CHAPTER - 8

COMPLEX GROUP STRUCTURES

Two structures exist: -
 Vertical (sub-subsidiaries); and
 Mixed groups
The parent only controls its subsidiaries’ holdings in other companies but does not control
an associate’s holdings in other companies.
INTRODUCTION: VERTICAL GROUPS
Consider the following groups structure:
P ULTIMATE PARENT COMPANY (Parent company of S
60%

S SUBSIDIARY (parent company of SS)

70%

SS SUB-SUBSIDIARY (indirect subsidiary of P)

Where SS is a subsidiary of S and S is a subsidiary of P, and then SS is a sub-subsidiary of P (P
has indirect control over SS via S). For accounting purposes, we shall refer to SS as a sub-
subsidiary. To show the group as a single economic entity, SS must be included in the
consolidated accounts of P.
PREPARATION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION INCORPORATING SUB-
SUBSIDIARY
Two methods available:
1. Two stage consolidation (indirect method)
(Not recommended in examination)
2. One stage consolidation (direct method)
(Recommended in examination)
Under this method we need to take into account the EFFECTIVE INTERST (EI) in the
sub-subsidiary company.
Using the earlier group structure:
 P owns 60% of S and S own 70% of SS.
 So P has an effective group interest in SS of 60%  70% = 42%
 Non controlling interests own 58% of SS.
The Non controlling interest can be analysed as follows.
%
Owned by outside shareholders in SS
30
Owned by outside shareholders in S (40%  70%)
28
Effective Non controlling interest
58
Use effective interest to ascertain ownership of net assets and profits. But note that
the treatment of the investment is determined by the control relationship, not the
effective interest. Despite the fact that P owns only 42% of SS, SS is treated as a
subsidiary (not an associate) because S controls SS.
WHAT DIFFERENCE WOULD IT MAKE IF THE DATES OF ACQUISITION HAD NOT COINCIDED?

Page 1 of 19
The critical date is the date when effective control is acquired by the ultimate parent
company.
 For example, suppose S acquired SS on 31 December 20.X3 and P acquired S on 31
December 20.X4.
 This situation makes no difference because the critical date is 31 December 19.X4
when P acquires control over both S and SS.
 Now consider the other possible situation when SS is acquired after S. For example,
suppose P acquired S on 31 December 20.X4 (as before) and acquired Ss on 31
December 20.X5. In this case there are two critical dates to consider. The dates
when P acquired control over S and SS – 31 December 20.X4 and 31 December
20.X5
INTRODUCTION: COMPLEX GROUP
The group is structure in a manner where both the ultimate parent and a subsidiary have
an interest in another entity.
For example
H

60% 30%

S T
30%

T is a subsidiary of H as H controls 30% directly and 30% indirectly via its interest in S. Thus 60%
is controlled. Consolidation is performed in a single stage using the consolidation
percentages.

S Group share 60%

Non controlling interest 40%
T Group share
Direct 30%
Indirect 60% of 30% 18% 48%
Non controlling interest 52%
SUGGESTED APPROACH OF QUESTION
1: Ascertain group structure – part of workings
2. Establish the effective interests – part of workings
3. Establish the effective date of acquisition of sub-subsidiary – part of workings
4. Proceed with consolidation workings
5. Prepare Pro-forma CSOFP
Example – 1
The relevant details and summary of the individual statement of financial positions of P, S
and SS at December 31,20 X1 are as follows: -
 S acquired the shares in SS on December 31, 19 X 4, when its accumulated profits
were Rs. 700. On the same date P acquired the shares in S, when its accumulated
profits were Rs. 2,750.
 Goodwill arising on acquisition is capitalized and tested annually for impairment. No
impairment has been detected to date.
P S SS

