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Summary questions and answers complex consolidation
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lOMoARcPSD|16248954GROUP FINANCIAL STATEMENTS
QUESTIONS
COMPLEX AND MIX STRUCTURES
Q- 1
Alpha Co purchased 1,450,000 ordinary shares in Beta Co in 20X0, when the general reserve of Beta stood at$400,000 and there
were no retained earnings.
The statements of financial position of the two companies as at 31 December 20X4 are set out below.
Alpha Beta
$000 $000
Assets
Non current
Property, plant and equipment 8,868 1,787
Investment in Beta at cost 1,45
10,318 1,787
Current assets
Inventories 1,983 1,425
Receivables 1,462 1,307
Cash 25 16
3,47 2,748
Total assets 13,788 4,535
Equity and liabilities
Equity
Share capital (50c ordinary shares) 5,500 1,000
General reserve 1,200 800
Retained earnings 485 100
Total equity 7,185 1,900
Non-current liabilities
Borrowings 10% 4,000
Borrowings 15% - 500
Total non-current liabilities 4,000 500
Current liabilities
Bank overdraft 1,176 840
Trade payables 887 1,077
Taxation 540 218
Total current liabilities 2,603 2,135
Total liabilities 6,603 2,635
Total equity and liabilities 13,788 4,535
At the end of the reporting period the current account of Alpha with Beta was agreed at $23,000 owed by Beta. This
account is included in the appropriate receivable and trade payable balances shown above. There has been no impairment
of goodwill since the date of acquisition.
It is the group's policy to value the non-controlling interest at its proportionate share of the fair value of the subsidiary's net
assets.
Required
, lOMoARcPSD|16248954
(a) Prepare a consolidated statement of financial position for the Alpha Beta Group.
(b) Show the alterations necessary to the group statement of financial position if the intragroup balance owed by Beta
to Alpha represented an invoice for goods sold by Alpha to Beta at a mark-up of 15% on cost, and still unsold by
Beta at 31 December 20X4.
Guidance notes
1 Lay out the pro-forma statement of financial position, leaving plenty of space.
2 Lay out workings for: goodwill calculation; general reserve; retained earnings; and non-controlling interest.
3 Fill in the easy numbers given in the question.
4 Work out the more complicated numbers using the workings and then add up the statement of
financial position.
5 Keep all your work very neat and tidy to make it easy to follow. Cross reference all your workings.
Q-2
The statements of financial position of J Co and its investee companies, P Co and S Co, at 31 December 20X5 are shown below.
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20X5
J CO. P CO. S CO.
$000 $000 $000
Assets
Non-current assets
Freehold property 1,950 1,250 500
Plant and equipment 795 375 285
Investments 1,500 – –
4,245 1,625 785
Current assets
Inventories 575 300 265
Trade receivables 330 290 370
Cash 50 120 2
955 710 65
5,200 2,335 1,440
Equity and liabilities
Equity
Share capital ($1 ordinary shares) 2,000 1,000 750
Retained earnings 1,460 885 39
3,460 1,885 1,140
Non-current liabilities
12% debentures 500 100
Current liabilities
Bank overdraft 560 300
Trade payables 680 350 300
1240 350 300
5200 2335 1440
Additional information
(a) J Co acquired 600,000 ordinary shares in P Co on 1 January 20X0 for $1,000,000 when the accumulated retained
earnings of P Co were $200,000.
(b) At the date of acquisition of P Co, the fair value of its freehold property was considered to be $400,000 greater
than its value in P Co's statement of financial position. P Co had acquired the property in January 20W0 and the
buildings element (comprising 50% of the total value) is depreciated on cost over 50 years.
(c) J Co acquired 225,000 ordinary shares in S Co on 1 January 20X4 for $500,000 when the retained profits of S Co
, lOMoARcPSD|16248954
were $150,000.
d) P Co manufactures a component used by J Co only. Transfers are made by P Co at cost plus 25%. J Co held
$100,000 of these components in inventories at 31 December 20X5.
