AC AC2091 Financial Reporting Assignment 3

QUESTION (20 marks)

The Income Statement for the year ended 31 December 2017 and the Statements of Financial
Position as at 31 December 2017 for Pen Plc., Crayon Ltd and Ink Ltd are given as follows:

Income Statements for the year ended 31 December 2017

Pen Plc. Crayon Ltd Ink Ltd
£’000 £’000 £’000
Turnover 5,600 4,000 3,400
Cost of sales (2,500) (2,200) (1,900)

3,100 1,800 1,500

Dividends received 35 - -
Operating expenses (585) (330) (400)

Profit before tax 2,550 1,470 1,100

Tax (350) (50) (120)

Profit after tax 2,200 1,420 980

Statements of Changes in Equity for the year ended 31 December 2017

Pen Plc. Crayon Ltd Ink Ltd
£’000 £’000 £’000
Retained profit brought forward 5,120 2,540 1,610
Profit after tax 2,200 1,420 980
Dividends paid (50) (20) (10)

Retained profit carried forward 7,270 3,940 2,580

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Statements of Financial Position as at 31 December 2017

Pen Plc. Crayon Ltd Ink Ltd

£’000 £’000 £’000

Property, Plant and Equipment 4,780 3,210 2,190

Investments 1,100
Inventory 1,000 800 400
Trade Receivables 600 300 250
Cash 790 300 200
Inter-company Receivables – Crayon Ltd 330
Inter-company Receivables - Ink Ltd 70
Trade Payables (350) (80) (270)
Inter-company payables - Pen Plc (320) (70)
Loans (550) (70) (20)

7,770 4,140 2,680

Share capital 500 200 100

Retained earnings 7,270 3,940 2,580

7,770 4,140 2,680

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You are also given the following information:
Pen Plc acquired 60% of the shares in Crayon Ltd on 31 December 2014 for £850,000, when the
share capital and reserves were £300,000. On the date of acquisition, Land belonging to Crayon
had a fair value in excess of book value of £130,000.
Pen Plc acquired 25% of Ink Ltd on 1 Jan 2012 for £250,000, when the share capital and reserves
were £800,000.
Goodwill for all acquisitions is capitalised but there is impairment for the year ended 31 Dec
2017 of £130,000. The associate is not impaired.
Any difference in inter-company balances is due to cash in transit.
In 2017, Crayon Ltd sold Pen Plc. Inventory for £100,000. This Inventory had cost Crayon Ltd
£80,000. Ink Ltd sold inventory to Pen Plc. for £20,000. This had cost Ink Ltd £10,000. There
were no other intergroup sales. Half of the Inventory sold between group companies is still unsold
at the year-end.
Required
Prepare a consolidated Income Statement and a Statement of Changes in Equity for the year ended
31 December 2017 and a consolidated statement of financial position as at 31 December 2017

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Layout
Pen Plc Group

Consolidated Income Statements for the year ended 31 Dec 2017

£’000
Sales

Cost of sales

Gross profit

Dividends received

Operating expenses

Impairment loss

Share of Assoc profits:

Profit before tax

Tax

Profit after tax

Attributable to Parent

Attributable to NCI

Statements of Changes in Equity for the year ended 31 December 2017

£’000
Retained profit brought forward
Profit after tax
Dividends paid

Retained profit carried forward

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Statements of Financial Position as at 31 December 2017

PPE

Goodwill

Investment in associate

Inventory

Trade Receivables

Amount due from associate

Cash

Trade Payables

Loans

Share capital

Group reserves

Non-Controlling Interest