QUESTION 1

Consolidated statement of financial position

On 1 May 20X7 Karl bought 60% of Susan paying $76,000 cash. The summarised statements of
financial position for the two entities as at 30 November 20X7 are:
Karl Susan
$ $
Non-current assets
Property, plant & equipment 138,000 115,000
Investments 98,000 –

Current assets
Inventory 15,000 17,000
Receivables 19,000 20,000
Cash 2,000 –
––––––– –––––––
272,000 152,000
––––––– –––––––
Share capital 50,000 40,000
Retained earnings 189,000 69,000
––––––– –––––––
239,000 109,000

Non-current liabilities: 8% Loan notes – 20,000

Current liabilities 33,000 23,000

––––––– –––––––
272,000 152,000
––––––– –––––––
The following information is relevant:
The inventory of Karl includes $8,000 of goods purchased for cash from Susan at cost plus 25%.
On 1 June 20X7 Karl transferred an item of plant to Susan for $15,000. Its carrying amount at that
date was $10,000, and its remaining useful life was 5 years.
Karl values the non-controlling interest using the fair value method. At the date of acquisition the
fair value of the 40% non-controlling interest was $50,000.
An impairment loss of $1,000 is to be charged against goodwill at the year-end.
Susan earned a profit of $9,000 in the year ended 30 November 20X7.
The loan note in Susan’s books represents monies borrowed from Karl on 30 November 20X7.
Included in Karl’s receivables is $4,000 relating to inventory sold to Susan during the year. Susan
raised a cheque for $2,500 and sent it to Karl on 29 November 20X7. Karl did not receive this
cheque until 4 December 20X7.
Assume a tax rate of 25%
Required:
Prepare proforma Journals for the group as at 30 November 20x7

Question 2
Statements of financial position as at 31 December 2015
Hanks Streep Scott
$ 000 $ 000 $ 000
Assets
Non-current assets
Property, plant and equipment 32,000 25,000 20,000
Investments 33,500 – –
———– ——— ———
65,500 25,000 20,000
Current assets
Cash at bank and in hand 9,500 2,000 4,000
Trade receivables 20,000 8,000 17,000
Inventory 30,000 18,000 18,000
———– ——— ———
125,000 53,000 59,000
———– ——— ———
Equity and liabilities
Share capital 40,000 10,000 15,000
Share premium account 6,500 – –
Retained earnings 55,000 37,000 27,000
———– ——— ———
101,500 47,000 42,000
Current liabilities 23,500 6,000 17,000
———– ——— ———
125,000 53,000 59,000
═════ ═════ ═════
Statements of profit or loss for the year ended 31 December 2015
Hanks Streep Scott
$ 000 $ 000 $ 000
Revenue 125,000 117,000 82,000
Cost of sales (65,000) (64,000) (42,000)
———– ———– ———
Gross profit 60,000 53,000 40,000
Distribution costs (21,000) (14,000) (16,000)
Administrative expenses (14,000) (8,000) (7,000)
———– ———– ———
Profit before taxation 25,000 31,000 17,000
 Income tax expense (10,000) (9,000) (5,000)
———– ———– ———
Profit after tax 15,000 22,000 12,000
═════ ═════ ═════
Statement of changes in equity (extract) for the year ending
31 December 2015
Hanks Streep Scott
$ 000 $ 000 $ 000
Retained earnings brought forward 40,000 15,000 15,000
Retained profit for the financial year 15,000 22,000 12,000
Dividends – – –
———– ———– ———
Retained earnings carried forward 55,000 37,000 27,000
═════ ═════ ═════
You are given the following additional information
Hanks owns 80% of Streep’s shares. These were purchased in 2012 for $ 20.5 million cash, when
the balance on Streep’s retained earnings stood at $ 7million.
In 2010 Hanks purchased 60% of the shares of Scott by the issue of shares with a nominal value
of $ 6.5 million. These shares were issued at a premium of $ 6.5 million. At that date the retained
earnings of Scott stood at $ 3 million and the fair value of the net assets of Scott was $ 24 million.
It was agreed that any undervaluation of the net assets should be attributed to land. This land was
still held at 31 December 2015.
Included in the inventory of Scott and Streep at 31 December 2015 are goods purchased from
Hanks for $ 5.2 million and $ 3.9 million respectively. Hanks aims to earn a profit of 30% on
cost. Total sales from Hanks to Scott and to Streep were $ 8 million and $ 6 million respectively.
Hanks and Streep each declared a dividend before the year end of $ 2 million and $ 2.5 million
respectively. No accounting entries have yet been made for these.
Hanks has carried out annual impairment tests on goodwill in accordance with IFRS 3 and IAS
36. The estimated recoverable amount of goodwill at 31 December 2012 was $ 5 million and at
31 December 2015 was $ 4.5 million.

Required
Prepare the consolidated statement of profit or loss and consolidated statement of
changes in equity for the year ended 31 December 2015 and the consolidated
statement of financial position at that date. (20)