Consolidated Statement of Financial Position

Simple acquisition of Subsidiary (NCI at Proportionate share and Fair Value)

The statements of financial position for two entities for the year ended 31 December 20X9 are
presented below:
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20X9

Brown Harris
$’000 $’000
Non-current assets
Property, plant and equipment 2,300 1,900
Investment in subsidiary (Note 1) 720 –
3,220 1,900
Current assets 3,340 1,790
6,360 3,690
Equity
Share capital 1,000 500
Retained earnings 3,430 1,800
4,430 2,300
Non-current liabilities 350 290
Current liabilities 1,580 1,100
6,360 3,690

Additional information:
(1) Brown acquired a 60% investment in Harris on 1 January 20X6 for $720,000 when the
retained earnings of Harris were $300,000.
(2) On 30 November 20X9, Harris sold goods to Brown for $200,000, one-quarter of which
remain in Brown’s inventories at 31 December. Harris earns 25% mark-up on all items sold.
(3) An impairment review was conducted at 31 December 20X9 and it was decided that the
goodwill on acquisition of Harris was impaired by 10%.
Required
Prepare the consolidated statement of financial position for the Brown group as at 31 December
20X9 under the following assumptions:
(1) It is group policy to value non-controlling interest at fair value at the date of acquisition. The
fair value of the non-controlling interest at 1 January 20X6 was $480,000.
(2) It is group policy to value non-controlling interest at the proportionate share of the fair value
of the net assets at acquisition.
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Simple acquisition of Subsidiary (NCI at Fair Value)

The statements of profit or loss and other comprehensive income for two entities for the year
ended 31 December 20X5 are presented below.
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 20X5

Constance Spicer
$’000 $’000
Revenue 5,000 4,200
Cost of sales (4,100) (3,500)
Gross profit 900 700
Distribution and administrative expenses (320) (180)
Profit before tax 580 520
Income tax expense (190) (160)
Profit for the year 390 360
Other comprehensive income
Items that will not be reclassified to profit or loss
Gain on revaluation of property (net of deferred tax) 60 40
Total comprehensive income for the year 450 400

Additional information:
(1) Constance acquired an 80% investment in Spicer on 1 April 20X5. It is group policy to
measure non-controlling interests at fair value at acquisition. Goodwill of $100,000 arose on
acquisition. The fair value of the net assets was deemed to be the same as the carrying
amount of net assets at acquisition.
(2) An impairment review was conducted on 31 December 20X5 and it was decided that the
goodwill on the acquisition of Spicer was impaired by 10%.
(3) On 31 October 20X5, Spicer sold goods to Constance for $300,000. Two-thirds of these
goods remain in Constance’s inventories at the year end. Spicer charges a mark-up of 25%
on cost.
(4) Assume that the profits and other comprehensive income of Spicer accrue evenly over the
year.
Required
Prepare the consolidated statement of profit or loss and other comprehensive income for the
Constance group for the year ended 31 December 20X5.
Investment in Associate
Ping Co purchased a 60% holding in Sun Co on 1 January 20X0 for $6.1 million when the retained
earnings of Sun Co were $3.6 million. The retained earnings of Sun Co at 31 December 20X4 were
$10.6 million. Since acquisition, there has been no impairment of the goodwill in Sun Co.
Ping Co also has a 30% equity holding in Anders Co which it acquired on 1 July 20X1 for $4.1m
when the retained earnings of Anders Co were $6.2 million. The retained earnings of Anders Co at
31 December 20X4 were $9.2 million. Ping Co is able to appoint one of the five directors on the
Board of Anders Co.
An impairment test conducted at the year end revealed that the investment in Anders Co was
impaired by $500,000.
During the year Anders Co sold goods to Ping Co for $3 million at a profit margin of 20%. One-
third of these goods remained in Ping Co’s inventories at the year end. The retained earnings of
Ping Co at 31 December 20X4 were $41.6 million.
Required
1 Explain why equity accounting is the appropriate treatment for Anders Co in the consolidated
financial statements of the Ping Co group and briefly explain how the equity method would be
applied.
2 Explain, with reference to the underlying accounting principles, the accounting treatment
required in the consolidated financial statements for the trading between Ping Co and Anders
Co. Your answer should provide the journal entry for any consolidation adjustment required.
3 Calculate the following amounts for inclusion in the consolidated statement of financial
position of the Ping Co group as at 31 December 20X4:
(a) Investment in associate
(b) Consolidated retained earnings

Solution
1 If an entity holds 20% or more of the voting power of the investee, it is presumed that the
entity has significant influence unless it can be clearly demonstrated that this is not the case.
The existence of significant influence by an entity is usually evidenced by representation on
the board of directors or participation in key policy making processes. Ping Co has a 30%
equity holding in Anders Co and can appoint one of five directors to Anders Co board of
directors. Therefore it would appear that Ping Co has significant influence over Anders Co, but
not control. Anders Co should be classified as an associate and be equity accounted for within
the consolidated financial statements.
The equity method is a method of accounting whereby Ping Co’s investment in the associate is
initially recognised at cost and adjusted thereafter for Ping Co’s share of the post-acquisition
change in the Anders Co’s net assets. Ping Co’s profit or loss includes its share of Anders Co’s
profit or loss and the Ping Co’s other comprehensive income includes its share of Anders Co’s
other comprehensive income.
2 Anders Co is not part of the Ping Co group as Ping Co does not control Anders Co. Therefore,
the trading between Ping Co and Anders Co is not eliminated on consolidation. However, as
the group’s share of Anders Co’s profit is brought into group profit or loss, the profit on any
items still remaining in group inventories is unrealised and should be adjusted for. As the
associate is the seller, the share of the profit of associate (rather than cost of sales) must be
reduced.
The unrealised profit is calculated as:
Unrealised profit = $3,000,000 × 20%/100% margin × 1/3 in inventories × 30% group share
 Unrealised profit = $60,000
The consolidation adjustment required is:
Debit Share of profit of associate $60,000
Credit Inventories $60,000
3
Simple acquisition of Subsidiary and Associate
Consolidated Statement of Financial Position and Consolidated Income Statement

Bailey, a public limited company, has acquired shares in two companies. The details of the
acquisitions are as follows:

Ordinary Fair value Ordinary

share Retained of net share
Date of capital of earnings at assets at Cost of capital of
Company acquis’n $1 acquis’n acquis’n invest’t $1 acquired
$m $m $m $m $m
1 January
Hill 20X6 500 440 1,040 720 300
Campbell 1 May 20X9 240 270 510 225 72

The draft financial statements for the year ended 31 December 20X9 are:
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20X9

Bailey Hill Campbell

$m $m $m
Non-current assets
Property, plant and equipment 2,300 1,900 700
Investment in Hill 720 – –
Investment in Campbell 225 – –
3,245 1,900 700
Current assets 3,115 1,790 1,050
6,360 3,690 1,750
Equity
Share capital 1,000 500 240
Retained earnings 3,430 1,800 330
4,430 2,300 570
Non-current liabilities 350 290 220
Current liabilities 1,580 1,100 960
66,360 3,690 1,750

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED
31 DECEMBER 20X9

Bailey Hill Campbell

$m $m $m
Revenue 5,000 4,200 2,000
Cost of sales (4,100) (3,500) (1,800)
Gross profit 900 700 200
Distribution and administrative expenses (320) (175) (40)
Dividend income from Hill and Campbell 36 – –
 Bailey Hill Campbell
$m $m $m
Profit before tax 616 525 160
Income tax expense (240) (170) (50)
Profit for the year 376 355 110
Other comprehensive income
Items not reclassified to profit or loss
Gains on property revaluation (net of deferred
tax) 50 20 10

Total comprehensive income for the year 426 375 120

Dividends paid in the year (from post-
acquisition profits) 250 50 20

The following information is relevant to the preparation of the group financial statements of the
Bailey group:
(1) The fair value difference in Hill relates to property, plant and equipment being depreciated
through cost of sales over a remaining useful life of ten years from the acquisition date.
(2) During the year ended 31 December 20X9, Hill sold $200 million of goods to Bailey. Three-
quarters of these goods had been sold to third parties by the year end. The profit on these
goods was 40% of sales price. There were no opening inventories of intragroup goods nor any
intragroup balances at the year end.
(3) Bailey elected to measure the non-controlling interests in Hill at fair value at the date of
acquisition. The fair value of the non-controlling interests in Hill at 1 January 20X6 was $450
million.
(4) Cumulative impairment losses on recognised goodwill in Hill at 31 December 20X9 amounted
to $20 million, of which $15 million arose during the year. It is the group’s policy to recognise
impairment losses on positive goodwill in administrative expenses. No impairment losses have
been necessary on the investment in Campbell.
Required
Using the proformas below to help you, prepare the consolidated statement of financial position
for the Bailey Group as at 31 December 20X9 and the consolidated statement of profit or loss and
other comprehensive income for the year then ended.
Step Acquisi�on of Subsidiary – From Simple Investment to Subsidiary

Alpha acquired a 15% investment in Beta in 1 January 20X6 for $360,000 when Beta’s retained earnings
were $100,000. At that date, Alpha had neither significant influence nor control of Beta.
On ini�al recogni�on of the investment, Alpha made the irrevocable elec�on permited in IFRS 9 to
carry the investment at fair value through other comprehensive income. The carrying amount of the
investment at 31 December 20X8 was $480,000. At 1 July 20X9 the fair value of the investment was
$500,000.
On 1 July 20X9, Alpha acquired an addi�onal 65% of the 2 million $1 equity shares in Beta for
$2,210,000 and gained control on that date. The retained earnings of Beta at that date were
$1,100,000. Beta has no other reserves. Alpha elected to measure non-controlling interest at fair value
at the date of acquisi�on. The non-controlling interest had a fair value of $680,000 at 1 July 20X9.
There has been no impairment in the goodwill of Beta to date.
Required
1. Explain, with appropriate workings, how goodwill related to the acquisi�on of Beta should be
calculated for inclusion in Alpha’s group accounts for the year ended 31 December 20X9.
2. Explain, with appropriate workings, the treatment of any gain or loss on remeasurement 2 of the
previously held 15% investment in Beta in Alpha’s group accounts for the year ended 31 December
20X9.
Solu�on