Page 2 of 19
 Rs. Rs. Rs.
2,400 shares in S 5,100 -- --
180 shares in SS -- 750 --
Sundry net assets 11,900 5,500 1,200
17,000 6,250 1,200
Share capital Rs. 1 ordinary shares 10,000 3,000 300
Accumulated profits 7,000 3,250 900
17,000 6,250 1,200
Required: -
Prepare consolidated statement of financial position as at December 31, 20X1.
Example – 2
 P made a 75% investment of Rs. 20 million in H on December 31, W6 when the net
assets of H were Rs. 24 million (issued capital Rs. 12 million plus reserves Rs. 12 Million).
 On December 31, W 7 H made a 60% investment of Rs. 10 million in S when the net
assets of S were Rs. 15 million (issued capital Rs. 10 million plus reserves Rs. 5 million).
 The group has the policy of measuring NCI at fair value. The fair value of NCI in S is
7.5 million and in SS is 9.5 million.
 During the current year H sold goods to S of which Rs. 2 million goods are still stock of
S. H charged Mark up of 25% on all goods it sell to group companies.
 In the post acquisition period P sold non-depreciable asset to H by recognizing Rs. 2
million gain on disposal. The asset still exists in H statement of financial position.
 The statement of financial positions of the three companies at December 31, X 0
were as under: -
P H S
Rs. (M) Rs. (M) Rs.(M)
Investment in subsidiaries 20 10 --
Non-current assets 30 20 20
Sundry current assets 10 6 5
60 36 25
Equity-Ordinary share capital of Rs. 1 30 12 10
each
Retained profits 30 24 15
60 36 25
None of the entities has issued new shares since 31-12-W6. There has been no impairment
of goodwill since the acquisitions.
Required: -
Prepare consolidated statement of financial position as at December 31, X0.
Example – 3
P holds 90% of the ordinary shares of S and 20% of the ordinary shares of Q. S also hold 60%
of the ordinary shares of Q.
P acquired its holding in S on December 31, 19X4 when the accumulated profits of that
company were Rs. 201,000. On the same date both companies acquired their shares in Q
when the balance of accumulated profits was Rs. 67,000. The group has the policy of
measuring NCI at fair value. The fair value of NCI in S at the date of acquisition is Rs.65,000
and in Q 26% NCI has Rs.75,000. The following summarized statements of financial position
have been prepared at December 31, 20X1.
P S Q
Rs. Rs. Rs.
Investment in subsidiaries
S 600,000

Page 3 of 19
 Q 40,000 120,000
Sundry net assets 1,336,000 717,000 213,000
1,976,000 837,000 213,000
Equity-Ordinary share capital of Rs. 1 500,000 400,000 100,000
each
Retained profits 1,476,000 437,000 113,000
1,976,000 837,000 213,000
Note: Goodwill arising on consolidation is capitalized and tested annually for impairment.
No impairment has been detected to date.
Required: Prepare consolidated statement of financial position for Group at December 31,
20X1.
Example – 4
P owns 75% of S and S own 90% of SS.
The condensed income statements of all three companies are given as under: -
P S SS
Rs. Rs. Rs.
Operating profit 100,000 80,000 20,000
Investment income
Dividend from S 6,000
Dividend from SS 1,800
Profit before tax 106,000 81,800 20,000
Tax (40,000) (30,000) (7,000)
Profit after tax 66,000 51,800 13,000
Dividend paid (35,000) (8,000) (2,000)
Retained profit for the year 31,000 43,800 11,000
Required: - Consolidated income statement for the year then ended
Example – 5
Comprehensive illustration (Vertical)
On April 01, 20X1 H Limited bought 80% of the issued share capital of K Limited and on April
01, 20X3 H Limited was itself taken over by P Limited, which purchased 75% of the ordinary
shares in H Limited.
The statement of financial position of three entities at October 31, 20X5 showed the
following position.
P H K
Rs. Rs. Rs.
Property, plant and equipment
Freehold land 89,000 30,000 65,000
Building 64,000 80,000 23,600
Plant 33,000 84,000 43,800
186,000 194,000 132,400
Investments
Shares in H at cost 135,000
Shares in K at cost 130,000
Current assets
Inventory 108,500 75,500 68,400
Trade receivables 196,700 124,800 83,500
Cash at bank 25,200 25,400
651,400 524,300 309,700
Capital and reserves
Ordinary shares of Rs.1 each 200,000 120,000 100,000

