Assignment 7 solutions

November 2015 question 5

a. Consolidated statement of comprehensive income

A ltd
Consolidated statement of comprehensive income for the year ended 30 September 2015

Sh. Million
Revenue 9,120 + 4,940 x 9/12 -140(W2) 12,685
Cost of sales 3,610 + 1,092 x 9/12-140(W2) + 10 (W2) + 31.5(W4) (4,330.5)
Gross Profit 8,354.5

Share of Associate Profit 40% x 1, 888 - 4 (W6) 751.2

Distribution Cost 665 + 428 x 9/12 (986)
Administration expense 695 + 170 x 9/12 + 32.5 (W5) (855)
Finance Cost 65+20 x 9/12 (80)

Profit before tax 7,184.7

Income Tax Expense 1,660+1,078 x 9/12 (2,468.5)
Profit after Tax 4,716.2

Other comprehensive income 0

Total comprehensive income 4,716.2

Profit attributable to: Parent 4,408.2

Non-controlling Interest (W8) 308
4,716.5

Total comprehensive income attributable to: Parent 4,408.2

Non-controlling interest (W8) 308
4,716.5

b. Statement of changes in equity

A Ltd
Consolidated statement of changes in equity for the year ended 30 September 2015
Share Share Group Non- Totals
Capital Premium Retained controlling
Earnings interest
Sh. Sh. Million Sh. Million Sh. Million Sh.
Million Million
Balance as at 1 October 2014 2,600 1,500 5,812.0 9,912.0

Changes during the year

 Fair value of NCI at acquisition 800 800.0
Profit for the year 4,408.2 308 4,716.2

Balance as at 30 September 2015 2,600 1,500 10,220.2 1,108 15,428.2

c. Consolidated Statement of financial position
A ltd
Consolidated Statement of Financial Position as at 30th September 2016
Sh. Million
ASSETS
Non-current assets
Property, plant and equipment 6,096+4,855+210(W4)-31.5(W4) 11,129.5
Goodwill (W5) 97.5
Investment in Associate (W6) 1,451.2
Investments (W7) 270
12,948.2
Current assets
Inventory 1,460+853-10(W2) 2,303
Accounts receivable 1,880+765-80(W3) 2,565
Cash and bank balances 1,224+187 1,411
6,279
Total assets 19,227.2

EQUITY AND LIABILITIES

Equity
Ordinary share capital 2,600
Share premium 1,500
Retained earnings (W9) 10,220.2
Shareholders’ funds 14,320.2
Non-controlling interest (W10) 1,108
Total Equity 15,428.2

Non-current liabilities
Loan from bank 650+200 850

Current liabilities
Trade payables 1,463+646-80(W3) 2,029
Current tax 560+360 920
Bank Overdraft 0
2,949
Total equity and liabilities 19,227.2

Workings
W1: Group structure
A ltd

C ltd B ltd
 Date of Acquisition 1 October 2014 1 January 2015
Reporting Date 30 September 2015 30 September 2015
Number of years in Group 1 year 9 months
Investment Associate Subsidiary

Share holding 40% 80%

Non-Controlling interest (“NCI”) 60% 20%
100% 100%

W2: Intergroup Sales (Note 4)

Sales of 140m from B (subsidiary) to A (parent) Deduct 140m from sales
Deduct 140m from cost of sales
Unrealised profit
Markup 16.667/116.667 x 140 x 1/2 = 10m
Income Statement Statement of financial position
Add to cost of sales. Deduct from retained earnings of B ltd
(seller).(W9)
Deduct from profit after tax of B ltd when Deduct from inventory.
computing profit attributable to NCI.(W8)

W3: Intra-group balances (Note 5)

Balance of 80m between A ltd and B ltd Eliminate 80m from receivables and payables

W4: Net assets of B ltd as at the date of acquisition

Share capital 1,600
Share premium 300
Retained earnings 1,452+2,152 x 3/12 1,990
Book value of net assets 3,890
Fair value adjustments (Note 3) 210
Fair value of net assets 4,100

Statement of Financial Position

Fair value adjustments 210
Add to property, plant and equipment
Additional depreciation 210/5yrs x 9/12 31.5
Deduct from property plant and equipment
Deduct from retained earnings of the subsidiary(W9)

Income Statement
Add additional depreciation to cost of sales 31.5
Deduct additional depreciation from profit after tax while computing profit 31.5
attributable to NCI (W8)