1. Goodwill
From 1 January 20X6 to 30 June 20X9, Beta is a simple equity investment in the group accounts of
Alpha. On acquisi�on of the addi�onal 65% investment on 1 July 20X9, Alpha obtained control of
Beta, making it a subsidiary. This is a step acquisi�on where control has been achieved in stages.
In substance, on 1 July 20X9, on obtaining control, Alpha ‘sold’ a 15% equity investment and
‘purchased’ an 80% subsidiary. Therefore, goodwill is calculated using the same principles that
would be applied if Alpha had purchased the full 80% shareholding at fair value on 1 July 20X9 as
that is the date control is achieved.
IFRS 3 requires that goodwill is calculated as the excess of:
The sum of:
 The fair value of the considera�on transferred for the addi�onal 65% holding, which is the
cash paid at 1 July 20X9; plus
 The 20% non-controlling interest, measured at its fair value at 1 July 20X9 of $680,000; plus
 The fair value at 1 July 20X9 of the original 15% investment ‘sold’ of $500,000.
Less the fair value of Beta’s net assets at 1 July 20X9.
 Goodwill is calculated as:
$’000 $’000
Considera�on transferred (for 65% on 1 July 20X9) 2,210
Non-controlling interests (at fair value)1 680
Fair value of previously held investment (15%) 2
500
Fair value of iden�fiable net assets at acquisi�on:
- Share capital 2,000
- Retained earnings (1 July 20X9) 1,100
- (3,100)
Goodwill – At Acquisi�on 290
Notes.
1 Relates to the 20% not owned by the group on 1 July 20X9
2 Fair value at date control is achieved (1 July 20X9)

2. Gain or loss on remeasurement

On 1 July 20X9, when control of Beta is achieved, the previously held 15% investment is
remeasured to fair value for inclusion in the goodwill calcula�on. On ini�al recogni�on of the
investment, Alpha made the irrevocable elec�on under IFRS 9 to carry the investment at fair value
through other comprehensive income, therefore any gain or loss on remeasurement is recognised
in consolidated OCI.
The gain or loss on remeasurement is calculated as follows.
$’000
Fair value at date control achieved (1.7.X9) 500
Carrying amount of investment (fair value at previous year end: 31.12.X8) (480)
Gain on remeasurement 20
Step Acquisi�on of Subsidiary – From Associate to Subsidiary

Peace acquired 25% of Miel on 1 January 20X1 for $2,020,000 and exercised significant influence over
the financial and opera�ng policy decisions of Miel from that date. The fair value of Miel’s iden�fiable
assets and liabili�es at that date was equivalent to their carrying amounts, and Miel’s retained earnings
stood at $5,800,000. Miel does not have any other reserves.
A further 35% stake in Miel was acquired on 30 September 20X2 for $4,200,000 (paying a premium
over Miel’s market share price to achieve control). The fair value of Miel’s iden�fiable assets and
liabili�es at that date was $9,200,000, and Miel’s retained earnings stood at $7,800,000. The
investment in Miel is held at cost in Peace’s separate financial statements.
At 30 September 20X2, Miel’s share price was $14.50.
EXTRACTS FROM THE STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X2
Peace Miel
$’000
Revenue 10,200 4,000
Profit for the year 840 320
EXTRACTS FROM THE STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 20X2
Peace Miel
Equity $’000
Share Capital ($1 shares) 10,200 800
Retained Earnings 39,920 7,900
50,120 8,700
The difference between the fair value of the iden�fiable assets and liabili�es of Miel and their carrying
amount relates to Miel’s brands. The brands were es�mated to have an average remaining useful life
of five years from 30 September 20X2.
Income and expenses are assumed to accrue evenly over the year. Neither company paid dividends
during the year.
Peace elected to measure non-controlling interests at fair value at the date of acquisi�on. No
impairment losses on recognised goodwill have been necessary to date.
Required: Calculate the following amounts, explaining the principles underlying each of your
calcula�ons:
1. For inclusion in the Peace Group’s consolidated statement of profit or loss 1 for the year to 31 Dec
20X2:
(a) Consolidated revenue
(b) Share of profit of associate
(c) Gain on remeasurement of the previously held investment in Miel
2. For inclusion in the Peace Group’s consolidated statement of financial posi�on at 31 Dec 20X2:
(a) Goodwill rela�ng to the acquisi�on of Miel
(b) Group retained earnings
(c) Non-controlling interests
Solu�on
(a) Consolidated revenue
Explana�on:
This is a step acquisi�on where control of Miel has been achieved in stages. Peace obtained control
of Miel on 30 September 20X2. Therefore per IFRS 3, revenue earned by Miel from 30 September
20X2 to the year end of 31 December 20X2 should be consolidated into the Peace Group’s
accounts. As Miel’s revenue is assumed to accrue evenly over the year, this can be es�mated as
three months’ worth of Miel’s total revenue for 20X2. For the first nine months of the year ended
31 December 20X2, Miel was an associate so for this period the group share of profit for the year
should be included and revenue should not be consolidated.
Calcula�on:
Consolidated revenue = (10,200,000 + (4,000,000 × 3/12)) = $11,200,000
(b) Share of profit of associate
Explana�on:
Peace exercised significant influence over Miel from 1 January 20X1 un�l 30 September 20X2
(when control was obtained). Therefore per IAS 28, Peace’s investment in Miel should be equity
accounted over that period. Peace’s share of the profits of Miel from 1 January 20X2 to 30
September 20X2 should be recorded in the consolidated statement of profit or loss for the year to
31 December 20X2:
Calcula�on:
Share of profit of associate = (320,000 × 9/12 × 25%) = $60,000
(c) Gain on remeasurement of the previously held investment in Miel
Explana�on:
On obtaining control of Miel, IFRS 3 requires the previously held investment in Miel to be
remeasured to fair value for inclusion in the goodwill calcula�on. Any gain or loss on
remeasurement is recognised in profit or loss. This treatment reflects the substance of the
transac�on which is that an associate has been ‘sold’ and a subsidiary ‘purchased’.
Calcula�on:
$’000
Fair value at date control obtained (800,000 × 25% × $14.50) 2,900
Carrying amount of associate
(2,520)
(2,020 cost + ([7,800 – 5,800] × 25%) share of post-acquisi�on reserves)
Gain on remeasurement 380
(a) Goodwill
Explana�on:
IFRS 3 requires that goodwill is calculated as the excess of:
The sum of:
 The fair value of the considera�on transferred for the addi�onal 35% holding, which is the
cash paid on 30 September 20X2; plus
 The fair value at 30 September 20X2 of the original 25% investment ‘sold’ of $2,900,000 (part
(a)(iii)); plus
 The 40% non-controlling interest, measured at its fair value (per Peace’s elec�on) at 30
September 20X2
Less the fair value of Miel’s net assets of $9,200,000 30 September 20X2.
Calcula�on:
$’000
Considera�on transferred (for 35%) 4,200
FV of previously held investment (part (1)(c)) 2,900
Non-controlling interests (800,000 × 40% × $14.50) 4,640
Fair value of iden�fiable net assets at acquisi�on (9,200)
Goodwill 2,540
(b) Group retained earnings
Explana�on:
Peace should include in consolidated retained earnings:
 Its own retained earnings at 31 December 20X2, plus the gain on remeasurement of the
previously held investment in Miel which is recognised in consolidated profit or loss.
 Its 25% share of Miel’s retained earnings from acquisi�on on 1 January 20X1 un�l control is
achieved on 30 September 20X2. This reflects the period that Miel was an associate by
including the group share of post-acquisi�on retained earnings generated under Peace’s
significant influence.
 Its 60% share of Miel’s retained earnings since obtaining control on 30 September 20X2, a�er
adjustment for amor�sa�on of the fair value upli� rela�ng to Miel’s brands recognised on
acquisi�on. This reflects the period that Miel was a subsidiary by including the group share of
post-acquisi�on retained earnings generated under Peace’s control.
 Calcula�on:
Peace Miel Miel
25% 60%
$’000 $’000 $’000
At year end/date control obtained 39,920 7,800 7,900
Fair value movement
- - (30)
((9,200 – (800 + 7,800)/5 years × 3/12)
Gain on remeasurement of associate (1(c)) 380 - -
At acquisi�on - (5,800) (7,800)
2,000 70
Group share of post-acquisi�on retained earnings:
Miel – 25% (2,000 × 25%) 500
– 60% (70 × 60%) 42
Consolidated retained earnings 40,842
(c) Non-controlling interests
Explana�on:
The non-controlling interests (NCI) balance in the consolidated statement of financial posi�on
shows the propor�on of Miel which is not owned by Peace at the year end (40%). This is calculated
as the non-controlling interests at 30 September 20X2 when control was obtained (measured at
fair value per Peace’s elec�on) plus the NCI share of post acquisi�on retained earnings from the
date control was obtained to the year end (from 30 September 20X2 to 31 December 20X2).
Calcula�on:
$’000
NCI at the date control was obtained (part (2)(a)) 4,640
NCI share of retained earnings post control:
- Miel – 40% ((part (2)(b)) 70 × 40%) 28
Non-controlling interests 4,668
Step Acquisition of Subsidiary (Simple Investment to Subsidiary)
Consolidated Statement of Financial Position

The draft statements of financial position of Oceana Global Limited (OGL), and its subsidiary
Rivera Global Limited (RGL) as of March 31, 2011 are as follows:
OGL RGL
Rs. in million
Assets
Property, plant and equipment 700 200
Intangible assets 4 -
Investment in RGL (opening balance) 23 -
Investment in RGL (acquired during the year) 108 -
Current assets 350 150
1,185 350
Equity and Liabilities
Share capital (Ordinary shares of Rs. 100 each) 300 100
Retained earnings 550 80
Fair value reserve 3 -
853 180
Non-current liabilities 150 40
Current liabilities 182 130
1,185 350
The details of OGL’s investments in RGL are as under:
Face value of Purchase
Acquisition date shares acquired consideration
Rs. in million
July 1, 2009 10 20
October 1, 2010 45 108
Other information relevant to the preparation of the consolidated financial statements is as under:

(i) On October 1, 2010 the fair value of RGL’s assets was equal to their carrying value except for
non-depreciable land which had a fair value of Rs. 35 million as against the carrying value of
Rs. 10 million.
(ii) On October 1, 2010 the fair value of RGL’s shares that were acquired by OGL on July 1,
2009 amounted to Rs. 28 million.
(iii) RGL’s retained earnings on October 1, 2010 amounted to Rs. 60 million.
(iv) Intangible assets represent amount paid to a consultant for rendering professional services for
the acquisition of 45% equity in RGL.
(v) During February 2011 RGL sold goods costing Rs. 25 million to OGL at a price of Rs 30
million. 25% of these goods were included in OGL’s closing inventory and 50% of the
amount was payable by OGL, as of March 31, 2011.
(vi) OGL follows a policy of valuing non-controlling interest at its fair value. The fair value of
non-controlling interest in RGL, on the acquisition date, amounted to Rs. 70 million.