Page 4 of 19
 10% Preference shares Rs. each 40,000
Reserves 154,000 119,000 74,000
354,000 239,000 214,000
Current liabilities
Bank overdraft 37,400
Trade payables 160,000 152,700 59,200
Income tax 57,400 47,200 24,500
Dividend payable 80,000 48,000 12,000
651,400 524,300 309,700
Additional information
a) The fair value of net assets of H and K on April 01, 20x1 were Rs. 150,000 and Rs.
165,000 and on April 01, 20x3 were Rs. 175,000 and Rs. 185,000. The whole of fair
value gain related to free hold lands which are not depreciated. The group has the
policy of measuring non-current assets under cost model.
b) At the date of acquisition P agreed to pay Rs. 30,000 to old shareholders of H if H
earning per share exceed Rs. 2 per share within two years of acquisition. The earning
target has not been satisfied by the end of two year. No accounting entries have
been incorporated by P.
c) At the date of acquisition of K, by the group there was an internet domain name not
recognized by K has a fair value of Rs. 5,000 and useful life of five years. At the date
of acquisition of H by P, H was having an operating lease contract favorable from
market term by Rs. 5,000 and remaining lease term was 5 years at the date of
acquisition.
d) Dividend declared before the year-end by K is ordinary Rs. 10,000 and preference
Rs. 2,000.
e) Dividend by P and H is included in receivables.
f) Items purchased by H from K and remaining in inventory at October 31, 20X5 are Rs.
25,000. K charges 20% profit element in the selling price.
g) Included in the plant and equipment of K is equipment purchased from the
manufacturers, P on January 01, 20X4 for Rs. 10,000. P recorded a profit of Rs. 2,000
on sale of the machine. The group charges depreciation on plant and equipment @
10 % on each year.
h) Intra group balances are included in receivables and payables respectively and are
as follows: -

Rs.
P Payable to H 45,600
Payables to K 28,900
H Receivables from P 56,900
K Receivables from P 28,900
i) A cheque drawn by P for Rs.11,300 on October 28, 20X5 was received by H on
November 3, 20X5.
j) At April 01, 20X1 reserves in H were Rs. 28,000 and in K were Rs. 20,000 at April 01,
20X3 the figures were Rs. 40,000 and Rs. 60,000 respectively.
k) The group has the policy of measuring NCI at proportionate share of fair value of net
assets at the date of acquisition.
l) Goodwill was completely written off some years ago following an impairment
review.
Required: -

Page 5 of 19
Prepare consolidated statement of financial position as at October 31, 20X5 for Sales and
its subsidiaries.
Example – 6
Comprehensive illustration (Mix)
The following statements of financial positions relate to Rodney, a public limited company,
Del, a public limited company and Trigger a public limited company as at November 30,
2009.
Rodney Del Trigger
Rs. (m) Rs. (m) Rs. (m)
Non- current assets
Tangible 1,230 505 256
Investment in Del 640 -- --
Investment in Trigger 160 100 --
2,030 605 256
Current assets
Inventory 300 135 65
Trade receivables 240 105 49
Cash and bank 90 50 80
630 290 194
Total assets 2,660 895 450
Equity and liabilities
Equity
Share capital 1500 500 200
Share premium 300 100 50
Revaluation reserve -- -- 70
Retained earnings 625 200 60
2425 800 380
Non-current liabilities 135 25 20
Current liabilities 100 70 50
2,660 895 450
It is the group’s policy to value the non-controlling interest at fair value.
The following information is relevant to the preparation of the group financial statements:
(i) Rodney had acquired 80% of the ordinary share capital of Del on 1 December
three years ago, when the retained earnings of Del were Rs.100m. The fair value
of the non-controlling interest was Rs.154m at acquisition. The fair value of the net
assets of Del was Rs.710m at that date. Any fair value adjustments related to
inventory and these had been realized by the current year end. There had been
no new issues of shares in the group since the current group structure was
created.
(ii) Rodney and Del had acquired their holdings in Trigger on the same date as part
of an attempt to mask the true ownership of Trigger. Rodney acquired 40% and
Del acquired 25% of the ordinary share capital of Trigger two years ago. The fair
value of the non-controlling interest in Trigger was Rs.149m at acquisition. The
retained earnings of Trigger on that date were Rs.50m and those of Del were
Rs.150m. There was no revaluation reserve in the books of Trigger at acquisition.
The fair values of the net assets of Trigger at acquisition were not materially
different from their carrying values.
Page 6 of 19
 (iii) The group operates in the pharmaceutical industry and incurs a significant
amount of expenditure on the development of products. These costs were
formerly written off to the income statement as incurred but then reinstated
when the related products were brought into commercial use. The reinstated
costs are shown as ‘Development Inventory’. The costs do not meet the
development criteria in IAS 38, Intangible Assets for classification as intangibles
and it is unlikely that the net cash inflows from these products will be in excess of
the development costs. In the current year, Del has included Rs.20m of these
costs in inventory.
(iv) Del had purchased a significant amount of new production equipment early in
the year. The cost before trade discount of this equipment was Rs.50m. The trade
discount of Rs.6m was taken to the income statement. Depreciation is charged
on the straight-line basis over a six-year period.
(v) The policy of the group is now to state tangible non-current assets at
depreciated historical cost. The group changed from the revaluation model to
the cost model under IAS 16, Property, Plant and Equipment at the current year
start and restated all of its tangible non-current assets to historical cost in that
year except for the tangible non-current assets of Trigger. These had been
revalued by the directors of Trigger on the first day of the current year. The values
were incorporated in the financial records creating a revaluation reserve of
Rs.70m. The tangible non-current assets of Trigger were originally purchased on 1
December two years before the current year end, at a cost of Rs.300 million. The
assets are depreciated over six years on the straight-line basis. The group does
not make an annual transfer from revaluation reserves to the retained earnings in
respect of the excess depreciation charged on revalued tangible non-current
assets. There were no additions or disposals of the tangible non‑current assets of
Trigger for the two years to the current year end.
(vi) The goodwill resultant from the Del acquisition was impairment tested at the first
and second year end after acquisition and again at the current year end. The
first and second impairment reviews revealed no impairment. However, the
current review identified a recoverable value of Rs.809m for Del. There has been
no impairment in Trigger’s goodwill since acquisition.
Required: - Prepare a consolidated statement of financial position of the Rodney Group as
at 30 November 2009?