W5: Goodwill on acquisition of B ltd

 Consideration transferred 3,430
Fair value of non-controlling interest 800
4,230
Less: Fair value of net assets (W4) (4,100)
Goodwill as at acquisition 130
Goodwill impairment 25% x 130 (32.5)
Goodwill as at year end 97.5

Income statement Statement of financial position

Add 32.5 to administrative expenses Deduct 80% x 32.5 from retained earnings of the parent (W9)
Deduct 32.5 while computing profit attributable to Deduct 20% x 32.5from the value of NCI.(W10)
NCI (W8)

W6: Goodwill from associate

Note
Only to be computed when there is impairment on Goodwill.
Consideration 700
Less: Parents share of net assets
Share capital 400
Retained earnings 1,250
1,650
Parents share 40% x 1,650 (660)
Goodwill at acquisition 40
Impairment 10% x 40 (4)
Goodwill 36

Accounting for the impairment of 4

Income statement Statement of financial position
Deduct from share of associate profit Deduct 4m from investment in associate
Deduct 4m from retained earnings of the parent
(W9)

Investment in Associate
Cost 700
Add: Parent’s share of post-acquisition profits (3,138-1,250)40% 755.2
Less: Goodwill Impairment (4)
Investment in Associate 1,451.2

W7: Investments
Investments for A and B ltd 4,350+50 4,400
Less: Payment for B (3,430)
Less: Payment for C (700)
Total Investments 270
Note: Payment to acquire subsidiary and associate have been used to compute goodwill and investment in
associate. They shouldn’t be consolidated as part of investments.
W8: Profit attributable to non-controlling interest.
Profit of B after tax 9/12 x 2,152 1,614
Unrealised profit (W2) (10)
Additional depreciation (W4) (31.5)
Goodwill impairment (W5) (32.5)
Adjusted profits 1,540

NCI Share 1,540 x 20% 308

W9: Consolidated retained earnings

A ltd B ltd C ltd
As per reporting date 8,237 3,604 3,138
Adjustments
Unrealised profits (W2) (10)
Additional depreciation (W4) (31.5)
Goodwill impairment of B 80% x 32.5 (W5) (26)
Impairment of goodwill in C (W6) (4)
Less: Pre-acquisition retained earnings (1,990) (1,250)
Post-acquisition profits 1,572.5 1,888
Parent’s share
B 1,572.5 x 80% 1,258
C 1,888 x 40% 755.2
10,220.2

W10: Non-controlling Interest.

Fair value of NCI as at acquisition 800
Add: NCI share of post-acquisition profits 1,572.5 (W9) x 20% 314.5
Less: NCI Share of goodwill 32.5 x 20% (W5) (6.5)
1,108

May 2015 question 4

a. Group Statement of comprehensive income for the year ended 31 March 2015
X Ltd
Consolidated statement of comprehensive income for the year ended 31 March 2015
Sh. Millions
Revenue 18,000+12,600-3,900(W4) 26,700
Cost of sales 8,400+8,820+30(W2)-3,900(W4)+72(W5) (13,422)
Gross profit 13,278
Investment income(W9) -
Share of associate profit(W9) 447
Distribution costs 1,800+270 (2,070)
Administrative expenses 900+600+75(W6)+261(W7) (1,836)
Finance costs 150+240 (390)

Profit before tax 9,429

Income tax expense 1,200+822 (2,022)
Profit after tax 7,407

Other comprehensive income 0

Total comprehensive income 7,407

Profit attributable to: Parent 7,110

Non-controlling interest (W10) 297
Total profit after tax 7,407

Total comprehensive income attributable to: Parent 7,110

Non-controlling interest (W10) 297
Total comprehensive income 7,407

b. Group statement of financial position as at 31 March 2015

X Ltd
Consolidated statement of financial position as at 31 March 2015
Sh. Million
ASSETS
Non-current assets
Property, Plant & Equipment 4,620+2,760+300(W2)-120(W2) 7,560
Intangible assets 0+1,050-261(W7) 789
Goodwill (W6) 75
Investment in associate(W8) 1,014
9,438
Current assets
Inventory 2,160+4,380-126(W5) 6,414
Account receivable 2,850+1,587 4,437
Cash and cash equivalents 5,880+1,530 7,410
18,261