Required:
Prepare a consolidated statement of financial position for Oceana Global Limited as of March 31,
2011 in accordance with International Financial Reporting Standards.
Consolidated Statement of Profit and Loss

Step Acquisition - Simple Investment to Subsidiary

G
Ayre has owned 90% of the ordinary shares of Fleur for many years.
Ayre also has a 10% investment in the shares of Byrne, which was
measured at fair value through profit or loss and held in the

A
consolidated statement of financial position as at 31 December 20X6 at

C
$24,000 in accordance with IFRS 9 Financial Instruments. On 30 June
20X7, Ayre acquired a further 50% of Byrne’s equity shares at a cost of
AC
$160,000.
The draft statements of profit or loss for the three companies for the
year ended 31 December 20X7 are presented below:
Statements of profit or loss for the year ended 31 December 20X7
Ayre Fleur Byrne
$000 $000 $000
Revenue 500 300 200
Cost of sales (300) (70) (120)
––––– ––––– –––––
Gross profit 200 230 80
Operating costs (60) (80) (60)
––––– ––––– –––––
Profit from operations 140 150 20
Income tax (28) (30) (4)
––––– ––––– –––––
Profit for the period 112 120 16
––––– ––––– –––––

The non-controlling interest is calculated using the fair value method.

On 30 June 20X7, fair values were as follows:
 Byrne’s identifiable net assets – $200,000
 The non-controlling interest in Byrne – $100,000
 The original 10% investment in Byrne – $26,000

Required:
Prepare the consolidated statement of profit or loss for the Ayre
Group for the year ended 31 December 20X7 and calculate the
goodwill arising on the acquisition of Byrne.
Step Acquisi�on of Associate – From Simple Investment to Associate

Bravado has two subsidiaries. It also has an investment in a third company, Clarity. Bravado acquired a
10% interest in Clarity on 1 June 20X7 for $8 million. The investment was accounted for as an
investment in equity instruments and the IFRS 9 irrevocable elec�on was made to take changes in fair
value through other comprehensive income. At 31 May 20X8, the 10% investment in Clarity was
revalued to its fair value of $9 million. On 1 June 20X8, Bravado acquired an addi�onal 15% interest in
Clarity for $11 million and achieved significant influence. Clarity made profits a�er dividends of $6
million and $10 million for the years to 31 May 20X8 and 31 May 20X9. Clarity’s only reserves are
retained earnings.
Required: Calculate the investment in associate for inclusion in the Bravado consolidated statement
of financial posi�on as at 31 May 20X9 under the following assump�ons:
(a) Following the IFRS 3 principles for business combina�ons
(b) Following the IAS 28 principles for equity accoun�ng

Solu�on
(a) Following the IFRS 3 principles, the investment in associate is calculated as follows:
$m
Cost = fair value at date significant influence is achieved ($9m + $11m) 20.0
Share of post-acquisi�on reserves ($10m × 25%) 2.5
Investment in associate 22.5
Notes.
1. Do not record the ini�al 10% investment at its 1 June 20X7 cost of $8m. Instead, record it at its fair
value of $9m at the date significant influence is achieved (1 June 20X8), as in substance, a 25%
associate was ‘purchased’ on 1 June 20X7. No gain on remeasurement of the 10% investment is
recognised in this Illustra�on because the investment had already been remeasured to fair value
at 31 May 20X8 in the parent’s (Bravado’s) individual accounts.
2. The new 15% investment is recorded at its cost on the date significant 2 influence is achieved (1
June 20X8). In substance, it is as if Bravado ‘purchased’ a 25% associate on 1 June 20X8.
3. Post-acquisi�on reserves should only be included from the date Clarity becomes an associate (1
June 20X8). By the year end of 31 May 20X9, Clarity has only been associate for a year and given
that Clarity’s only reserves are retained earnings, the profit a�er dividends for the year ended 31
May 20X9 represents the post-acquisi�on reserves. The profit a�er dividends for the year ended
31 May 20X8 is ignored because Clarity was only a simple investment at that stage.
4. On the date significant influence is achieved (1 June 20X8), Bravado has a 25% stake (10% + 15%)
in Clarity. In substance, Bravado has ‘sold’ a 10% investment and ‘purchased’ a 25% associate.
(b) Following the IAS 28 principles for equity accoun�ng, the investment in associate is calculated as
follows:
$m
Cost = fair value at date significant influence is achieved ($8m + $11m) 19.0
Share of post-acquisi�on reserves ($10m × 25%) 2.5
Investment in associate 21.5

Notes.
1. Under this method, the 10% is recorded at its original cost on 1 June 20X7 of $8m which means
the revalua�on gain of $1m recognised to date ($9m fair value at 31 May 20X8 less $8m cost)
would have to be reversed as a consolida�on adjustment.
2. The new 15% investment is recorded at its cost on the date significant influence is achieved (1
June 20X8).
Further Acquisi�on of Subsidiary's Share - Adjustment to Equity

Stow owned 70% of Needham’s equity shares on 31 December 20X2. Stow purchased another 20% of
Needham’s equity shares on 30 June 20X3 for $900,000 when the exis�ng non-controlling interests in
Needham were measured at $1,200,000.
Required: Calculate the adjustment to equity to be recorded in the group accounts on acquisi�on of
the addi�onal 20% in Needham.

Further Acquisi�on of Subsidiary's Share

On 1 January 20X2, Denning acquired 60% of the equity interests of Heggie. The purchase
considera�on comprised cash of $300 million. At acquisi�on, the fair value of the non-controlling
interest in Heggie was $200 million. Denning elected to measure the non-controlling interest at fair
value at the date acquisi�on. On 1 January 20X2, the fair value of the iden�fiable net assets acquired
was $460 million. The fair value of the net assets was equivalent to their carrying amount.
On 31 December 20X3, Denning acquired a further 20% interest in Heggie for cash considera�on of
$130 million.
The retained earnings of Heggie at 1 January 20X2 and 31 December 20X3 respec�vely were $180
million and $240 million. Heggie had no other reserves. The retained earnings of Denning on 31
December 20X3 were $530 million.
There has been no impairment of the goodwill in Heggie.
Required: Calculate, explaining the principles underlying each of your calcula�ons, the following
amounts for inclusion in the consolidated statement of financial posi�on of the Denning Group as at
31 December 20X3:
(a) Goodwill
(b) Consolidated retained earnings
(c) Non-controlling interests
Solu�on
(a) Goodwill
Explana�on:
Denning obtained control of Heggie on 1 January 20X2. Goodwill is therefore calculated at that
date. The subsequent purchase of a further 20% interest in Heggie on 31 December 20X3 is a
transac�on between owners, being Denning and the NCI in Heggie. This addi�onal investment
does not affect the goodwill calcula�on because in substance, a business combina�on has not
taken place on this date – Denning already had control of Heggie when the addi�onal interest was
acquired.
Calcula�on:
$m
Considera�on transferred (for 60%) 300
Non-controlling interests (at fair value) 200
Fair value of iden�fiable net assets at acquisi�on (460)
Goodwill 40
(b) Consolidated retained earnings
Explana�on:
Denning should include in consolidated retained earnings:
 Its own retained earnings at 31 December 20X3, less an adjustment to equity represen�ng the
transac�on between owners on purchase of the addi�onal 20% holding in Heggie. This is
calculated as the difference between the considera�on paid and the decrease in the
noncontrolling interest.
 Its 60% share of Heggie’s retained earnings from the date of acquisi�on (1 January 20X2). As
the addi�onal purchase of 20% did not occur un�l the final day of the repor�ng period, no
addi�onal retained earnings in respect of the addi�onal shareholding are recorded in
consolidated retained earnings for this year.
Calcula�on:
Denning Heggie
$m $m
At year end 530 240
Adjustment to equity (W2) (18)
At acquisi�on (180)
60
Group share of post-acquisi�on retained earnings: (60 × 60%) 36
548
(c) Non-controlling interests
Explana�on:
The non-controlling interests (NCI) balance in the consolidated statement of financial posi�on
shows the propor�on of Heggie which is not owned by Denning at the repor�ng date (20%).
However, as the NCI owned a 40% share in Heggie up to 31 December 20X3, the NCI’s 40% share
of retained earnings between 1 January 20X2 and 31 December 20X3 must first be allocated to
them. The NCI balance at the year end is calculated as follows:
Calcula�on:
$m
NCI at acquisi�on 200
NCI share of post-acquisi�on reserves up to step acquisi�on
24
(40% × 60 (part (b))
NCI at date of step acquisi�on 224
Decrease in NCI on date of step acquisi�on (224 × 20%/40%) (112)
NCI at year end 112
Workings
1. Group structure

2. Adjustment to equity on acquisi�on of addi�onal 20% of Heggie

$m
Fair value of considera�on paid (130)
Decrease in NCI (224 (part (c)) × 20%/40%) 112
(18)

