GROUPS WITH ASSOCIATES

Question 1
Format for consolidated SCI (including associates)
Operating profit (H Ltd + S Ltd operating profit) xxx
Share of associate’s profit before tax xxx
Profit before tax xxx
Group tax (H Ltd + S Ltd) (xxx)
Share of associate’s tax (xxx)
Profit after tax xxx

Attributable to:
Owners of the parent (determined as a residual) xxx
NCI (S Ltd’s profit after tax x NCI %) xxx

Calculation of the carrying amount of investment in associate (Equity method)

Cost of investment in an associate xxx
Add: Share of post-acquisition reserves xxx
xxx
OR

Proportion of net assets xxx

Add: Goodwill (premium) or less negative goodwill (discount) xxx
xxx

Question 1
The following financial statements relate to Harry, Stanley and Agrippa Limited.

Statement of Profit or Loss & Other Comprehensive Income for the year ended 30 June 2015
Harry Ltd Stanley Ltd Agrippa Ltd
$ $ $
Sales 980 200 490 100 245 050
Cost of goods sold (245 050) (147 030) 98 020
Gross profit 735 150 343 070 147 030
Distribution costs (98 020) (24 505) (29 406)
Administration costs (49 010) (29 406) (34 307)

1 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Operating profits 588 120 289 159 83 317
Dividends receivable
Stanley Ltd 70 000 - -
Agrippa Ltd 12 500 - -
Profit before tax 670 620 289 159 83 317
Company tax (245 000) (107 800) (39 200)
Net profit after tax 425 620 181 359 44 117

Statements of Changes in Equity for the year ended 30 June 2015

Harry Ltd Stanley Ltd Agrippa Ltd
$ $ $
Balance b/d 946 400 283 920 185 920
Net profit after tax 425 620 181 359 44 117
1 372 020 465 279 230 037
Proposed dividends (250 000) (100 000) (50 000)
Balance c/d 1 122 020 365 279 180 037

Statement of financial position as at 30 June 2015

Harry Ltd Stanley Ltd Agrippa Ltd
Assets $ $ $
Tangible non-current assets 980 000 295 000 260 000
Investment in quoted Companies
Stanley Ltd (175,000 shares) 344 000
Agrippa Ltd (25,000 shares) 63 000

Current assets
Stock 343 070 396 981 39 208
Debtors 352 872 88 218 34 307
Dividends receivable 82 500 - -
Cash at bank 85 300 42 600 52 460
2 250 742 822 799 384 975

Equity and Liabilities

Ordinary share capital ($1 each) 500 000 250 000 100 000
Retained profits 1 122 020 365 279 180 037
Long-term liabilities 378 722 107 520 54 938
Proposed dividends 250 000 100 000 50 000

2 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

 2 250 742 822 799 384 975

Additional information
When Harry Ltd acquired its shares in the other companies many years ago, the retained profits
of these companies were $150 000 and $86 200 for Stanley Ltd and Agrippa Ltd respectively.
Required
a) A consolidated statement of profit or loss and OCI for the year ended 30 June 2015 [8]
b) A consolidated statement of changes in equity for the year ended 30 June 2015 [5]
c) A consolidated statement of financial position as at 30 June 2015 [7]
[Total 20 marks]

Question 2
On 1 January 2016, May Limited acquired 75% of Bet Limited’s equity shares by means of a
share exchange of two shares in May Limited for every three Bet Limited shares acquired. On
that date, further consideration was also issued to the shareholders of Bet Limited in the form
of a $100 8% loan note for every 100 shares acquired in Bet Limited.

None of the purchase consideration, nor the outstanding interest on the loan notes at 31
March 2016, has yet been recorded by May Limited. At the date of acquisition, the share price
of May Limited and Bet Limited were $3.20 and $1.80 respectively.
The summarised statements of financial position of the two companies as at 31 March 2016
are:

May Limited Bet Limited

$’000 $’000
Assets
Non-current assets
Property, plant and equipment (note (i)) 75,200 31,500
Investment in Ano Ltd. at 1 April 2015 (note (iv)) 4,500 0
79,700 31,500
Current assets
Inventory (note (iii)) 19,400 18,800
Trade receivables (note (iii)) 14,700 12,500
Bank 1,200 600
Total assets 115,000 63,400

EQUITY AND LIABILITIES

3 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Equity
Equity shares of $1 each 50,000 20,000
Retained earnings – at 1 April 2015 20,000 19,000
– for year ended 31 March 2016 16,000 8,000
86,000 47,000
Non-current liabilities
8% loan notes 5,000 nil
Current liabilities (note (iii)) 24,000 16,400
Total equity and liabilities 115,000 63,400

The following information is relevant:

(i) At the date of acquisition, the fair values of Bet Limited’s assets were equal to their
carrying amounts. However, Bet Limited operates a mine which requires to be
decommissioned in five years’ time. No provision has been made for these
decommissioning costs by Bet Limited. The present value (discounted at 8%) of the
decommissioning is estimated at $4m and will be paid five years from the date of
acquisition (the end of the mine’s life).
(ii) May Limited’s policy is to value the non-controlling interest at fair value at the date of
acquisition. Bet Limited’s share price at that date can be deemed to be representative of
the fair value of the shares held by the non-controlling interest.

(iii) The inventory of Bet Limited includes goods bought from May Limited for $2·1m. May
Limited applies a consistent mark-up on cost of 40% when arriving at its selling prices.

On 28 March 2016, May Limited dispatched goods to Bet Limited with a selling price of
$700,000. These were not received by Bet Limited until after the year end and so have
not been included in the above inventory at 31 March 2016.

At 31 March 2016, May Limited’s records showed a receivable due from Bet Limited of
$3m, this differed to the equivalent payable in Bet Limited’s records due to the goods in
transit.

The intra-group reconciliation should be achieved by assuming that Bet Limited had
received the goods in transit before the year end.

(iv) The investment in Ano Limited represents 30% of its voting share capital and May
Limited uses equity accounting to account for this investment. Ano Limited’s profit for

4 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

 the year ended 31 March 2016 was $6m and Ano Limited paid total dividends during the
year ended 31 March 2016 of $2m. May Limited has recorded its share of the dividend
received from Ano Limited in investment income (and cash).

(v) All profits and losses accrued evenly throughout the year.

(vi) There were no impairment losses within the group for the year ended 31 March 2016.

Required:
Prepare the consolidated statement of financial position for May Limited and its subsidiaries as
at 31 March 2016. (30marks)

5 Compiled by T T Herbert (0773 038 651 / 0712 560 772)