SUB-ASSOCIATE

Example –1
The balance sheets of H, S and A at December 31, 20X0 are as follows: -
H S A
Rs. Rs. Rs.
(000) (000) (000)
Investments 23,500 10,000 --
Property, plant and equipment 20,000 22,000 25,000
Net current assets 8,000 6,000 5,000
51,500 38,000 30,000
Issued capital (1 Rs. each) 20,000 15,000 10,000
Accumulated profits 31,500 23,000 20,000
51,500 38,000 30,000
Notes:

Page 7 of 19
a) On December 31,20W5, when the accumulated profits of S showed a balance of Rs.
11 million, H purchased 12 million shares in S for Rs. 23.5 million. The fair value of NCI
at the date of acquisition was Rs. 7.5 million.
b) On December 31, 20W6, when the accumulated profits of A showed a balance of
Rs. 12 million, S purchased 4 million shares in A for Rs. 10 million.
c) There has been no impairment of goodwill yet.
Required: -
Prepare consolidated statement of financial position as at December 31, 20X0.
Example – 2
The balance sheets of P, S and A at December 31, 20X1 are as follows: -
P S A
Rs. Rs. Rs.
(000) (000) (000)
Investments
80,000 shares in S 130,000 --
3,000 shares in A 5,000 --
Net assets 120,000 225,000 25,000
250,000 230,000 25,000
Issued capital (1 Rs. each) 100,000 100,000 10,000
Accumulated profits 150,000 130,000 15,000
250,000 230,000 25,000
Notes:
a) P acquired the shares in S on December 31, 19X4, when its accumulated profits were
Rs. 50,000. The fair value of NCI was Rs. 30,000. On the same day S acquired the
shares in A, when its accumulated profits were Rs. 5,000.
b) Goodwill arising on acquisition has been impaired fully to date.
Required: -
Consolidated statement of financial position as at December 31, 20X1

ANSWERS TO EXAMPLES
A–1
P group
Consolidated statement of financial position
As at December 31, 20X1
Rs. Rs.
Assets
Sundry assets (11,900+5,500+1,200) 18,600
Goodwill (500+120) 620
19,220
Equity and liabilities
Equity- ordinary share capital 10,000
Consolidated retained earnings 7,496
17,496
NCI 1,724
19,220
Workings P S SS
W-1 Group structure 80 % %
Group S 80 48

Page 8 of 19
 NCI 60 20 52
SS 100 100
Debit Credit
W-2 Cost of control account-S Rs. Rs.
Investment 5,100
Share capital 2,400
SRE-pre 2,200
Goodwill 500
5,100 5,100
W-3 Cost of control account-SS
Investment 600
Share capital 144
SSRE-pre 336
Goodwill 120
600 600
W-4 NCI
Share capital-S 600
Share capital-SS 156
SRE-pre 550
SRE-post 100
SSRE-pre 364
SSRE-post 104
Investment 150
C/d 1,724
1,874 1,874
W-5 Consolidated retained earnings
B /f 7,000
SRE-post 400
SSRE-post 96
C/d 7,496 7,496
W-6 Subsidiary retained earnings –S Pre Post
B /f 2,750 500
Allocated to:
Group 2200 400
NCI 550 100