Further Acquisi�on of Subsidiary's Share

On 1 June 20X6, Robe acquired 80% of the equity interests of Dock. Robe elected to measure the non-
controlling interests in Dock at fair value at acquisi�on.
On 31 May 20X9, Robe purchased an addi�onal 5% interest in Dock for $10 million. The carrying
amount of Dock’s iden�fiable net assets, other than goodwill, was $140 million at the date of sale. On
31 May 20X9, prior to this acquisi�on, non-controlling interests in Dock amounted to $32 million.
In the group financial statements for the year ended 31 May 20X9, the group accountant recorded a
decrease in non-controlling interests of $7 million, being the group share of net assets purchased ($140
million × 5%). He then recognised the difference between the cash considera�on paid for the 5%
interest and the decrease in non-controlling interests in profit or loss.
Required: Explain to the directors of Robe, with suitable calcula�ons, whether the group accountant’s
treatment of the purchase of an addi�onal 5% in Dock is correct, showing the adjustment which needs
to be made to the consolidated financial statements to correct any errors by the group accountant.
Solu�on:
Explana�on
Prior to the acquisi�on of the addi�onal 5% stake, Robe controlled Dock through its 80% shareholding,
making Dock a subsidiary of Robe, with a 20% non-controlling interest (NCI). On the purchase of the
addi�onal 5%, Robe’s controlling interest in its subsidiary increased to 85% whilst NCI fell to 15%. As
Dock remains a subsidiary, no ‘accoun�ng boundary’ has been crossed and, in substance, no
acquisi�on has taken place. Therefore, the group accountant was wrong to record the difference
between the considera�on paid and the decrease in NCI in profit or loss. This means that this
difference of $3 million ($10 million – $7 million) needs to be reversed from profit or loss.
Instead, since Robe is buying shares from the NCI, this should be treated as a transac�on between
group shareholders and recorded in equity. The difference between the considera�on paid for the
addi�onal 5% and the decrease in non-controlling interests should be recorded in group equity and
atributed to the parent.
The group accountant has correctly recorded a decrease in non-controlling interests but at the wrong
amount, as he has calculated the decrease as the percentage of net assets purchased. This does not
take into account the fact that the full goodwill method has been selected for Dock; therefore, the NCI
at disposal will also include an element of goodwill. The decrease in NCI must be adjusted to take into
account the goodwill atributable to the NCI. This results in a further decrease in NCI of $1 million
(being the $8 million decrease in NCI that the group accountant should have recorded less the $7
million he actually recognised).
Since the decrease in equity was incorrect, the difference between the considera�on paid and
decrease in NCI was also incorrect. An adjustment to equity of $2 million rather than a loss of $3 million
in profit or loss should have been recorded.
Calcula�ons
Decrease in NCI  $32 million × 5%/20% = $8 million
Adjustment to equity
$m
Fair value of considera�on paid (10)
Decrease in NCI ($32m × 5%/20%) 8
Adjustment to equity (2)
Correc�ng entry
The correc�ng entry to record the further decrease in NCI, reverse the original entry in profit or loss
and record the correct adjustment to equity is as follows:
Debit Group retained earnings £2 million
Debit Non-controlling interests $1 million
Credit Profit or loss $3 million
Working
Group structure
Further Acquisition of Subsidiary's Share
Consolidated Statement of Financial Position

TRAVELER
Traveler, a public limited company, operates in the manufacturing sector. The draft
statements of financial position are as follows at 30 November 20X1:
Traveler Data Captive
$m $m $m
Assets:
Non-current assets
Property, plant and equipment 439 810 620
Investments in subsidiaries
Data 820
Captive 541
Financial assets 108 10 20
–––––– –––––– ––––––
1,908 820 640
Current assets 1,067 781 350
–––––– –––––– ––––––
Total assets 2,975 1,601 990
–––––– –––––– ––––––
Equity and liabilities:
Share capital 1,120 600 390
Retained earnings 1,066 442 169
Other components of equity 60 37 45
–––––– –––––– ––––––
Total equity 2,246 1,079 604
–––––– –––––– ––––––
Non-current liabilities 455 323 73
Current liabilities 274 199 313
–––––– –––––– ––––––
Total equity and liabilities 2,975 1,601 990
–––––– –––––– ––––––

The following information is relevant to the preparation of the group financial statements:
1 On 1 December 20X0, Traveler acquired 60% of the equity interests of Data, a public
limited company. The purchase consideration comprised cash of $600 million. At
acquisition, the fair value of the non-controlling interest in Data was $395 million.
Traveler wishes to use the ‘full goodwill’ method. On 1 December 20X0, the fair value
of the identifiable net assets acquired was $935 million and retained earnings of Data
were $299 million and other components of equity were $26 million. The excess in
fair value is due to non-depreciable land.
On 30 November 20X1, Traveler acquired a further 20% interest in Data for a cash
consideration of $220 million.
 2 On 1 December 20X0, Traveler acquired 80% of the equity interests of Captive for a
consideration of $541 million. The consideration comprised cash of $477 million and
the transfer of non-depreciable land with a fair value of $64 million. The carrying
amount of the land at the acquisition date was $56 million. At the year end, this asset
was still included in the non-current assets of Traveler and the sale proceeds had
been credited to profit or loss.
At the date of acquisition, the identifiable net assets of Captive had a fair value of
$526 million, retained earnings were $90 million and other components of equity
were $24 million. The excess in fair value is due to non-depreciable land. This
acquisition was accounted for using the partial goodwill method in accordance with
IFRS 3 Business Combinations.
3 Goodwill was impairment tested after the additional acquisition in Data on
30 November 20X1. The recoverable amount of Data was $1,099 million and that of
Captive was $700 million.
Required:
Prepare a consolidated statement of financial position for the Traveler Group for the
year ended 30 November 20X1.

10 K A P LA N P UB L I S H I N G
Full Disposal of Subsidiary
Consolidated Statement of Financial Position
The statements of financial position of Habib Limited (HL), Faraz Limited (FL) and Momin
Limited (ML) as at June 30, 2009 are as follows:

HL FL ML
Rupees in million
Assets
Non-current assets
Property, plant and equipment 978 595 380
Investments in FL - at cost 520 - -
Investments in ML - at cost 300 - -
1,798 595 380
Current assets
Stocks in trade 210 105 125
Trade and other receivables 122 116 128
Cash and bank 20 38 37
352 259 290
Total assets 2,150 854 670

Equity and liabilities

Equity
Ordinary share capital (Rs. 10 each) 800 360 100
Retained earnings 784 354 450
1,584 714 550
Non-current liabilities
12% debentures 270 - -
Current liabilities
Short term loan 124 - -
Trade and other payables 172 140 120
296 140 120
Total equity and liabilities 2,150 854 670

Following additional information is also available:

(i) HL acquired 60% shares of FL on January 1, 2003 for Rs. 400 million when the
retained earnings of FL stood at Rs. 250 million. On January 1, 2006, a further 20%
shares in FL were acquired for Rs. 120 million. FL’s retained earnings on the date of
second acquisition were Rs. 400 million.
(ii) 70% shares of ML were acquired by HL for Rs. 300 million, on July 1, 2006 when
ML’s retained earnings stood at Rs. 260 million. On December 31, 2008, HL disposed
off its entire holding in ML for Rs. 500 million. The disposal of shares has not yet
been recorded in HL’s financial statements.
(iii) On January 1, 2009, FL purchased a machine for Rs. 20 million and immediately sold
it to HL for Rs. 24 million. However, no payment has yet been made by HL. The
estimated useful life of the machine is 4 years and HL charges depreciation on the
straight line method.
(iv) During the year, HL sold finished goods to FL at cost plus 20%. The amount invoiced
during the year amounted to Rs. 75 million. 60% of these goods had been sold by FL
till June 30, 2009.
(v) During the year ended June 30, 2009, FL and ML earned profits of Rs. 10 million and
Rs. 50 million respectively. The profits had accrued evenly, throughout the year.
(vi) An impairment review at year end indicated that 15% of the goodwill recognised on
acquisition of FL, is required to be written off.
(vii) HL values the non-controlling interest at its proportionate share of the fair value of the
subsidiary’s identifiable net assets.
Required:
Prepare the consolidated statement of financial position of HL as at June 30, 2009 in
accordance with the requirements of International Financial Reporting Standards. (Ignore
current and deferred tax implications.)
Full Disposal of Subsidiary
Consolidated Statement of Profit / (loss) & Consolidated Statement of Changes in Equity

Following are the extracts from the draft financial statements of three companies for the yea
ended 30 June 2012:
INCOME STATEMENTS
Tiger Limited Panther Limited Leopard Limited
(TL) (PL) (LL)
-------------------Rs. in million-------------------
Revenue 6,760 568 426
Cost of sales (4,370) (416) (218)
Gross profit 2,390 152 208
Operating expenses (1,270) (54) (132)
Profit from operations 1,120 98 76
Investment income 730 - 10
Profit before taxation 1,850 98 86
Income tax expense (400) (20) (17)
Profit for the year 1,450 78 69

STATEMENTS OF CHANGES IN EQUITY

Ordinary share capital
Retained earnings
of Rs. 10 each
TL PL LL TL PL LL
---------------------------Rs. in million--------------------------
As on 1 July 2011 10,000 800 600 2,380 270 70
Final dividend for the year
ended 30 June 2011 - - - (1,000) - (60)
Profit for the year - - - 1,450 78 69
As on 30 June 2012 10,000 800 600 2,830 348 79

The following information is also available:

(i) Several years ago, TL acquired 64 million shares in PL for Rs. 1,000 million when PL’s
retained earnings were Rs. 55 million. Up to 30 June 2011, cumulative impairment
losses of Rs. 50 million had been recognized in the consolidated financial statements, in
respect of goodwill.
On 31 December 2011, TL disposed off its entire holding in PL for Rs. 1,300 million.
(ii) On 1 July 2011, 42 million shares of LL were acquired by TL for Rs. 550 million. An
impairment review at 30 June 2012 indicated that goodwill recognized on acquisition
has been impaired by Rs. 7 million.
(iii) During the year, LL sold goods costing Rs. 50 million to TL at a mark-up of 20% on
cost. 40% of these goods remained unsold on 30 June 2012.
(iv) Investment income appearing in TL’s separate income statement includes profit on sale
of PL’s shares and dividend received from LL.
(v) TL values the non-controlling interest at its proportionate share of the fair value of the
subsidiary’s identifiable net assets.
It may be assumed that profits of all companies had accrued evenly during the year.

