December 2017

Prunes Sultanas
TZS 000 TZS 000
Revenue 600,000 300,000
Cost of sales (360,000) (140,000)
–––– ––––
Gross profit 240,000 160,000
Operating expenses (93,000) (45,000)
–––– ––––
Profit from operations 147,000 115,000
Finance costs (3,000)
–––– ––––
Profit before tax 147,000 112,000
Tax (50,000) (32,000)
–––– ––––
Profit for the year 97,000 80,000
–––– ––––

(i) During the year Sultanas sold goods to Prunes for TZS 20,000,000 making a
markup of one third. Only 20% of these goods were sold before the end of the
year, the rest were still in inventory.
 (ii) Goodwill has been subject to an impairment review at the end of each year since
acquisition and the review at the end of this year revealed another impairment of
TZS 5,000,000. The current impairment is to be recognised as an operating cost.
(iii) At the date of acquisition a fair value adjustment was made and this has
resulted in an additional depreciation charge for the current year of TZS
15,000,000. It is group policy that all depreciation is charged to cost of sales.
(iv) Prunes values the non-controlling interests using the fair value

Required
Prepare the consolidated statement of profit or loss for the year ended 31 December
2017

QUESTION FOUR
Barcelona acquired 60% of Madrid's ordinary share capital on 1 October 2012 at a price
of Tshs 1.06 per share. The balance on Madrid's retained earnings at that date was Tshs
104million and the general reserve stood at Tshs 11million.

Their respective statements of financial position as at 30 September 2016 are:

Barcelona Madrid
Non-Current Assets Tshs “million” Tshs “million”
Property , plant and equipment 2,848 354
Patents 45
Investment in Madrid 159
Current Assets
Inventories 895 225
Trade and other receivables 1,348 251
Cash and cash equivalents 212 34
5,507 864
Equity
Share capital 920 50
Retained earnings 2,086 394
General reserve 775 46
3,781 490
Non-Current Liabilities
Long-term borrowings 558 168
Current Liabilities
 Trade and other receivables 1,168 183
Current portion of long-term 23
borrowings
5,507 864

At the date of acquisition the fair values of some of Madrid's assets were greater than
their carrying amounts. One line of Madrid's inventory had a fair value of Tshs 8million
above its carrying amount. This inventory had all been sold by 30 September 2016.
Madrid's land and buildings had a fair value Tshs 26million above their carrying
amount. Tshs 20million of this is attributable to the buildings, which had a remaining
useful life of ten years at the date of acquisition.

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 Tshs 86million.

Annual impairment tests have revealed cumulative impairment losses relating to

recognised goodwill of Tshs 20million to date.

Required

Produce the consolidated statement of financial position for the Barcelona Group as at
30 September 2016.

QUESTION FIVE
A. The objective of IFRS 10: “Consolidated Financial Statements” is to establish principles for the
presentation and preparation of consolidated financial statements when an entity controls one
or more other entities.
Required:
Define the term “control” and discuss why groups are required to publish consolidated financial
statements?
B. Hyder plc acquired 75% of Cyder Ltd’s ordinary shares on 1 April for an agreed consideration of
TZS. 25 million when Cyder had retained earnings of TZS. 10,200,000.
The draft statements of financial position of the two companies at 31 December are:

Hyder (TZS. 000 ) Cyder (TZS. 000)

Non-current assets:
Property, plant and equipment 78,540 27,180
Investment in Cyder 25,000 nil
Current assets
Inventory 7,450 4,310
Accounts receivable 12,960 4,330
Cash and bank nil 920
Total assets 123,950 36,740
Equity
 Share capital 30,000 8,000
Share premium 20,000 2,000
Retained earnings 64,060 15,200
114,060 25,200
Non-current liabilities
Bank loan 6,000
Current liabilities
Accounts payable and accruals 5,920 4,160
Bank overdraft 2,100 Nil
Taxation 1,870 1,380
9,890 5,540
Total equity and liabilities 123,950 36,740