W-6 Subsidiary retained earnings –SS Pre Post

B /f 700 200
Allocated to:
Group 336 96
NCI 364 104
A-2
P group
Consolidated statement of financial position
As at December 31, 20X0

Rs. Rs.
(m) (m)

Assets
Page 9 of 19
 Sundry assets (30+20+20-2) 68.00
Goodwill (2+0.75+1.5+1.25) 5.50
Current assets (10+6+5-0.4 20.60
94.10
Equity and liabilities
Equity- ordinary share capital 30.00
Consolidated retained earnings 41.20
71.20
NCI 22.90
P 94.10
Workings 75 S SS
W-1 Group structure S % %
Group 60 75 45
NCI SS 25 55
100 100
Debit Credit
W-2 Cost of control account-H Rs. Rs.
(m) (m)
Investment 20
Share capital 9
SRE-pre 9
Goodwill 2
20 20
W-3 Cost of control account-S
Investment 7.50
Share capital 4.50
SRE-pre 2.25
Goodwill 0.75
7.50 7.50
W-4 NCI
Share capital-H 3.00
Share capital-S 5.50
HRE-pre 3.00
HRE-post 2.90
SRE-pre 2.75
SRE-post 5.50
Goodwill –H 1.50
Goodwill –S 1.25
Investment 2.50
C/d 22.90
25.40 25.40
W-5 Consolidated retained earnings
B /f 30
Un-realized profit 2
HRE-post 8.70
SRE-post 4.50
C/d 41.20
43.20 43.20
W-6 Subsidiary retained earnings –H Pre Post

Page 10 of 19
 B /f 12 12
Un-realized profit (0.4)
12 11.6
Allocated to:
Group 9 8.70
NCI 3 2.90

W-6 Subsidiary retained earnings –S

B /f 5 10
Allocated to:
Group 2.25 4.5
NCI 2.75 5.5
W-7 NCI goodwill H S
Fair value 7.5 9.50
Net assets
Share capital 3 5.50
Pre- retained earnings 3 2.75
6 8.25
1.50 1.25
A-3
P group
Consolidated statement of financial position
As at December 31, 20X1

Rs. Rs.

Assets
Sundry assets 2,266,000

Goodwill 120,000
2,386,000
Equity and liabilities
Equity- ordinary share capital 500,000
Consolidated retained earnings 1,722,440
2,222,440
NCI 163,560
P 2,386,000
Workings 90% S Q
W-1 Group structure S 20% % %
Group 60% 90 74
NCI Q 10 26
100 100
Debit Credit
W-2 Cost of control account-S Rs. Rs.
Investment 600,000
Share capital 360,000
SRE-pre 180,000
Goodwill 59,100
600,000 600,000

Page 11 of 19
 W-3 Cost of control account-Q
Investment (40,000+108,000) 148,000
Share capital 74,000
SRE-pre 49,580
Goodwill 24,420
148,000 148,000
W-4 NCI
Share capital-S 40,000
Share capital-Q 26,000
SRE-pre 20,100
SRE-post 23,600
QRE-pre 17,420
QRE-post 11,960
Goodwill –S 4,900
Goodwill –Q 31,580
Investment 12,000
C/d 163,560
175,560 175,560
W-5 Consolidated retained earnings
B /f 1,476,000
SRE-post 212,400
QRE-post 34,040
C/d 1,722,440
1,722,440 1,722,440
W-6 Subsidiary retained earnings –S Pre Post
B /f 201,000 236,000
Allocated to:
Group 180,900 212,400
NCI 20,100 23,600

W-6 Subsidiary retained earnings –Q

B /f 67,000 46,000
Allocated to:
Group 49,580 34,040
NCI 17,420 11,960
W-7 NCI goodwill S Q
Fair value 65,000 75,000
Net assets
Share capital 40,000 26,000
Pre- retained earnings 20,100 17,420
60,100 43,420
Goodwill 4,900 31,580
A–4
P group
Consolidated statement of comprehensive income
For the year ended ______