Required:
Prepare TL’s consolidated income statement and consolidated statement of changes in equity
for the year ended 30 June 2012 in accordance with the requirements of International
Financial Reporting Standards. (Ignore deferred tax implications)
Par�al Disposal of Subsidiary’ Share with Loss of Control - Subsidiary to Investment

Vail purchased a 60% interest in Nest for $80 million on 1 January 20X4 when the fair value of
iden�fiable net assets was $100 million. Vail elected to measure the non-controlling interest in Nest at
the propor�onate share of the fair value of iden�fiable net assets.
An impairment of $4 million arose on the goodwill in Nest in the year ended 31 December 20X5.
Vail sold a 50% stake in Nest for $75 million on 31 December 20X5. The fair value of the Vail’s remaining
investment in Nest was $15 million at that date. The carrying amount of Nest’s iden�fiable net assets
other than goodwill was $130 million at the date of sale.
Vail had carried the investment at cost. The Finance Director calculated that a gain of $10 million arose
on the sale of Nest in the group financial statements, being the sales proceeds of $75 million less $65
million, being the percentage of iden�fiable net assets sold (50% × $130 million).
Required: Explain to the directors of Vail, with suitable calcula�ons, how the group profit on disposal
of the shareholding in Nest should have been accounted for.
Solu�on:
The Finance Director has calculated the group profit on disposal incorrectly. Prior to the disposal, Nest
was a 60% subsidiary. A�er selling a 50% stake, Vail is le� with a 10% simple investment in Nest with
no significant influence or control. In substance, Vail has ‘sold’ a 60% subsidiary, so Nest should be
deconsolidated and a group profit or loss on disposal recognised. On the same date, in substance, Nest
has ‘purchased’ a 10% investment, so this remaining investment should be remeasured to its fair value
at the date control was lost (31 December 20X5).
The Finance Director was correct to calculate a group profit on disposal but he made three errors in
his calcula�on. Firstly, he has deconsolidated the por�on of net assets sold (50%) rather than 100% of
net assets and a 40% non-controlling interest. As Nest is no longer a subsidiary, it should have been
fully deconsolidated. Secondly, he has forgoten to deconsolidate goodwill. Thirdly, he did not
remeasure the remaining 10% investment to fair value.
The corrected group loss on disposal calcula�on is shown below. The correc�on results in the Finance
Director’s profit of $10 million becoming a loss of $4 million.
Calcula�on:
Group profit or loss on disposal
$m $m
Fair value of considera�on received (for 50% sold) 75
Fair value of 10% investment retained 15
Less: Share of consolidated carrying amount when control lost
- Net assets 30
- Goodwill (W2) 16
- Less non-controlling interests (W3) (52)
(94)
Group loss on disposal (4)
Workings
1. Group structure

2. Goodwill
$m
Considera�on transferred 80
Non-controlling interests (100 × 40%) 40
Less fair value of iden�fiable net assets at acquisi�on (100)
20
Impairment (4)
16
3. Non-controlling interests (SOFP) at date of loss of control
$m
NCI at acquisi�on (100 × 40%) 40
NCI share of post-acquisi�on reserves ((130 – 100)* × 40%) 12
52
*Post-acquisi�on reserves can be calculated as the difference between net assets at disposal and net
assets at acquisi�on. This is because net assets equal equity and, provided there has been no share
issue since acquisi�on, the movement in equity and net assets is solely due to the movement in
reserves.
Par�al Disposal of Subsidiary’ Share without Loss of Control - Subsidiary to Subsidiary
On 1 December 20X0, Trail acquired 80% of Dial’s 600 million $1 shares for a cash considera�on of
$800 million and obtained control over Dial. At that date, the fair value of the non-controlling interest
in Dial was $190 million. Trail wishes to measure the non-controlling interest at fair value at the date
of acquisi�on. On 1 December 20X0, the retained earnings of Dial were $300 million and other
components of equity were $10 million. The fair value of Dial’s net assets was equivalent to their
carrying amounts.

On 30 November 20X1, Trail sold a 5% shareholding in Dial for $60 million but retained control. At 30
November 20X1, Dial had retained earnings of $450 million and other components of equity of $30
million.
Required: Explain, with appropriate workings, how the following figures in rela�on to Dial should be
calculated for inclusion in the consolidated statement of financial posi�on of the Trail group as at 30
November 20X1:
1. Non-controlling interests
2. The adjustment required to equity as a result of the disposal
Solu�on
1. Non-controlling interests
Explana�on:
The non-controlling interests (NCI) balance in the consolidated statement of financial posi�on shows
the propor�on of Dial which is not owned by Trail at the year end (25%). The NCI are allocated their
20% share of retained earnings and other components of equity up to 30 November 20X1. NCI is then
adjusted as a result of the 5% increase in NCI on the 30 November 20X1. This means that at the year
end the NCI will represent the 25% share of Dial that Trail do not own. The NCI balance at the year end
is calculated as follows:
Calcula�on:

$m
NCI at acquisi�on 190
NCI share of post-acquisi�on retained earnings to disposal (20% × [450 – 300]) 30
NCI share of post-acquisi�on other components of equity to disposal (20% × [30 – 10]) 4
NCI at date of disposal 224
Increase in NCI on date of disposal (224 × 5%/20%) 56
NCI at year end 280
2. Adjustment to equity

Explana�on:

This is a transac�on between shareholders of Dial: Trial has sold of a 5% shareholding in Dial to the
NCI of Dial. In substance then, no disposal has taken place and no profit on disposal should be
recognised. Instead an adjustment to equity should be recorded, atributed to the owners of Trail,
being the difference between the considera�on received for the shareholding and the increase in the
NCI.
Calcula�on:
$m
Fair value of considera�on received 60
Increase in NCI (56)
Adjustment to equity 4
Working
Group structure
Disposal of Subsidiary's Share with and without loss of control
Consolidated Statements of Financial Posi�on

GRANGE

Grange, a public limited company, operates in the manufacturing sector. The dra� statements of
financial posi�on of the group companies are as follows at 30 November 2009:

Grange Park Fence

$m $m $m
Assets:
Non-current assets
Property plant and equipment 257 311 238
Investments in subsidiaries
- Park 340
- Fence 134
Investment in Si�n 16
747 311 238
Current assets 475 304 141
Total assets 1,222 615 379

Equity and liabili�es:

Equity share capital 430 230 150
Retained earnings 410 170 65
Other components of equity 22 14 17
Total equity 862 414 232
Non-current liabili�es 172 124 38
Current liabili�es:
Trade and other payables 178 71 105
Provisions for liabili�es 10 6 4
Total equity and liabili�es 1,222 615 379

The following informa�on is relevant to the prepara�on of the group financial statements:

(i) On 1 June 2008, Grange acquired 60% of the equity interests of Park, a public limited company.
The purchase considera�on comprised cash of $250 million. Excluding the franchise referred
to below, the fair value of the iden�fiable net assets was $360 million. The excess of the fair
value of the net assets is due to an increase in the value of non-depreciable land.

Park held a franchise right, which at 1 June 2008 had a fair value of $10 million. This had not
been recognised in the financial statements of Park. The franchise agreement had a remaining
term of five years to run at that date and is not renewable. Park s�ll holds this franchise at the
year-end.

Grange wishes to use the ‘full goodwill’ method for all acquisi�ons. The fair value of the non-
controlling interest in Park was $150 million on 1 June 2008. The retained earnings of Park
were $115 million and other components of equity were $10 million at the date of acquisi�on.

Grange acquired a further 20% interest from the non-controlling interests in Park on 30
November 2009 for a cash considera�on of $90 million.
(ii) On 31 July 2008, Grange acquired a 100% of the equity interests of Fence for a cash
considera�on of $214 million. The iden�fiable net assets of Fence had a provisional fair value
of $202 million, including any con�ngent liabili�es. At the �me of the business combina�on,
Fence had a con�ngent liability with a fair value of $30 million. At 30 November 2009, the
con�ngent liability met the recogni�on criteria of IAS 37 Provisions, con�ngent liabili�es and
con�ngent assets and the revised es�mate of this liability was $25 million. The accountant of
Fence is yet to account for this revised liability.

However, Grange had not completed the valua�on of an element of property, plant and
equipment of Fence at 31 July 2008 and the valua�on was not completed by 30 November
2008. The valua�on was received on 30 June 2009 and the excess of the fair value over book
value at the date of acquisi�on was es�mated at $4 million. The asset had a useful economic
life of 10 years at 31 July 2008.

The retained earnings of Fence were $73 million and other components of equity were $9
million at 31 July 2008 before any adjustment for the con�ngent liability.

On 30 November 2009, Grange disposed of 25% of its equity interest in Fence to the non-
controlling interest for a considera�on of $80 million. The disposal proceeds had been credited
to the cost of the investment in the statement of financial posi�on.

(iii) On 30 June 2008, Grange had acquired a 100% interest in Si�n, a public limited company, for
a cash considera�on of $39 million. Si�n’s iden�fiable net assets were fair valued at $32
million.

On 30 November 2009, Grange disposed of 60% of the equity of Si�n when its iden�fiable net
assets were $35 million. The sale proceeds were $23 million and the remaining equity interest
was fair valued at $13 million. Grange could s�ll exert significant influence a�er the disposal
of the interest. The only accoun�ng entry made in Grange’s financial statements was to
increase cash and reduce the cost of the investment in Si�n.

(iv) Grange acquired a plot of land on 1 December 2008 in an area where the land is expected to
rise significantly in value if plans for regenera�on go ahead in the area. The land is currently
held at cost of $6 million in property, plant and equipment un�l Grange decides what should
be done with the land. The market value of the land at 30 November 2009 was $8 million but
as at 15 December 2009, this had reduced to $7 million as there was some uncertainty
surrounding the viability of the regenera�on plan.

(v) Grange an�cipates that it will be fined $1 million by the local regulator for environmental
pollu�on. It also an�cipates that it will have to pay compensa�on to local residents of $6
million although this is only the best es�mate of that liability. In addi�on, the regulator has
requested that certain changes be made to the manufacturing process in order to make the
process more environmentally friendly. This is an�cipated to cost the company $4 million.

(vi) Grange has a property located in a foreign country, which was acquired at a cost of 8 million
dinars on 30 November 2008 when the exchange rate was $1 = 2 dinars. At 30 November 2009,
the property was revalued to 12 million dinars. The exchange rate at 30 November 2009 was
$1 = 1.5 dinars. The property was being carried at its value as at 30 November 2008. The
company policy is to revalue property, plant and equipment whenever material differences
 exist between book and fair value. Deprecia�on on the property can be assumed to be
immaterial.

(vii) Grange has prepared a plan for reorganising the parent company’s own opera�ons. The board
of directors has discussed the plan but further work has to be carried out before they can
approve it. However, Grange has made a public announcement as regards the reorganisa�on
and wishes to make a reorganisa�on provision at 30 November 2009 of $30 million. The plan
will generate cost savings. The directors have calculated the value in use of the net assets (total
equity) of the parent company as being $870 million if the reorganisa�on takes place and $830
million if the reorganisa�on does not take place. Grange is concerned that the parent
company’s property, plant and equipment have lost value during the period because of a
decline in property prices in the region and feel that any impairment charge would relate to
these assets. There is no reserve within other equity rela�ng to prior revalua�on of these non-
current assets.

