Basic groups - Question (NCI @ Proportionate method)

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Question 32a

The following are the draft statements of financial position of Party Co and Streamer Co as at 30 September 20X5:

Party Co Streamer Co
$´000 $´000
ASSETS
Non-current assets
Property, plant and equipment 392,000 84,000
Investments 120,000
Nil
512,000 84,000
Current assets 94,700
44,650
Total assets 606,700
128,650
EQUITY AND LIABILITIES
Equity
Equity shares 190,000 60,000
Retained earnings 210,000 36,500
Revaluation surplus 41,400
4,000
441,400 100,500
Non-current liabilities
Deferred consideration 28,000 Nil
Current liabilities 137,300 28,150
Total equity and liabilities
606,700

128,650

The following information is relevant:

(i)

On 1 October 20X4, Party Co acquired 80% of the share capital of Streamer Co. At this date the retained earnings of Streamer Co were $34m and the revaluation surplus stood at $4m. Party Co paid an initial cash amount of $92m and agreed to pay the owners of Streamer Co a further $28m on 1 October 20X6. The accountant has recorded the full amounts of both elements of the consideration in investments. Party Co has a cost of capital of 8%. The appropriate discount rate is 0·857.

(ii)

On 1 October 20X4, the fair values of Streamer Co’s net assets were equal to their carrying amounts with the exception of some inventory which had cost $3m but had a fair value of $3·6m. On 30 September 20X5, 10% of these goods remained in the inventories of Streamer Co.

(iii)

During the year, Party Co sold goods totalling $8m to Streamer Co at a gross profit margin of 25%. At 30 September 20X5, Streamer Co still held $1m of these goods in inventory. Party Co’s normal margin (to third party customers) is 45%.

(iv)

The Party group uses the fair value method to value the non-controlling interest. At acquisition the non-controlling interest was valued at $15m.

Required:

(a) Prepare the consolidated statement of financial position of the Party group as at 30 September 20X5.

(15 marks)

Sample
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Question 32

On 1 January 20X6, Dargent Co acquired 75% of Latree Co’s equity shares by means of a share exchange of two shares in Dargent Co for every three Latree Co shares acquired.

On that date, further consideration was also issued to the shareholders of Latree Co in the form of a $100 8% loan note for every 100 shares acquired in Latree Co.

None of the purchase consideration, nor the outstanding interest on the loan notes at 31 March 20X6, has yet been recorded by Dargent Co.

At the date of acquisition, the share price of Dargent Co and Latree Co is $3·20 and $1·80 respectively.

The summarised statements of financial position of the two companies as at 31 March 20X6 are:

Dargent Co Latree Co
$’000 $’000
Assets
Non-current assets
Property, plant and equipment (note (i)) 75,200 31,500
Investment in Amery Co at 1 April 20X5 (note (iv)) 4,500
-
79,700 31,500
Current assets
Inventory (note (iii)) 19,400 18,800
Trade receivables (note (iii)) 14,700 12,500
Bank 1,200
600
35,300
31,900
Total assets 115,000
63,400
Equity and liabilities
Equity
Equity shares of $1 each 50,000 20,000
Retained earnings – at 1 April 20X5 20,000 19,000
                             – for year ended 31 March 20X6 16,000
8,000
86,000 47,000
Non-current liabilities
8% loan notes 5,000 nil
Current liabilities (note (iii)) 24,000
16,400
29,000
16,400
Total equity and liabilities 115,000
63,400

The following information is relevant:

(i)

At the date of acquisition, the fair values of Latree Co’s assets were equal to their carrying amounts. However, Latree Co operates a mine which requires to be decommissioned in five years’ time. No provision has been made for these decommissioning costs by Latree Co. The present value (discounted at 8%) of the decommissioning is estimated at $4m and will be paid five years from the date of acquisition (the end of the mine’s life).

(ii)

Dargent Co’s policy is to value the non-controlling interest at fair value at the date of acquisition. Latree Co’s share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.

(iii)

The inventory of Latree Co includes goods bought from Dargent Co for $2·1m. Dargent Co applies a consistent mark-up on cost of 40% when arriving at its selling prices.
On 28 March 20X6, Dargent Co despatched goods to Latree Co with a selling price of $700,000. These were not received by Latree Co until after the year end and so have not been included in the above inventory at 31 March 20X6.
At 31 March 20X6, Dargent Co’s records showed a receivable due from Latree Co of $3m, this differed to the equivalent payable in Latree Co’s records due to the goods in transit.

The intra-group reconciliation should be achieved by assuming that Latree Co had received the goods in transit before the year end.

(iv)

The investment in Amery Co represents 30% of its voting share capital and Dargent Co uses equity accounting to account for this investment. Amery Co’s profit for the year ended 31 March 20X6 was $6m and Amery Co paid total dividends during the year ended 31 March 20X6 of $2m. Dargent Co has recorded its share of the dividend received from Amery Co in investment income (and cash).

(v)

All profits and losses accrued evenly throughout the year.

(vi)

There were no impairment losses within the group for the year ended 31 March 20X6.

Required:

Prepare the consolidated statement of financial position for Dargent Co as at 31 March 20X6.

(20 marks)

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MC Question 14

On 1 October 20X5, Anita Co purchased 75,000 of Binita Co’s 100,000 equity shares when Binita Co’s retained
earnings amounted to $90,000.

On 30 September 20X7, extracts from the statements of financial position of the two companies were:

Anita Co Binita Co
$’000 $’000
Equity shares of $1 each 125 100
Retained earnings 300 150

Total

425

250

What is the total equity attributable to the owners of Anita Co that should appear in Anita Co’s consolidated
statement of financial position as at 30 September 20X7?

A     $125,000
B     $470,000
C     $345,000
D     $537,500

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MC Question 11

Wilmslow acquired 80% of the equity shares of Zeta on 1 April 2014 when Zeta’s retained earnings were $200,000.

During the year ended 31 March 2015, Zeta purchased goods from Wilmslow totalling $320,000.

At 31 March 2015, one quarter of these goods were still in the inventory of Zeta. Wilmslow applies a mark-up on cost of 25% to all of its sales.

At 31 March 2015, the retained earnings of Wilmslow and Zeta were $450,000 and $340,000 respectively.

What would be the amount of retained earnings in Wilmslow’s consolidated statement of financial position as at
31 March 2015?

A     $706,000
B     $542,000
C     $498,000
D     $546,000

Specimen
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Question 2c

ACCA FR F7 Past papers exam specimen question Dec 2014 Q2c
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