P
75 S SS
Group structure S % %
Page 12 of 19
 Group 90 75 67.50
NCI SS 25 32.50
100 100.00

P S SS Adj. Total
Rs. Rs. Rs. Rs. Rs.
Operating profit for the year 100,000 80,000 20,000 -- 200,000
Investment income
Dividend from
S 6,000 (6,000) --
SS 1,800 (1,800) --
Profit before tax 106,000 81,800 20,000 (7,800) 200,000
Tax expense (40,000) (30,000) (7,000) -- (77,000)
Profit after tax 66,000 51,800 13,000 (7,800) 123,000
Profit attributable to: -
NCI (50,000x25%)* *(12,500) (4,225) (16,725)
Owners of parent 66,000 39,300 8,725 (7,800) 106,275

A–5
P GROUP
CONSOLIDATED FINANCIAL STATEMENT OF FINANCIAL POSITION
AS AT OCTOBER 31, 20X5
Rs. Rs.
Non-current assets
Tangible assets
Freehold land (184,000+40,000) 224,000
Building 167,600
Plant (160,800-2000+367) 159,167 550,767
Intangible assets
Internet domain (5,000-2,583) 2,417
Operating lease contract (5,000-2,583) 2,417 4,834

555,601
Current assets
Inventory (252,400-5,000) 247,400
Trade receivables (405,000-8,000-36,000- 275,200
85,800)
Cash and bank (50,600+11,300) 61,900 584,500

1,140,101
Equity and liabilities
Ordinary share capital 200,000
Consolidated retained earnings 229,883
429,883
NCI 124,318 554,201
Non- current liabilities
10% preference share capital 40,000

Current liabilities
Bank overdraft 37,400

Page 13 of 19
Trade payables (371,900+11,300-85,800) 297,400
Income tax 129,100
Dividend payable (140,000-8,000-36,000- 82,000 545,900
14,000)

1,140,101
W-1 Group structure
H K
P % %
Group 75 60
75%
NCI H 25 40
100 100
80%
K
W-2 Cost of control account H K
Investment 135,000 97,500
Contingent consideration 30,000 --
Total cost of investment 165,000 97,500
Share capital 90,000 60,000
Retained earnings 45,000 54,000
Goodwill/ Bargain purchase gain 30,000 (16,500)
W-3 NCI
Share capital (30,000+40,000) 70,000
Dividend payable 14,000
HRE-pre 15,000
HRE-post 19,104
KRE-pre 36,000
KRE-post 2,714
Investment (32,500) 124,318
W-4 Consolidated retained earnings
P company 154,000
Contingent consideration 30,000
HRE-post 57,313
KRE-post 4,070
Bargain purchase gain 16,500
Depreciation (2,000)
Goodwill (30,000) 229,883
W-5 Fair value gain H K
Fair value 175,000 185,000
Share capital 120,000 100,000
Pre acquisition reserves 40,000 60,000
160,000 160,000
15,000 25,000
W-7
HRE KRE
As per question 119,000 74,000
Adjustments
Depreciation -- 367
Fair value gain 5,000 5,000

Page 14 of 19
 Fair value gain 15,000 25,000
Stock -- (5,000)
Amortization (2,583) (2,583)
136,417 96,784
Allocation
Cost of control account 45,000 54,000
Consolidated retained earnings 57,313 4,070
NCI 15,000 36,000
NCI 19,104 2,714
136,417 96,784
A–6

P group
Consolidated statement of financial position
As at December 31, 20X1
Rs. (m) Rs. (m)

Assets
Noncurrent assets
PPE (1991-6+1-70+14)
Goodwill (72+60+41-50) 1,930
123 2,053
Current assets
Inventory (500-20) 480
Receivables 394
Cash and bank balances 220 1,094
Goodwill
3,147
Equity and liabilities
Equity- ordinary share capital 1,500
Share premium 300
Consolidated retained earnings 651.40 2,451.40