Required: Prepare a consolidated statement of financial posi�on of the Grange Group at 30 November
2009 in accordance with Interna�onal Financial Repor�ng Standards.
 Disposal of Subsidiary's Share with and without loss of control
Consolidated statements of profit or loss and other comprehensive income

MARCHANT

The following draft financial statements relate to Marchant, a public limited company.
Marchant Group: Draft statements of profit or loss and other comprehensive income for the
year ended 30 April 2014.
Marchant Nathan Option
$m $m $m
Revenue 400 115 70
Cost of sales (312) (65) (36)
–––– –––– –––
Gross profit 88 50 34
Other income 21 7 2
Administrative costs (15) (9) (12)
Other expenses (35) (19) (8)
–––– –––– –––
Operating profit 59 29 16
Finance costs (5) (6) (4)
Finance income 6 5 8
–––– –––– –––
Profit before tax 60 28 20
Income tax expense (19) (9) (5)
–––– –––– –––
Profit for the year 41 19 15
–––– –––– –––
Other comprehensive income – revaluation surplus 10 – –
–––– –––– –––
Total comprehensive income for year 51 19 15
–––– –––– –––

The following information is relevant to the preparation of the group statement of profit or loss and
other comprehensive income:
1 On 1 May 2012, Marchant acquired 60% of the equity interests of Nathan, a public limited
company. The purchase consideration comprised cash of $80 million and the fair value of the
identifiable net assets acquired was $110 million at that date. The fair value of the non-
controlling interest (NCI) in Nathan was $45 million on 1 May 2012. Marchant wishes to use
the ‘full goodwill’ method for all acquisitions. The share capital and retained earnings of
Nathan were $25 million and $65 million respectively and other components of equity
were $6 million at the date of acquisition. The excess of the fair value of the identifiable
net assets at acquisition is due to non-depreciable land.
Goodwill has been impairment tested annually and as at 30 April 2013 had reduced in value
by 20%. However at 30 April 2014, the impairment of goodwill had reversed and goodwill was
valued at $2 million above its original value. This upward change in value has already been
included in above draft financial statements of Marchant prior to the preparation of the
group accounts.
2 Marchant disposed of an 8% equity interest in Nathan on 30 April 2014 for a cash consideration
of $18 million and had accounted for the gain or loss in other income. The carrying value of the
net assets of Nathan at 30 April 2014 was $120 million before any adjustments on consolidation.
Marchant accounts for investments in subsidiaries using IFRS 9 Financial Instruments and has
made an election to show gains and losses in other comprehensive income. The carrying value of
the investment in Nathan was $90 million at 30 April 2013 and $95 million at 30 April 2014
before the disposal of the equity interest
3 Marchant acquired 60% of the equity interests of Option, a public limited company, on 30
April 2012. The purchase consideration was cash of $70 million. Option’s identifiable net
assets were fair valued at $86 million and the NCI had a fair value of $28 million at that date.
On 1 November 2013, Marchant disposed of a 40% equity interest in Option for a
consideration of $50 million. Option’s identifiable net assets were $90 million and the value
of the NCI was $34 million at the date of disposal. The remaining equity interest was fair
valued at $40 million. After the disposal, Marchant exerts significant influence. Any
increase in net assets since acquisition has been reported in profit or loss and the
carrying value of the investment in Option had not changed since acquisition. Goodwill
had been impairment tested and no impairment was required. No entries had been
made in the financial statements of Marchant for this transaction other than for cash
received.
4 Marchant sold inventory to Nathan for $12 million at fair value. Marchant made a loss on
the transaction of $2 million and Nathan still holds $8 million in inventory at the year end.
5 The following information relates to Marchant’s pension scheme:
Plan assets at 1 May 2013 48
Defined benefit obligation at 1 May 2013 50
Service cost for year ended 30 April 2014 4
Discount rate at 1 May 2013 10%
Re-measurement loss in year ended 30 April 2014 2
Past service cost 30 April 2014 3
The pension costs have not been accounted for in total comprehensive income.

6 On 1 May 2012, Marchant purchased an item of property, $m plant and equipment for $12
million and this is being depreciated using the straight line basis over 10 years with a zero
residual value. At 30 April 2013, the asset was revalued to $13 million but at 30 April 2014,
the value of the asset had fallen to $7 million. Marchant uses the revaluation model to
value its non-current assets. The effect of the revaluation at 30 April 2014 had not been
taken into account in total comprehensive income but depreciation for the year had been
charged.

7 On 1 May 2012, Marchant made an award of 8,000 share options to each of its seven
directors. The condition attached to the award is that the directors must remain
employed by Marchant for three years. The fair value of each option at the grant date
was $100 and the fair value of each option at 30 April 2014 was $110. At 30 April
2013, it was estimated that three directors would leave before the end of three years. Due
to an economic downturn, the estimate of directors who were going to leave was revised to
one director at 30 April 2014. The expense for the year as regards the share options had
not been included in profit or loss for the current year and no directors had left by 30 April
2014.

8 A loss on an effective cash flow hedge of Nathan of $3 million has been included in the
subsidiary’s finance costs.

9 Ignore the taxation effects of the above adjustments unless specified. Any expense
adjustments should be amended in other expenses.

Required:
Prepare a consolidated statement of profit or loss and other comprehensive income for the year
ended 30 April 2014 for the Marchant Group.
Deemed Disposal

At 1 January 20X2 Rey Co (Rey), a public limited company, owned 75% of the equity shares of Mago
Co (Mago) and had control over it.
The consolidated carrying amount of Mago’s net assets on 1 September 20X2 was $14 million.
Goodwill of $2 million was recognised upon the ini�al acquisi�on of Mago, and has not subsequently
been impaired. Rey Co elected to measure the non-controlling interests in Mago at fair value at
acquisi�on. At 1 September 20X2, non-controlling interests (based on the original shareholding in
Mago) amounted to $3.9 million.
On 1 September 20X2, Mago issued new shares for $5 million, which were all purchased by a new
investor unrelated to Rey. The fair value of Mago at that date (before the share issue) was $18 million.
A�er the share issue, Rey retained an interest of 40% of the equity shares of Mago and retained two
of the six seats on the board of directors (previously Rey held five of the six seats).
Required: Explain the accoun�ng treatment for Mago in the consolidated financial statements of the
Rey group for the year ended 31 December 20X2.
Solu�on:
From the beginning of the repor�ng period up to 31 August 20X2, Mago should be consolidated as a
subsidiary because Rey has control over Mago.
On 1 Sep 20X2, as a result of the share issue, Rey’s shareholding is reduced to 40% and it retains just
two of the six seats on the board of directors. This would appear to give Rey significant influence over
Mago, but not control. In IAS 28, significant influence is presumed to exist when an en�ty holds at least
20% of the equity shares of the investee. IAS 28 also states that representa�on on the board of
directors provides evidence that significant influence exists. To have control over Mago, amongst other
considera�ons, Rey would need to have the power to direct the ac�vi�es of Mago and this is unlikely
to be the case when Rey can only appoint two out of six directors. Assuming therefore that Rey lost
control of Mago on 1 September 20X2, this is a deemed disposal and a loss of $2.9 million on the
deemed disposal should be recognised in the consolidated statement of profit or loss, calculated as:
$m $m
Fair value of considera�on received 0
Fair value of 40% investment retained ((18 + 5) × 40%) 9.2
Less: Share of consolidated carrying amount when control lost
- Net assets 14
- Goodwill (W2) 2
- Less non-controlling interests (W3) (3.9)
(12.1)
Loss on disposal (2.9)
The amount recognised in profit or loss includes a loss on disposal of the 35% shareholding and a profit
on the upli� of the retained interest to fair value; the fair value of the retained interest is the deemed
cost for equity accoun�ng purposes. For the final four months of the year, Rey has significant influence
over Mago, and therefore Mago should be equity accounted as an associate in the consolidated
financial statements. In the consolidated statement of financial posi�on, the investment in Mago
should be ini�ally recognised on 1 September 20X2 at its deemed cost of $9.2 million and then
subsequently measured by adding Rey’s 40% share of Mago’s post-acquisi�on reserves less any
impairment losses.
Ver�cal Group / Sub-Subsidiary

H Ltd acquired 75% of S Ltd on 1 January 20X4 when the retained profits of S were 40,000$.
S Ltd acquired 60% of T Ltd on 30 June 20X4 when the retained profits of T Ltd were 25,000$. They had
been 20,000$ on the date of H Ltd’s acquisi�on of S Ltd.
Dra� statements of financial posi�on of H Ltd, S Ltd and T Ltd, as at 31 December 20X4, are as follows:
H Ltd S Ltd T Ltd
$000 $000 $000
Other assets 280 110 100
Investment in S 120 - -
Investment in T - 80 -
400 190 100

Share capital 200 100 50

Retained profits 100 60 30
Liabili�es 100 30 20
400 190 100

Required: Consolidated Statement of Financial Posi�on as at 31 December 20X4.

