Group structure b)

Group Structure
Parent owns in subsidiary 80% NCI 20%
Parent owns in associate 40%

W1: Net asset of Subsidiary

Net asset At acquisition At reporting date

(£’000) (01/01/2015) (31/12/2021)
Share capital 262,500 262,500
Retained earnings 52,500 178,500
Fair value adjustment 14,000 14,000
Adjustments for:
Less: FV depreciation (14,000)
Total Net asset 329,000 441,000

W2: Goodwill
FV of consideration transferred 350000
Add: NCI (Fair Value) 75000
Less: FV of Net asset at acquisition (329,000) W1
Goodwill at acquisition 96000
Less: Impairment loss (23,000) Note 7
Goodwill at reporting date 73000

W3: NCI
NCI at acquisition 75000
Add: NCI share of Sub's RE 22,400
Less: Impairment loss (4,600)
Less: URP on sales of land (800)
NCI at reporting date 92,000

W4: Group RE
RE of parent 392,000
Add: Group share of Sub's RE
Group share of subidiary post acquisition RE 89,600
Less: URP on sales of land (3,200)
Less: Impairment of goodwill (18,400)
Add: Group share of Asso'RE
Group share of associate post acquisition RE 20,000
Less: Impairment of investment in associate (15,000)
Group RE 465,000
Ratio Parent plc (GrouParent Co.
ROCE 0.29 0.05
Sales on Capital e 2.01 1.57
The following is the trial balance of London Co. at 31 December 2021 Additional information (£’000):
£’000 £’000
Dr Cr On 1 January 2021, the company revalued it
Sales 24,960,960 revaluations have not yet been included in th
Cost of sales 12,028,500 Revaluation details are as follows:
Distribution Cost 4,213,620 Land revalued to £1,000,000.
Administration Cost 4,884,300 Building revalued to £2,500,000.
Finance Cost 125,388 The expected life on 1 January 2021 for the
Taxation 69,255 It is the company policy to include the depre
Deferred tax liability 100,602 Depreciation for all the other assets has alrea
Debentures 218,700 year ending 31 December 2021.
Non-current assets: London Co operates in a country where tax i
Buildings 2,916,000
Buildings accumulated depreciation 4,450,000 498,636 On 31 December 2021, the plant recoverable
Land 816,480
Plant 1,825,416 On 31 December 2021, the net realisable val
Plant accumulated depreciation 597,780 £210,000.
Closing Inventory 2,033,910
Receivables 2,325,510 On 31 December 2021, the value of some ac
Payables 1,115,370 was £1,700.
Bank 71,442
Ordinary Class A share capital 2,886,840 On 30 December 2021, an entity issued £150
Ordinary Class B share capital 903,960 bonds that have a coupon rate of 5%. The m
Retained Profit 1,353,024 similar bond without conversion rights is 6%
Dividend paid 1,326,051 equivalent debt without the conversion optio
32,635,872 32,635,872
On 31st December 2021, the deferred tax liab
nformation (£’000): WORKINGS

2021, the company revalued its non-current assets. These W1: Depreciation expense and Revaluation
have not yet been included in the trial balance above.
details are as follows: Dr. Land
d to £1,000,000.
lued to £2,500,000.
life on 1 January 2021 for the building was determined at 50 years. Dr. Acc. Depre. Buildings
any policy to include the depreciation on buildings in the cost of sales.
for all the other assets has already been calculated for the
1 December 2021.
perates in a country where tax is not applicable on revaluation surplus. Dr. COS (Depre exp buildings)

mber 2021, the plant recoverable amount was £1,000,000.

mber 2021, the net realisable value for the inventory was W2: Impairment of Plant

Carrying amount
mber 2021, the value of some accrued administration expenses Recoverable amount

Dr. Impaiment loss

mber 2021, an entity issued £150,000-four-year convertible
ve a coupon rate of 5%. The market rate of interest for a
without conversion rights is 6% (being the interest rate for an
bt without the conversion option).
W3: Inventory written down
mber 2021, the deferred tax liability declined by £1,602. Dr. Loss on inventory written down

W4: Accrual expense

Dr. Admin exp

W5: Financial instruments/ Convertible bonds

Assume the company issue bonds a

Annual interest expense
Liability component
Equity component

Dr. Cash

W6: Deferred tax

Dr. Deferred tax liabilities
 £’000 £’000 STATEMENT OF PROFIT OR LOSS AND OT

nse and Revaluation Sales

Cost of goods sold
183,520 Gross profit
Cr. Gain on revaluation 183,520 Distribution Cost
Administration Cost
re. Buildings 498,636 Loss on inventory written down
Dr. Buildings 416,000 Impairment loss of plant
Cr. Gain on revaluation 82,636 Finance Cost
Profit before tax
pre exp buildings) 50,000 Taxation
Cr. Acc. Depre. Buildings 50,000 Net profit

