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Question 1b

Background
The following are extracts from the consolidated financial statements of the Moyes group.

Group statement of profit or loss for the year ended 30 September 20X8:

$m
Revenue 612
Cost of sales (347)
Gross profit 265
Operating expenses (123)
Share of profit of associate 67
Profit before tax
209
Extracts from the group statement of financial position:
30 September 20X8 30 September 20X7
$m $m
Inventories 126 165
Trade receivables 156 149
Trade payables 215 197

The following information is also relevant to the year ended 30 September 20X8:

Pension scheme
Moyes operates a defined benefit scheme. A service cost component of $24 million has been included within operating expenses. The remeasurement component for the year was a gain of $3 million. Benefits paid out of the scheme were $31 million. Contributions into the scheme by Moyes were $15 million.

Goodwill
Goodwill was reviewed for impairments at the reporting date. Impairments arose of $10 million in the current year.

Property, plant and equipment
Property, plant and equipment (PPE) at 30 September 20X8 included cash additions of $134 million. Depreciation charged during the year was $99 million and an impairment loss of $43 million was recognised. Prior to the impairment, the group had a balance on the revaluation surplus of $50 million of which $20 million related to PPE impaired in the current year.

Inventory
Goods were purchased for Dinar 80 million cash when the exchange rate was $1:Dinar 5. Moyes had not managed to sell the goods at 30 September 20X8 and the net realisable value was estimated to be Dinar 60 million at 30 September 20X8. The exchange rate at this date was $1:Dinar 6. The inventory has been correctly valued at 30 September 20X8 with both the exchange difference and impairment correctly included within cost of sales.

Changes to group structure
During the year ended 30 September 20X8, Moyes acquired a 60% subsidiary, Davenport, and also sold all of its equity interests in Barham for cash. The consideration for Davenport consisted of a share for share exchange together with some cash payable in two years. 80% of the equity shares of Barham had been acquired several years ago but Moyes had decided to sell as the performance of Barham had been poor for a number of years. Consequently, Barham had a substantial overdraft at the disposal date. Barham was unable to pay any dividends during the financial year but Davenport did pay an interim dividend on 30 September 20X8.

Discontinued operations
The directors of Moyes wish advice as to whether the disposal of Barham should be treated as a discontinued operation and separately disclosed within the consolidated statement of profit or loss. There are several other subsidiaries which all produce similar products to Barham and operate in a similar geographical area. Additionally, Moyes holds a 52% equity interest in Watson. Watson has previously issued share options to other entities which are exercisable in the year ending 30 September 20X9. It is highly likely that these options would be exercised which would reduce Moyes’ interest to 35%. The directors of Moyes require advice as to whether this loss of control would require Watson to be classified as held for sale and reclassified as discontinued.

Required:
(b) Explain how the changes to the group structure and dividend would impact upon the consolidated statement of cash flows at 30 September 20X8 for the Moyes group. You should not attempt to alter your answer to part (a). (6 marks)