Vertical Group / Sub-Subsidiary
Consolidated Statement of Financial Position

MINNY
Minny is a company which operates in the service sector. Minny has business relationships
with Bower and Heeny. All three entities are public limited companies. The draft
statements of financial position of these entities are as follows at 30 November 2012:
Minny Bower Heeny
$m $m $m
Assets:
Non-current assets
Property, plant and equipment 920 300 310
Investments in subsidiaries
Bower 730
Heeny 320
Investment in Puttin 48
Intangible assets 198 30 35
––––– ––––– –––––
1,896 650 345
––––– ––––– –––––
Current assets 895 480 250
––––– ––––– –––––
Total assets 2,791 1,130 595
––––– ––––– –––––
Equity and liabilities:
Share capital 920 400 200
Other components of equity 73 37 25
Retained earnings 895 442 139
––––– ––––– –––––
Total equity 1,888 879 364
––––– ––––– –––––
Non-current liabilities 495 123 93
––––– ––––– –––––
Current liabilities 408 128 138
––––– ––––– –––––
Total liabilities 903 251 231
––––– ––––– –––––
Total equity and liabilities 2,791 1,130 595
––––– ––––– –––––
The following information is relevant to the preparation of the group financial statements:
(1) On 1 December 2010, Minny acquired 70% of the equity interests of Bower. The
purchase consideration comprised cash of $730 million. At acquisition, the fair value of the
non-controlling interest in Bower was $295 million. On 1 December 2010, the fair value of
the identifiable net assets acquired was $835 million and retained earnings of Bower
were $319 million and other components of equity were$27 million. The excess in
fair value is due to non-depreciable land.
(2) On 1 December 2011, Bower acquired 80% of the equity interests of Heeny for a cash
consideration of $320 million. The fair value of a 20% holding of the non-controlling
interest was $72 million, a 30% holding was $108 million and a 44% holding was$161
million. At the date of acquisition, the identifiable net assets of Heeny had a fair value of
$362 million, retained earnings were $106 million and other components of equity were
$20 million. The excess in fair value is due to non-depreciable land.
It is the group’s policy to measure the non-controlling interest at fair value at the date
of acquisition.
(3) Both Bower and Heeny were impairment tested at 30 November 2012. The
recoverable amounts of both cash generating units as stated in the individual
financial statements at 30 November 2012 were Bower, $1,425 million, and Heeny,$604
million, respectively. The directors of Minny felt that any impairment of assets was due to
the poor performance of the intangible assets and it was deemed that other assets were
already held at recoverable amount. The recoverable amounts have been determined
without consideration of liabilities which all relate to the financing of operations.
(4) Minny acquired a 14% interest in Puttin, a public limited company, on 1
December 2010 for a cash consideration of $18 million. The investment was
accounted for under IFRS 9 Financial Instruments and was designated as at fair value
through other comprehensive income. On 1 June 2012, Minny acquired an additional 16%
interest in Puttin for a cash consideration of $27 million and achieved significant influence.
The value of the original 14% investment on 1 June 2012 was $21 million. Puttin made
profits after tax of $20 million and $30 million for the years to 30 November 2011
and 30 November 2012 respectively. On 30 November 2012, Minny received a
dividend from Puttin of $2 million, which has been credited to other components of
equity.
(5) Minny purchased patents of $10 million to use in a project to develop new products on 1
December 2011. Minny has completed the investigative phase of the project, incurring
an additional cost of $7 million and has determined that the product can be developed
profitably. An effective and working prototype was created at a cost of$4 million and in
order to put the product into a condition for sale, a further$3 million was spent.
Finally, marketing costs of $2 million were incurred. All of the above costs are included in
the intangible assets of Minny.
(6) Minny intends to dispose of a major line of the parent’s business operations. At the date
the held for sale criteria were met, the carrying amount of the assets and liabilities
comprising the line of business were:
$m
Property, plant and equipment (PPE) 49
Inventory 18
Current liabilities 3
It is anticipated that Minny will realise $30 million for the business. No adjustments have
been made in the financial statements in relation to the above decision.
Required:
Prepare the consolidated statement of financial position for the Minny Group as at 30 November 2012.
Mixed Group / D-Shaped Group

The statements of financial posi�on H, S and T as at 31 December 20X7 were as follows:

H Ltd S Ltd T Ltd
$000 $000 $000
Investment in S 5,000 - -
Investment in T 1,000 1,750 -
Other Assets 11,900 9,000 2,400
17,900 10,750 2,400

Share capital 10,000 3,000 300

Retained profits 5,900 4,750 1,600
Liabili�es 2,000 3,000 500
17,900 10,750 2,400
 H acquired its 80% investment in S on 1 June 20X1.
 H acquired its 10% investment in S on 15 October 20X2.
 S acquired its 45% investment in T on 1 May 20X3.
The following informa�on is available:
Retained Retained
Earnings of S Ltd Earnings of T Ltd
$000 $000
1 June 20X1 2,000 500
15 October 20X2 2,300 650
1 May 20X3 3,000 800
The fair value of H’s 10% holding in T was Rs. 1,500,000 on 1 May 20X3.
Required: Prepare the consolidated statement of financial posi�on for the H Group as at 31 December
20X7.
Solu�on:
From the beginning of the repor�ng period up to 31 August 20X2, Mago should be consolidated as a
subsidiary because Rey has control over Mago.
On 1 Sep 20X2, as a result of the share issue, Rey’s shareholding is reduced to 40% and it retains just
two of the six seats on the board of directors. This would appear to give Rey significant influence over
Mago, but not control. In IAS 28, significant influence is presumed to exist when an en�ty holds at least
20% of the equity shares of the investee. IAS 28 also states that representa�on on the board of
directors provides evidence that significant influence exists. To have control over Mago, amongst other
considera�ons, Rey would need to have the power to direct the ac�vi�es of Mago and this is unlikely
to be the case when Rey can only appoint two out of six directors. Assuming therefore that Rey lost
control of Mago on 1 September 20X2, this is a deemed disposal and a loss of $2.9 million on the
deemed disposal should be recognised in the consolidated statement of profit or loss, calculated as:
$m $m
Fair value of considera�on received 0
Fair value of 40% investment retained ((18 + 5) × 40%) 9.2
Less: Share of consolidated carrying amount when control lost
- Net assets 14
- Goodwill (W2) 2
- Less non-controlling interests (W3) (3.9)
(12.1)
Loss on disposal (2.9)
The amount recognised in profit or loss includes a loss on disposal of the 35% shareholding and a profit
on the upli� of the retained interest to fair value; the fair value of the retained interest is the deemed
cost for equity accoun�ng purposes. For the final four months of the year, Rey has significant influence
over Mago, and therefore Mago should be equity accounted as an associate in the consolidated
financial statements. In the consolidated statement of financial posi�on, the investment in Mago
should be ini�ally recognised on 1 September 20X2 at its deemed cost of $9.2 million and then
subsequently measured by adding Rey’s 40% share of Mago’s post-acquisi�on reserves less any
impairment losses.
Complex Group / D-Shaped Group
Consolidated Statement of Financial Position

TRAILER

Trailer, a public limited company, operates in the manufacturing sector. Trailer has
investments in two other companies. The draft statements of financial position at
31 May 2013 are as follows:
Trailer Park Caller
$m $m $m
Assets:
Non-current assets
Property, plant and equipment 1,440 1,100 1,300
Investments in subsidiaries
Park 1,250
Caller 310 1,270
Financial assets 320 21 141
–––––– –––––– ––––––
3,320 2,391 1,441
–––––– –––––– ––––––
Current assets 895 681 150
–––––– –––––– ––––––
Total assets 4,215 3,072 1,591
–––––– –––––– ––––––
Equity and liabilities:
Share capital 1,750 1,210 800
Retained earnings 1,240 930 350
Other components of equity 125 80 95
–––––– –––––– ––––––
Total equity 3,115 2,220 1,245
–––––– –––––– ––––––
Non-current liabilities 985 765 150
–––––– –––––– ––––––
Current liabilities 115 87 196
–––––– –––––– ––––––
Total liabilities 1,100 852 346
–––––– –––––– ––––––
Total equity and liabilities 4,215 3,072 1,591
–––––– –––––– ––––––
The following information is relevant to the preparation of the group financial
statements:
(1) On 1 June 2011, Trailer acquired 14% of the equity interests of Caller for a cash
consideration of $260 million and Park acquired 70% of the equity interests of Caller for
a cash consideration of $1,270 million. At 1 June 2011, the identifiable net
assets of Caller had a fair value of $990 million, retained earnings were $190 million
and other components of equity were $52 million. At 1 June 2012, the identifiable net
assets of Caller had a fair value of$1,150 million, retained earnings were $240 million
and other components of equity were $70 million. The excess in fair value is due to
non-depreciable land. The fair value of the 14% holding of Trailer in Caller, which was
classified as fair value through profit or loss, was $280 million at 31 May 2012 and
$310 million at 31 May 2013. The fair value of Park’s interest in Caller had not changed
since acquisition.
(2) On 1 June 2012, Trailer acquired 60% of the equity interests of Park, a public limited
company. The purchase consideration comprised cash of$1,250 million. On 1
June 2012, the fair value of the identifiable net assets acquired was $1,950 million
and retained earnings of Park were $650 million and other components of equity were
$55 million. The excess in fair value is due to non-depreciable land. It is the group’s
policy to measure the non-controlling interest at acquisition at its proportionate share
of the fair value of the subsidiary’s net assets.
(3) Goodwill of Park and Caller was impairment tested at 31 May 2013. There was no
impairment relating to Caller. The recoverable amount of the net assets of Park was
$2,088 million. There was no impairment of the net assets of Park before this date and
any impairment loss has been determined to relate to goodwill and property, plant and
equipment.
(4) Trailer has made a loan of $50 million to a charitable organisation for the building of
new sporting facilities. The loan was made on 1 June 2012 and is repayable on maturity
in three years’ time. Interest is to be charged one year in arrears at 3%, but Trailer
assesses that an unsubsidised rate for such a loan would have been 6%. Trailer
recorded a financial asset at $50 million and reduced this by the interest received in
the year. The loss allowance has been correctly dealt with.

(5) On 1 June 2011, Trailer acquired office accommodation at a cost of $90 million with a 30-
year estimated useful life. During the year, the property market in the area slumped
and the fair value of the accommodation fell to $75 million at 31 May 2012 and this was
reflected in the financial statements. However, the market recovered unexpectedly
quickly due to the announcement of major government investment in the area’s
transport infrastructure. On 31 May 2013, the valuer advised Trailer that the offices
should now be valued at $105 million. Trailer has charged depreciation for the year but
has not taken account of the upward valuation of the offices. Trailer uses the
revaluation model and records any valuation change when advised to do so.
(6) Trailer has announced two major restructuring plans. The first plan is to reduce its capacity
by the closure of some of its smaller factories, which have already been identified. This
will lead to the redundancy of 500 employees, who have all individually been selected
and communicated with. The costs of this plan are $9 million in redundancy costs, $4
million in retraining costs and $5 million in lease termination costs. The second plan is to
re-organise the finance and information technology department over a one-year period
but it does not commence for two years. The plan results in 20% of finance staff losing
their jobs during the restructuring. The costs of this plan are $10 million in
redundancy costs, $6 million in retraining costs and $7 million in equipment lease
termination costs. No entries have been made in the financial statements for the above
plans.
(7) The following information relates to the group pension plan of Trailer:
1 June 2012 31 May 2013
$m $m
Fair value of plan assets 28 29
Actuarial value of defined benefit obligation 30 35
The contributions for the period received by the fund were $2 million and the
employee benefits paid in the year amounted to $3 million. The discount rate to be
used in any calculation is 5%. The current service cost for the period based on
actuarial calculations is $1 million. The above figures have not been taken into
account for the year ended 31 May 2013 except for the contributions paid
which have been entered in cash and the defined benefit obligation.