(e) It is the policy of J Co to review goodwill for impairment annually. The goodwill in P Co was written off in full some
years ago. An impairment test conducted at the year end revealed impairment losses on the investment in S Co of
$92,000.
(f) It is the group's policy to value the non-controlling interest at acquisition at fair value. The market price of the
shares of the non-controlling shareholders just before the acquisition was $1.65.
Required
Prepare, in a format suitable for inclusion in the annual report of the J Group, the consolidated statement of financial
position at 31 December 20X5.
Q-3
(a) IAS 28 Investments in associates and IAS 31 Interests in joint ventures deal with associates and joint ventures respectively.
The method of accounting for interests in joint ventures depends on whether they are interests in jointly controlled
operations, jointly controlled assets or jointly controlled entities.
Required
(i) Explain the criteria which distinguish an associate from an ordinary non-current asset investment. (5 marks)
(ii) Explain the principal differences between a jointly controlled operation, a jointly controlled asset and a jointly
controlled entity. (5 marks)
(b) The following financial statements relate to Baden, a public limited company.
INCOME STATEMENT
FOR YEAR ENDED 31 DECEMBER 20X8
$m
Revenue 212
Cost of sales 178
Gross profit 34
Other income 12
Distribution costs (17)
Administrative expenses (8)
Finance costs (4)
Profit before tax 17
Income tax expense (5)
Profit for the year 12
Ordinary dividend – paid 4
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20X8
Property, plant and equipment 37
Current assets 31
68
Equity
Ordinary shares of $1 10
Share premium account 4
Retained earnings 32
46
Non-current liabilities 10
Current liabilities 12
68
, lOMoARcPSD|16248954
(i) Cable, a public limited company, acquired 30% of the ordinary share capital of Baden at a cost of $14 million on 1
January 20X7. The share capital of Baden has not changed since acquisition when the retained earnings of Baden
were $9 million.
(ii) At 1 January 20X7 the following fair values were attributed to the net assets of Baden but not incorporated in its
accounting records. Fair values are to be taken into account when assessing any goodwill arising on acquisition.
Property, plant and equipment 30
(carrying value $20m) Current assets 31
Current liabilities 20
Non-current liabilities 8
(iii) Guy, an associate of Cable, also holds a 25% interest in the ordinary share capital of Baden. This was acquired on 1
January 20X8.
(iv) During the year to 31 December 20X8, Baden sold goods to Cable to the value of $35 million. The inventory of
Cable at 31 December 20X8 included goods purchased from Baden on which the company made a profit of $10
million.
(v) The policy of all companies in the Cable Group is to depreciate property, plant and equipment at 20% per annum
on the straight line basis.
Required
(i) Show how the investment in Baden would be stated in the consolidated statement of financial position and income
statement of the Cable Group under IAS 28 Investments in associates, for the year ended 31 December 20X8 on
the assumption that Baden is an associate.(8 marks)
(ii) Show and explain how the treatment of Baden would change if Baden was classified as an investment in a joint
venture and it utilised the proportionate consolidation method in IAS 31 Interests in joint ventures. (7 marks)
(Total = 25 marks)
Q-4
Below are the statements of financial position of three companies as at 31 December 20X9.
Bauble Jewel Gem
Co Co Co
$’000 $’000 $’000
Non-current assets
Property, plant and equipment 720 60 70
Investments in group companies 185 100 –
905 160 70
Current assets 175 95 90
1,080 255 160
Equity
Share capital – $1 ordinary shares 400 100 50
Retained earnings 560 90 65
960 190 115
Current liabilities 120 65 45
1,080 255 160
You are also given the following information:
(a) Bauble Co acquired 60% of the share capital of Jewel Co on 1 January 20X2 and 10% of Gem on 1 January 20X3. The
cost of the combinations were $142,000 and $43,000 respectively. Jewel Co acquired 70% of the share capital of
Gem Co on 1 January 20X3.
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