NCI 295.60
2,747.00

Noncurrent liabilities 180

Current liabilities 220

R 3,147
Workings 80% S Q
W-1 Group structure D 40% % %
Group 20% 80 60
NCI T 20 40
100 100
Debit Credit
W-2 Cost of control account-S Rs.(m) Rs. (m)
Investment 640
Share capital 400
Share premium 80
Page 15 of 19
 DRE-pre 88
Goodwill 72
640 640
W-3 Cost of control account-T
Investment (160+80) 240
Share capital 120
Share premium 30
TRE-pre 30
Goodwill 60
148,000 148,000
W-4 NCI
Share capital-D 100
Share capital-T 80
Share premium –D 20
Share premium –T 20
DRE-pre 22
DRE-post 13
TRE-pre 20
TRE-post 9.60
Goodwill –D 12
Goodwill –T 29
Investment 20
Impairment loss on goodwill 10
C/d 295.60
325.60 325.60
W-5 Consolidated retained earnings
B /f 625.00
DRE-post 52.00
TRE-post 14.40
Impairment loss on goodwill 40.00
C/d 651.40
691.40 691.40
W-6 Subsidiary retained earnings –D Pre Post
B /f 100 100
Fair value gain 10 (10)
Intangible asset -- (20)
PPE (-6+1) (5)
110 65
Allocated to:
Group 88 52
NCI 22 13

W-6 Subsidiary retained earnings –T

B /f 50 10
Extra depreciation -- 14
50 24

Allocated to:
Group 30 14.40
NCI 20 9.60
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W-7 NCI goodwill D T
Fair value 154 149
Net assets
Share capital 100 80
Share premium 20 20
Pre- retained earnings 22 20
142 120
Goodwill 12 29

W-8 revaluation reserve Historic Revalued

cost amount
Cost 300 300
Depreciation 300/6 (50) (50)
Carrying value 250 250
Revaluation surplus -- 70
Fair value 250 320
Depreciation 320/5 50 64
Extra depreciation to be reversed 14

W-9 impairment test

Recoverable value 809
Carrying value of net assets
Share capital 500
Share premium 100
Retained earnings (110+65) 175
775
Goodwill (72+12) 84
Total carrying value 859
Impairment loss 50
Consolidated retained earnings 40
NCI 10
Goodwill 50

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Answers to Sub-Associate Questions
A-1
H Group
Consolidated statement of financial position
As at December 31, 20X0
Rs. (000) Rs. (000)
Assets
Property, plant and equipment 42,000
Goodwill (2,300+2,700) 5,000
Investment in associate (10,000+3,200) 13,200 60,200
Net current assets 14,000
74,200
Equity and liabilities
Equity
Ordinary share capital 20,000
Retained earnings 43,660 63,660

Non-controlling interest 10,540

74,200

W-1 Group structure S A

% %
Group 80 32
NCI 20 8
100 40
W-2 Cost of control account Rs. (000) Rs. (000)
Cost of investment 23,500
Share capital 12,000
SRE-pre (11,000x80%) 8,800 20,800
Goodwill 2,700
W-3 NCI goodwill
Fair value of NCI 7,500
Share capital 3,000
SRE-pre (11,000x80%) 2,200 5,200
Goodwill 2,300
W-4 NCI
Fair value of NCI 7,500
SRE-post (12,000x20%) 2,400
Share from associate {(20,000-12,000)x40%}x8/40 640
10,540
W-5 Consolidate retained earnings
Balance 31,500
SRE-post (12,000x80%) 9,600
Share from associate {(20,000-12,000)x40%}x32/40 2,560
43,660
A-2
P Group
Consolidated statement of financial position

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As at December 31, 20X0
Rs. (000) Rs. (000)
Assets
Net current assets 345,000
Investment in associate (5,000+3,000) 8,000 353,000
353,000
Equity and liabilities
Equity
Ordinary share capital 100,000
Retained earnings 208,400 308,400
44,600
Non-controlling interest
253,000

W-1 Group structure S A

% %
Group 80 24
NCI 20 6
100 30
W-2 Cost of control account Rs. (000) Rs. (000)
Cost of investment 130,000
Share capital 80,000
SRE-pre (50,000x80%) 40,000 120,000
Goodwill 10,000
W-3 NCI goodwill
Fair value of NCI 30,000
Share capital 20,000
SRE-pre (11,000x80%) 10,000 30,000
Goodwill --
W-4 NCI
Fair value of NCI 30,000
SRE-post (80,000x20%) 16,000
Impairment loss on goodwill (10,000x20%) (2,000)
Share from associate {(15,000-5,000)x30%}x6/30 600
44,600
W-5 Consolidate retained earnings
Balance 150,000
SRE-post (80,000x80%) 64,000
Impairment loss on goodwill (8,000)
Share from associate {(15,000-5,000)x30%}x24/30 2,400
208,400

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