Professional Documents
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Financial Accounting
Group Accounts - Consolidated Balance Sheet
Class Problem - 1
HS acquired six million of MK’s ordinary shares on 1 April 2010 for an agreed consideration of Tk. 25
million. The consideration was settled by share exchange and a cash payment of Tk. 5 million. The cash
transaction have been recorded, but the share exchange has not. The draft statement of financial
position of the two companies at 30 September 2010 are:
HS MK
‘000 ‘000
Assets
Non-current assets
Property, plant and equipment 78,540 27,180
Investment in MK 5,000 -
83,540 27,180
Current assests
Inventory 7,450 4,310
Accounts receivable 12,960 4,330
Cash at bank - 520
20,410 9,160
Total assets 103,950 36,340
Reserves
Share premium 10,000 2,000
Accumulated Profits:
At 1 October 2009 51,260 6,000
For the year ended on 30 Sep'10 12,000 8,000
63,260 16,000
93,260 24,000
Non-current liabilities
8% loan notes 2014 - 6,000
Current liabilities
Accounts payables and accruals 5,920 4,160
Bank overdraft 1,700 -
Provision for taxation 1,870 1,380
Proposed final dividend 1,200 800
10,690 6,340
Total equity and liabilities 103,950 36,340
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(ii) At the date of acquisition HS sold an item of plant that had cost of Tk. 2 million to MK for Tk.2.4
million. MK has charged depreciation of Tk.240,000 on this plant since it was acquired.
(iii) HS’s current account debit balance of Tk. 820,000 with MK does not agree with the corresponding
balance in MK’s books. Investigations revealed that on 26 September 2010 HS billed MK Tk. 200,000 for
its share of central administration costs. MK has not yet recorded this invoice. Intercompany current
accounts are included in accounts receivable or payable as appropriate.
(iv) MK paid an interim dividend of Tk. 400,000 on 1 March 2010. The profit and total dividends (interim
plus final) of MK are deemed to accrue evenly throughout the year. MK’s retained profit of Tk. 8 million
for the year to 30 September 2010 as shown in its balance sheet is after the deduction of both its interim
and final dividends. HS ‘s policy is to credit to income only those dividends received or receivable from
post acquisition profits. He has not yet received or accounted for any dividends from MK. All proposed
dividends were declared by the directors before the relevant year ends.
(v) At 30 September 2010 the value of goodwill in respect of the acquisition of MK has fallen by 10%.
Required:
(a) Prepare the consolidated balance sheet of HS at 30 September 2010. Marks - 20
(b) Suggest reasons why a parent company may not wish to consolidate a subsidiary company, and
describe the circumstances in which non-consolidation of subsidiaries is permitted by International
Accounting Standards. Marks - 5
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ICAB Application Level
Financial Accounting
Group Accounts - Consolidated Balance Sheet
Class Problem - 1
HS Ltd.
Consolidated Statement of Financial Positions
At 30 September 2010
Note Taka '000
ASSETS
Non-current assets
Property, plant and equipment 9 109,360
Goodwill on consolidation 4 5,625
114,985
Current assets
Inventory 10 11,760
Accounts receivable 11 17,270
Cash at bank 12 520
29,550
Total assets 144,535
Non-current liabilities
8% loan notes 2014 6,000
6,000
Current liabilities
Accounts payable and accruals 15 9,460
Bank overdraft 16 1,700
Provision for taxation 17 3,250
Proposed final dividend 18 1,400
15,810
Total liabilities 21,810
Total equity and liabilities 144,535
-
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ICAB Application Level
Financial Accounting
Group Accounts - Consolidated Balance Sheet
Class Problem - 1
1(a) Reference is made to the information number (i) of the question. As per IAS 37, para 31, an entity shall not recognise a
contingent asset. According to para 33 of the same IAS, when the realisation of income is virtually certain, then the related
asset is not a contingent asset and its recognition is appropreate. In the question, it is mentioned that MK has taken legal
advise on the claim and believes that it is highly likely that the insurance company will settle it in full in the near future.
Thus, the value of the claim has been recognised in the consolidated balance sheet.
During During
01.10.09 to 01.04.10 to
31.03.10 30.09.10 Total
3c MK retained earnings breakdown Taka '000 Taka '000 Taka '000
Retained earnings at 1 October 2009 6,000 - 6,000
Profit as reported 4,600 4,600 9,200
Unrecorded central admin cost (Note - 3a,b) - (200) (200)
Interim dividend (400) - (400)
Final dividend - (800) (800)
Earnings for the year 4,200 3,600 7,800
10,200 3,600 13,800
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4. Goodwill on consilodation Taka '000
Cost of acquisition:
Cash payments 5,000
Share capital issued to MK's shareholders 20,000
25,000
Less share of pre-acquisition equities
Ordinery share capital (6,000)
Share premium (1,500)
Retained earnings (7,650)
(15,150)
9,850
Revaluation surplus (Tk. 4m x 75%) (Note - 7, 9) (3,000)
Insurance claim income (Tk. 0.8m x 75%) (Note - 7, 11) (600)
Goodwill at acquisition 6,250
Less impairment @ 10% (Note - 6) (625)
5,625
7. Non-controlling interest
Ordinary share capital 2,000
Share premium 500
Retained earnings 3,450
5,950
Revaluation surplus (Tk. 4m x 25%) (Note - 4, 9) 1,000
Insurance claim (Tk. 0.8m x 25%) (Note - 4, 8) 200
Less unrealised profit on plant (Note - 5) (90)
7,060
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