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369 Premiers: Extracts From Statements of Profit or Loss For The Year Ended 30 September 20X0

Premier acquired 80% of Sanford for $800,000 cash and shares in Premier. Premier must now consolidate Sanford's financial results and position. The summaries provide revenue, expenses, assets and liabilities for each entity for the year ended 30 September 20X0. Additional notes provide relevant acquisition details, intercompany balances, fair value adjustments and accounting policies that will impact consolidation entries.

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abdirahman farah Abdi
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72 views2 pages

369 Premiers: Extracts From Statements of Profit or Loss For The Year Ended 30 September 20X0

Premier acquired 80% of Sanford for $800,000 cash and shares in Premier. Premier must now consolidate Sanford's financial results and position. The summaries provide revenue, expenses, assets and liabilities for each entity for the year ended 30 September 20X0. Additional notes provide relevant acquisition details, intercompany balances, fair value adjustments and accounting policies that will impact consolidation entries.

Uploaded by

abdirahman farah Abdi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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369 PREMIERS

On 1 June 20X0, Premier acquired 80% of the equity share capital of Sanford. The
consideration consisted of two elements: a share exchange of three shares in
Premier for every five acquired shares in Sanford and $800,000 cash. The share
issue has not yet been recorded by Premier. At the date of acquisition shares in
Premier had a market value of $5 each. Below are the summarized draft financial
statements of both entities.
Extracts from statements of profit or loss for the year ended 30 September 20X0
Premier Sanford
$000 $000
Revenue 92,500 45,000
Cost of sales (70,500) (36,000)
––––––– –––––––
Gross profit 22,000 9,000
Other expenses (12,000) (5,100)
––––––– –––––––
Profit for the year 10,000 3,900

Statements of financial position as at 30 September 20X0


Assets
Non-current assets
Property, plant and equipment 25,500 13,900
Investments 1,800 nil
––––––– –––––––
27,300 13,900
Current assets 12,500 2,400
––––––– –––––––
Total assets 39,800 16,300

Abdirahman Farah
Equity and liabilities
Equity:
Equity shares of $1 each 12,000 5,000
Other equity reserve – 30 September 20W9 (note (iv) 500 nil
Retained earnings 12,300 4,500
––––––– –––––––
24,800 9,500
Liabilities:
Current liabilities 15,000 6,800
––––––– –––––––
Total equity and liabilities 39,800 16,300

The following information is relevant:


(i) At the date of acquisition, the fair values of Sanford’s assets were equal to their
carrying amounts with the exception of its property. This had a fair value of $1.2 million
below its carrying amount, and had a remaining useful life of 8 years at the date of
acquisition. Sanford has not incorporated this in its financial statements.
(ii) Sales from Sanford to Premier throughout the year ended 30 September 20X0 had
consistently been $1 million per month. Sanford made a mark-up on cost of 25% on these
sales. Premier had $2 million (at cost to Premier) of inventory that had been supplied in
the post-acquisition period by Sanford as at 30 September 20X0.
(iii) Premier had a trade payable balance owing to Sanford of $350,000 as at 30
September 20X0. This did not agree with the corresponding receivable in Sanford’s
books due to a $130,000 payment made to Sanford, which Sanford has not yet recorded.
(iv) Premier’s investments include investments in shares which at the date of acquisition
were classified as fair value through other comprehensive income (FVTOCI). The
investments have increased in value by $300,000 during the year. The other equity
reserve relates to these investments and is based on their value as at 30 September 20W9.
There were no acquisitions or disposals of any of these investments during the year ended
30 September 20X0
(v) Premier’s policy is to value the non-controlling interest at fair value at the date of
acquisition, deemed to be $3.5 million.
(vi) There has been no impairment of consolidated goodwill.
Required:
(a) Prepare the consolidated statement of profit or loss and other comprehensive income
for Premier for the year ended 30 September 20X0.
(b) Prepare the consolidated statement of financial position for Premier as at 30
September 20X0.

Abdirahman Farah

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