Total assets 27,699

EQUITY AND LIABILITIES

Equity
Share capital 4,500
Share premium 684
Retained earnings(W11) 8,835
Shareholder’s fund 14,019
Non-controlling interest(W12) 840
Total equity 14,859

Current liabilities
Trade and other payables 5,940+6,900 12,840
 Total equity and liabilities 27,699

Workings
W1: Group structure
X Limited

Y Limited Z Limited
Shareholding 960/1,200x100%= 80% 165/660x100%= 25%
Non-controlling interest 20% 75%
Total shareholding 100% 100%
Investment Subsidiary Associate
Date of acquisition 1 April 2011 1 September 2011
Reporting date 31 March 2015 31 March 2015
Years in the group 4 years 3.7 years

W2: Net assets as at the acquisition of Y

Share capital 1,200
Share premium 420 Add to PPE
Retained earnings 480
Net assets at NBV 2,100
Fair value adjustment (Note 3) 300 Additional depreciation for 4
Fair value 2,400 years

Depreciate for one year in p&l

Additional depreciation Deduct from PPE
300/10yearsx4 years =120
Deduct from retained earnings of Y (W11)
Deduct from Net assets when computing NCI in SFP (W12)

Depreciation for the year Add to cost of sales

300/10 years = 30
Deduct from Y’s PAT while computing profit attributable to NCI (W10)
W4: Intercompany sales
3,900– Deduct from sales (Dr)
Y sold to X
3,900- Deduct from cost of sales(Cr)

W5: Unrealised profit (URP) on intra-group sales

Deduct from closing inventory (Cr)
Deduct from Y’s net assets while computing NCI
for SFP (W12)
URP on closing inventory 420x30%=126
Deduct from retained earnings of Y (Dr) (W11)

Increase in unrealised during the year is an expense

Opening unrealised profits 180x25% 54
Closing unrealised profit 126 Add to cost of sales
Increase in provisions 72

Deduct from Y’s PAT while computing profit attributable to NCI (W10)
Note: NCI is affected by unrealised profit only when the subsidiary is a selling entity.

W6: Goodwill computations on acquisition of Y

Consideration transferred 2,295
Less: Parent’s share of net assets 2,400x80% (1,920)
Goodwill on acquisition 375
Goodwill impairment (300)
Goodwill as at reporting date 75

75m to be presented separately as an expense/added to admin expense

Impairment of 300
300m to be deducted from the RE of X (parents share of goodwill) –W11
Goodwill impairment is dealt with as per note 2
W7: Training expense (Note 4)
Add to admin expense

261 should be expensed Deduct from Intangible asset

Deduct from retained earnings of Y (overstated) – W11

Deduct from Net assets of Y while computing NCI for SFP (W12)

W8: Investment in associate (in Z)

Cost of investment 609
Share of post-acquisition of profits (2,427-807) x 25% 405
1,014

W9: Share of associate profit

1,788 x 25% = 447, include in income statement
Dividends from associate and subsidiary shouldn’t be part of income statement.

W10: Profit attributable to Non-Controlling interest

Profit for the year 1,848

Adjustments
Additional depreciation (W2) (30)
Increase in unrealised profit (W5) (72)
Training expense (W7) (261)
1,485

Profit attributable to NCI 1,485 x 20% 297

Note: Without other comprehensive income, profit attributable to NCI is same as total comprehensive
income attributable to NCI.
W11: Consolidated Retained earnings
X Y Z
As at reporting date 7,290 2,787 2,427
Adjustments
Additional depreciation (W2) (120)
Unrealised profit(W5) (126)
Goodwill impairment (W6) (300)
Training expense (W7) (261)
Pre-acquisition retained earnings (480) (807)
 Post –acquisition profits 1,800 1,620

Parents share of
Y profits 1,800 x 80% 1,440
Z profits 1,620 x 25% 405
8,835

W12: Non-Controlling interest in the statement of financial position

Net assets as at reporting date 4,407
Adjustments
Fair value adjustments (W2) 300
Additional depreciation on fair value adjustment (W2) (120)
Unrealised profits (W5) (126)
Training expense (W7) (261)
4,200

Net assets for NCI 4,200 x 20% 840

Or
NCI share of net assets as at acquisition date 2,400 x 20% 480
NCI’s share of post-acquisition profits=1,800 x 20% 360
840