151

Peter acquires 80% of the share capital of Paul on 1 August 20X6 and is preparing its group
financial statements for the year ended 31 December 20X6.
How will Paul’s results be included in the group statement of profit or loss?
A 80% of Paul’s revenue and expenses for the year ended 31 December 20X6
B 100% of Paul’s revenue and expenses for the year ended 31 December 20X6
C 80% of Paul’s revenue and expenses for the period 1 August 20X6 to 31 December
20X6
D 100% of Paul’s revenue and expenses for the period ended 1 August 20X6 to 31
December 20X6

152
Which of the following would result in an unrealised profit within a group scenario?
A A parent sells a building originally costing $800,000 to its subsidiary for $900,000. The
subsidiary still holds this asset at the date of consolidation.
B A parent sells a building originally costing $800,000 to its subsidiary for $900,000. The
subsidiary has sold this asset before the date of consolidation.
C A parent sells goods which originally cost $14,000 to its subsidiary for $18,000. The
subsidiary has sold all of these goods at the date of consolidation.
D A parent sells goods which originally cost $14,000 to an associate for $18,000. The
associate has sold all of these goods at the date of consolidation.

153
Identify whether the following facts about impairment are true or false.

154
Which of the following is not a condition which must be met for the parent to be exempt
from producing consolidated financial statements?
A The activities of the subsidiary are significantly different to the rest of the group and
to consolidate them would prejudice the overall group position
B The ultimate parent produces consolidated financial statements that comply with IFRS
Standards and are publicly available
C The parent’s debt or equity instruments are not traded in a public market
D The parent itself is a wholly owned subsidiary or a partially owned subsidiary whose
owners do not object to the parent not producing consolidated financial statements
161
AB has owned 80% of CD for many years. In the current year ended 30 June 20X3, AB has
reported total revenues of $5.5 million, and CD of $2.1 million. AB has sold goods to CD during
the year with a total value of $1 million, earning a margin of 20%. Half of these goods remain
in year‐end inventories.
What is the consolidated revenue figure for the AB group for the year ended 30 June 20X3?
$_____________ ,000
$6,600,000
Consolidated revenue: AB $5.5m + CD $2.1m – $1m intra‐group= $6.6 million
All intra‐group sales and cost of sales are removed from the group accounts.

162
Burridge bought 30% of Allen on 1 July 20X4 Allen’s statement of profit or loss for the year
shows a profit of $400,000. Allen paid a dividend to Burridge of $50,000 on 1 December 20X4.
At the year end, the investment in Allen was judged to have been impaired by $10,000.
What will be the share of profit from associate shown in the consolidated statement of
profit or loss for the year ended 31 December 20X4?
A $57,000
B $50,000
C $60,000
D $110,000
163
Beasant bought 30% of Arnie on 1 January 20X8, when Arnie had share capital of 100,000 $1
shares and $400,000 retained earnings The consideration comprised one Beasant share for
every 3 shares bought in Arnie At the date of acquisition, Beasant’s shares had a market value
of $4.50 and Arnie’s had a market value of $2 At 31 December 20X8, Arnie’s net assets were
$460,000.
What is the value of investment in associate shown in the consolidated statement of
financial position as at 31 December 20X8?
A $8,000
B $33,000
C $63,000
D $123,000
166
Badger acquired 30% of Eagle on 1 July 20X3 at a cost of $5.5 million. Badger has classified
Eagle as an associate undertaking For the year ended 30 September 20X3, Eagle has reported
a net profit of $625,000.
What is the value of the associate investment in the group statement of financial position
of Badger as at 30 September 20X3?
A $5,546,875
B $5,500,000
C $6,125,000
D $5,968,750

167
Green is an associate undertaking of Purple. Purple owns 30% of the shares in Green, and has
done so for many years.
During the year ended 31 December 20X4, Green made a net profit of $1.5 million Green sold
goods to Purple during the year with a value of $2 million, and half are still in Purple’s
inventories at year end All the goods were sold at a margin of 30%.
Purple has recognised previous impairments in relation to its investment in Green of
$225,000 In the current year, Purple wishes to recognise an additional impairment charge of
$35,000.
What is the share of profit of associate to be shown in Purple’s consolidated statement of
profit or loss?
$____________ ,325,000

answer

168
Which of the following statements regarding consolidated financial statements is correct?
A For consolidation, it may be acceptable to use financial statements of the subsidiary
where the year‐end differs from the parent by 2 months.
B For consolidation, all companies within the group must have the same year end.
C All companies within a group must have the same accounting policy in their individual
financial statements.
D The profit made on all intra‐group sales in the year must be removed from the
consolidated financial statements.

169
‘An associate is an entity over which the investor has significant influence’ (IAS 28, para 3).
Which TWO of the following indicate the presence of significant influence?
A The investor owns 330,000 of the 1,500,000 equity voting shares of the investee
B The investor has representation on the board of directors of the investee
C The investor is able to insist that all of the sales of the investee are made to a subsidiary
of the investor
D The investor controls the votes of a majority of the board members

170
Consolidated financial statements are presented on the basis that the companies within the
group are treated as if they are a single economic entity.
Which TWO of the following are requirements of preparing consolidated financial statements?
A All subsidiaries must adopt the accounting policies of the parent in their individual
financial statements
B Subsidiaries with activities which are substantially different to the activities of other
members of the group should not be consolidated
C All assets and liabilities of subsidiaries should be included at fair value
D Unrealised profits within the group must be eliminated from the consolidated financial
Statements

The following scenario relates to questions 321–325

The profit after tax for Barstead for the year ended 30 September 20X7 was $15 million.
At 1 October 20X6 Barstead had in issue 36 million equity shares. On 1 January 20X7 Barstead made
a fully subscribed rights issue of one new share for every four shares held at a price of $2.80 each.
The market price of the equity shares of Barstead immediately before the issue was $3.80.
The profit after tax for Cabott for the year ended 30 September 20X7 was $15 million. At 1 October
20X6 Cabott had in issue 43.25 million equity shares and a $10 million convertible loan note which
has an effective interest rate of 8%. The loan note will mature in 20X8 and will be redeemed at par
or converted to equity shares on the basis of 25 shares for each $100 of loan note at the loan‐note
holders’ option. The loan interest is tax deductible. Cabott’s tax rate is 25%.
The profit after tax for Dunstan for the year ended 30 September 20X7 was $12 million. On
1 October 20X6 Dunstan had 34 million shares in issue. On 1 February 20X7 Dunstan made a market
issue of 3 million shares at full price. On 1 July 20X7 Dunstan made a bonus issue of one new share
for every five shares held.

321
What is the basic earnings per share for Barstead for the year ended 30 September 20X7?
A 41.7¢
B 35.5¢
C 33.2¢
D 34.7¢
322
What is the diluted earnings per share for Cabott for the year ended 30 September 20X7?
A 34¢
B 35¢
C 36¢
D 33¢
323
What is the basic earnings per share for Dunstan for the year ended 30 September 20X7?
A 26¢
B 32¢
C 28¢
D 31¢

324
Which of the three companies will have to restate the prior year comparative earnings per
share figure?
Company Comparative restated No restatement
Barstead
Cabott
Dunstan

325
Which, if any, of the statements below regarding diluted earnings per share is/are correct?
Statement 1: Diluted earnings per share is a forecast of a future trend in profit, showing the
expected earnings in the next period to improve the relevance of information for users.
Statement 2: Diluted earnings per share acts as a warning to shareholders and shows how
the current earnings per share could fall based on items currently in existence.
Correct Incorrect
Statement 1
Statement 2