The following information is relevant

i. The fair value of Cyder Ltd’s land at the date of acquisition was TZS. 4 million in excess of
its carrying value. The fair value of Cyder Ltd’s other net assets approximated to their
carrying values.
ii. During the year Cyder plc sold inventory to Hyder Ltd for TZS. 2.4 million. The inventory had
originally cost Cyder plc TZS. 2.0 million. Hyder Ltd held 25% of these goods at the year-
end.
iii. The two companies agreed their current account balances as TZS. 500,000 payable by
Cyder Ltd to Hyder plc at the year-end. Inter-company current accounts are included in
accounts receivable or payable as appropriate.
iv. An impairment test at 31 December on the consolidated goodwill concluded that it should
be written down by TZS. 625,000.

Required: Prepare a consolidated statement of financial position as at 31 December.

QUESTION SIX
On 1 April 2014, Father plc acquired 60% of the equity share capital of Daughter plc in a
share exchange of two shares in Father plc for three shares in Daughter plc. The issue of
shares has not yet been recorded by Father plc. At the date of acquisition shares in
Father plc had a market value of Tshs 6 each. Below are the summarised draft financial
statements of both companies.

Income statements for the year ended 30 September 2014

Father plc Daughter plc
Tshs ’000 Tshs ’000
Revenue 85,000 42,000
Cost of sales (63,000) (32,000)
–––––––– ––––––––
Gross profit 22,000 10,000
Distribution costs (2,000) (2,000)
Administrative expenses (6,000) (3,200)
 Finance costs (300) (400)
–––––––– ––––––––
Profit before tax 13,700 4,400
Income tax expense (4,700) (1,400)
–––––––– ––––––––
Profit for the year 9,000 3,000
–––––––– ––––––––

Statements of financial position as at 30 September 2014

Assets Tshs ’000 Tshs ’000

Non-current assets
Property, plant and equipment 40,600 12,600
Current assets 16,000 6,600
–––––––– ––––––––
Total assets 56,600 19,200
–––––––– ––––––––
Equity and liabilities
Equity shares of Tshs 1 each 10,000 4,000
Retained earnings 35,400 6,500
–––––––– ––––––––
45,400 10,500
Non-current liabilities
10% loan notes 3,000 4,000
Current liabilities 8,200 4,700
–––––––– ––––––––
Total equity and liabilities 56,600 19,200
–––––––– ––––––––
The following information is relevant:
i. At the date of acquisition, the fair values of Daughter plc’s assets were equal
to their carrying amounts with the exception of an item of plant, which had a
fair value of Tshs 2 million in excess of its carrying amount. It had a
remaining life of five years at that date [straight-line depreciation is used].
Daughter plc has not adjusted the carrying amount of its plant as a result of
the fair value exercise.
ii. Sales from Daughter plc to Father plc in the post-acquisition period were Tshs
8 million. Daughter plc made a mark up on cost of 40% on these sales. Father
 plc had sold Tshs 5.2 million (at cost to Father plc) of these goods by 30
September 2014.
iii. Other than where indicated, income statement items are deemed to accrue
evenly on a time basis.
iv. Daughter plc’s trade receivables at 30 September 2014 include Tshs 600,000
due from Father plc which did not agree with Father plc’s corresponding
trade payable. This was due to cash in transit of Tshs 200,000 from Father plc
to Daughter plc. Both companies have positive bank balances.
v. Father plc has a policy of accounting for any non-controlling interest at fair
value. For this purpose the fair value of the goodwill attributable to the non-
controlling interest in Daughter plc is Tshs 1.5 million. Consolidated goodwill
was not impaired at 30 September 2014.

Required: (20 marks)

1. Prepare the consolidated income statement for Father plc for the year ended 30
September 2014.
2. Prepare the consolidated statement of financial position for Father plc as at 30
September 2014.