Other comprehensive income

Gains on revaluation Lands
Gains on revaluation Buildings
1,227,636
1,000,000 Total comprehensive income

227,636
Cr. Plant 227,636

nventory written down 1,823,910

Cr. Inventory 1,823,910

1700
Cr. Payables 1700

ts/ Convertible bonds

company issue bonds and paid in arreas

7500
$144,802.34
$5,197.66

150000
Cr. Share capital class B $144,802.34
Cr.Bonds $5,197.66
tax liabilities 1602
Cr. Taxation 1602
OFIT OR LOSS AND OTHER COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POS
As at 31 March 20x3
24,960,960
12,078,500 w1 ASSETS
12,882,460
4,213,620 Non-current assets
4,886,000 w4 PPE 4,450,000
1,823,910
227,636 w3
125,388 w2 Current asset
1,605,906 Inventory 210,000
67,653 W6 Trade receivable 2,325,510
1,538,253 Cash and Bank 221,442
2756952
Total assets 7,206,952
183,520
82,636

1,804,409
OF FINANCIAL POSITION

EQUITY
Ordinary shares class A 2,886,840
Ordinary shares class B 909,158
W1+W2 Revaluation surplus 266,156
Retained earnings 1,565,226
5,627,380

LIABILITIES
Non-current liabilities
Debentures 218,700
Convertible bonds $144,802
Deferred tax liability 99,000
Current liabilities
Trade payable 1,117,070 w4

1,579,572

Total E&L 7,206,952

 STATEMENT OF CHANGES IN EQUITY
As at 31 March 20x3

Ordinary share Ordinary share Revaluation suR.E

Balance at 31 March 20x2 2,886,840 903,960 - 1,353,024
Changes in 20x3
Equity components of convert - 5,198
Total comprehensive income 266,156 1,538,253
Dividends paid (1,326,051)
Balance at 31 March 20x3 2,886,840 909,158 266,156 1,565,226
Total
5,143,824

5,198
1,804,409
(1,326,051)
5,627,380
Year OB Lease liability Interest expense Interest paid C.B Lease liability NCL
20X1 20000 1000 5640.24 15359.76 10487.51
20X2 15359.76 767.988 5640.24 10487.508 5371.643
20X3 10487.508 524.3754 5640.24 5371.6434 -0.01443
20X4 5371.6434 268.58217 5640.24 -0.01442999999927 0

Q3 B
Q4 A
Q5 B
Q6 B
Q7 C Long term liabilities
CL
4872.252
5115.865
5371.658
-0.01443
 Answer
Q8 C
Q9 B
Q10 B
Q11 B
Q12 D

Difference between depreciation and tax allowance leads to the difference between accounting profit and taxable pr
When multiplying this difference with tax rate, we have deferred tax liabilities or assets

If accouting profit < taxable profit => deferred tax assets ~ income exists
If accouting profit > taxable profit => deferred tax liabilities ~ expense exists

Income tax expense = current tax expense +/- deferred tax expense/income

Deferred tax income = (Taxable profit - accounting profit) * Tax rate

Deferred tax expense/liabilities = (accounting profit - taxable profit ) * Tax rate
 Year 1 2 3
Accounting profit 500,000 700,000 800,000 90,000
Accounting depreciation 7,500 7,500 7,500 7,650
Tax allowance 50,000 50,000 50,000
Taxable profit 457,500 657,500 757,500
Tax rate 18%
Current tax expense 82,350 118,350 136,350

Temporary difference 42,500 42,500 42,500

Accumulated diff 42,500 85,000 127,500
Deffered tax liability 7,650 15,300 22,950

Deferred tax expense 7,650 7,650 7,650

Income tax expense 90,000 126,000 144,000

counting profit and taxable profit

Answer
Q7
Q8 C
Q9 B
Q10 B
Q11 B
 Year 1 2 3 4 5
Accounting profit 110,000 110,000 110,000 110,000 110,000
Accounting depreciation 2,000 2,000 2,000 2,000 2,000
Tax allowance 3,333 2,667 2,000 1,333 667
Taxable profit 108,667 109,333 110,000 110,667 111,333
Tax rate 16%
Current tax expense 17,387 17,493 17,600 17,707 17,813

Temporary difference 1,333 667 - (667) (1,333)

Accumulated diff 1,333 667 - (667) (1,333)
Deffered tax liability 213 107 - (107) (213)
3,333
2,667
2,000
1,333
667