Required:
Prepare the group consolidated statement of financial position of Trailer as at 31 May 2013.
 Acquisition and Disposal of Subsidiary
Consolidated Statement of Cash flows [Indirect Method]

Consolidated financial statements of Malik Group of Companies (MGC) for the year ended
31 December 2014 are presented below:

Consolidated statement of financial position as on 31 December 2014

2014 2013 2014 2013
Equity Rs. in million Non-current assets Rs. in million
Ordinary shares (Rs.10 each) 15,000 15,000 Goodwill 19,300 18,500
Retained earnings 17,550 10,850 Property, plant and equipment 25,450 16,250
Other reserves * 7,500 5,250 Investment in associate 6,200 5,400
40,050 31,100 50,950 40,150
Non-controlling interest 3,100 3,200

Non-current liabilities Current assets

Loans from banks 5,000 3,000 Inventories 4,700 4,350
Deferred tax 1,500 1,050 Trade and other receivables 3,900 3,300
Cash and bank 2,100 1,400
Current liabilities
Trade and other payables 8,000 7,250
Income tax 3,875 3,525
Accrued interest 125 75
61,650 49,200 61,650 49,200
* include revaluation reserve

Consolidated statement of comprehensive income for the year ended 31 December 2014
Rs. in million
Revenue 20,900
Operating expenses (11,550)
Profit from operations 9,350
Gain on disposal of subsidiary 1,000
Finance cost (350)
Income from associates 1,150
Profit before taxation 11,150
Income tax expense (2,250)
Profit for the year 8,900
Other comprehensive income for the year
Re-measurement of post-employment benefits 2,000
Other comprehensive income from associates 500
Total comprehensive income 11,400

Profit attributable to:

 Parent shareholders 7,950
 Non-controlling interest 950
8,900

Total comprehensive income attributable to:

 Parent shareholders 10,200
 Non-controlling interest 1,200
11,400
Additional information:
(i) During the year, MGC acquired 80% holding in Gomel Limited (GL) against a cash
consideration of Rs. 15,000 million. On the date of acquisition, the non-controlling
interest’s holding was measured at its fair value of Rs. 3,400 million. The fair value of
net assets of GL at acquisition comprised of the following:

Rs. in million
Property, plant and equipment 12,800
Inventory 1,500
Trade and other receivables 2,400
Cash and bank 800
Loans from banks (400)
Trade and other payables (1,800)
Income tax (400)
14,900

(ii) During the year, MGC also disposed of its 60% shareholdings in Stone Limited (SL)
and realised cash proceeds of Rs. 8,500 million. This subsidiary had been acquired
several years ago for Rs. 6,000 million. At acquisition, the fair value of SL’s net assets
and non-controlling interest was Rs. 7,300 million and Rs. 3,200 million respectively.
On the date of disposal, the net assets of SL had a carrying value in the consolidated
statement of financial position as follows:

Rs. in million
Property, plant and equipment 7,250
Inventory 1,650
Trade and other receivables 1,500
Cash and bank 500
Loans from banks (300)
Trade and other payables (800)
9,800

(iii) Property, plant and equipment:

 Depreciation charge for the year is Rs. 3,850 million.
 A plant having carrying value of Rs. 2,500 million was sold for
Rs. 2,750 million. Gain on disposal has been credited to operating expenses.
 On the basis of a professional valuation report, increase of Rs. 2,000 million has
been recognized in the value of property, plant and equipment.

(iv) During the year, Rs. 1,250 million was paid as final dividend to ordinary
shareholders.

Required:
Prepare consolidated statement of cash flow of MGC for the year ended 31 December
2014, using the indirect method.
Step Acquisition of Subsidiary (From Simple Investment to Subsidiary)
Consolidated Statement of Cash flows

JOCATT GROUP

The following draft group financial statements relate to Jocatt, a public limited company:
Jocatt Group: Statement of financial position as at 30 November
2010 2009
$m $m
Non-current assets
Property, plant and equipment 327 254
Investment property 8 6
Goodwill 48 68
Intangible assets 85 72
Investment in associate 54
Financial assets at FV through OCI 94 90
––––– –––––
616 490
Current assets
Inventories 105 128
Trade receivables 62 113
Cash and cash equivalents 232 143
––––– –––––
Total assets 1,015 874
––––– –––––
Equity and Liabilities $m $m
Equity attributable to the owners of the parent:
Share capital 290 275
Retained earnings 343 324
Other components of equity 23 20
––––– –––––
656 619
Non-controlling interest 55 36
––––– –––––
Total equity 711 655
Non-current liabilities:
Long-term borrowings 67 71
Deferred tax 35 41
Long-term provisions-pension liability 25 22
Current liabilities:
Trade payables 144 55
Current tax payable 33 30
––––– –––––
Total equity and liabilities 1,015 874
––––– –––––
Jocatt Group: Statement of profit or loss and other comprehensive income for the year
ended 30 November 2010
$m
Revenue 434
Cost of sales (321)
–––––
Gross profit 113
Other income 15
Distribution costs (55.5)
Administrative expenses (36)
Finance costs paid (8)
Gains on property 10.5
Share of profit of associate 6
–––––
Profit before tax 45
Income tax expense (11)
–––––
Profit for the year 34
–––––
Other comprehensive income after tax – items that will not be reclassified $m
to profit or loss in future accounting periods:
Gain on financial assets at FV through OCI 2
Losses on property revaluation (7)
Net remeasurement component gain on defined benefit plan 8
–––––
Other comprehensive income for the year, net of tax 3
–––––
Total comprehensive income for the year 37
–––––
Profit attributable to:
Owners of the parent 24
Non-controlling interest 10
–––––
34
–––––
Total comprehensive income attributable to:
Owners of the parent 27
Non-controlling interest 10
–––––
37
–––––
 Jocatt Group: Statement of changes in equity for the year ended 30 November 2010
Share Retained Other Total Non- Total
capital earnings component controlling equity
of equity interest

$m $m $m $m $m $m
Balance at 1 Dec 2009 275 324 20 619 36 655
Share capital issued 15 15 15
Dividends (5) (5) (13) (18)
Rights issue 2 2
Acquisitions 20 20
Total comp inc for year 24 3 27 10 37
–––– –––– –––– –––– –––– ––––
Balance at 30 Nov 2010 290 343 23 656 55 711
–––– –––– –––– –––– –––– ––––

The following information relates to the financial statements of Jocatt:

(i) On 1 December 2008, Jocatt acquired 8% of the ordinary shares of Tigret. On
recognition, Jocatt had properly designated this investment as fair value through
other comprehensive income in the financial statements to 30 November 2009. On
1 December 2009, Jocatt acquired a further 52% of the ordinary shares of Tigret and
gained control of the company. The consideration for the acquisitions was as follows:
Holding Consideration
$m
1 December 2008 8% 4
1 December 2009 52% 30
––– –––
60% 34
––– –––
At 1 December 2009, the fair value of the 8% holding in Tigret held by Jocatt at the
time of the business combination was $5 million and the fair value of the non-
controlling interest in Tigret was $20 million. No gain or loss on the 8% holding in
Tigret had been reported in the financial statements at 1 December 2009. The
purchase consideration at 1 December 2009 comprised cash of $15 million and
shares of $15 million.
The fair value of the identifiable net assets of Tigret, excluding deferred tax assets
and liabilities, at the date of acquisition comprised the following:
$m
Property, plant and equipment 15
Intangible assets 18
Trade receivables 5
Cash 7
The tax base of the identifiable net assets of Tigret was $40 million at
1 December 2009. The tax rate of Tigret is 30%.
(ii) On 30 November 2010, Tigret made a rights issue on a 1 for 4 basis. The issue was
fully subscribed and raised $5 million in cash.
(iii) Jocatt purchased a research project from a third party including certain patents on
1 December 2009 for $8 million and recognised it as an intangible asset. During the
year, Jocatt incurred further costs, which included $2 million on completing the
research phase, $4 million in developing the product for sale and $1 million for the
initial marketing costs. There were no other additions to intangible assets in the
period other than those on the acquisition of Tigret.
(iv) Jocatt operates a defined benefit scheme. The current service costs for the year
ended 30 November 2010 are $10 million. Jocatt enhanced the benefits on
1 December 2009, however these do not vest until 30 November 2012. The total cost
of the enhancement is $6 million. The net interest cost of $2 million is included
within finance costs.
(v) Jocatt owns an investment property. During the year, part of the heating system of
the property, which had a carrying value of $0.5 million, was replaced by a new
system, which cost $1 million. Jocatt uses the fair value model for measuring
investment property.
(vi) Jocatt had exchanged surplus land with a carrying value of $10 million for cash of
$15 million and plant valued at $4 million. The transaction has commercial substance.
Depreciation for the period for property, plant and equipment was $27 million.
(vii) Goodwill relating to all subsidiaries had been impairment tested in the year to
30 November 2010 and any impairment accounted for. The goodwill impairment
related to those subsidiaries which were 100% owned.
(viii) Deferred tax of $1 million arose on the gains on the financial assets designated as fair
value through other comprehensive income in the year.
(ix) The associate did not pay any dividends in the year.

Required:
Prepare a consolidated statement of cash flows for the Jocatt Group using the
indirect method under IAS 7 ‘Statement of Cash Flows’.
Note: Ignore deferred taxation other than where it is mentioned in the question.
 Consolidated Statement of Cash flows [Direct Method]

Alpha Pakistan Limited (APL) is a listed company and has 60% holding in Bravo Limited (BL). The
company is in the process of preparation of its consolidated financial statements for the year ended
30 September 2011. Following are the extracts from the information that has been gathered so far:
Consolidated Statement of Comprehensive Income (Draft)
2011
Rs. in million
Sales 65,000
Cost of products sold (59,110)
Other operating income 2,000
Operating expenses (3,000)
Financial expenses (890)
Income tax expense (1,200)
Profit for the year 2,800
Profit attributable to

Owners of the holding company 2,500

Non-controlling interest 300
2,800

Consolidated Statement of Financial Position (Draft)

2011 2010 2011 2010
Rs. in million Rs. in million
Equity and liabilities Assets
Share capital (Rs. 10 each) 550 500 Property, plant and equipment 1,100 900
Retained earnings 5,950 3,600 Goodwill 15 15
Non-controlling interest 235 120 Long term receivables 24 29
Long term loans 440 145 Stock in trade 6,760 4,280
Deferred tax 210 10 Trade debts 7,534 5,421
Trade and other payables 4,688 3,970 Other receivables 900 725
Accrued financial expenses 35 30 Cash and bank balances 2,645 2,980
Provision for taxation 200 25
Short term borrowings 6,670 5,950
18,978 14,350 18,978 14,350

Following additional information is available:

(i) During the year, BL sold goods amounting to Rs. 140 million to APL at a margin of 25% of
cost. 40% of the above amount remained unpaid and 30% of the goods remained unsold as on
30 September 2011. No adjustments in this regard have been made in the above statements.
(ii) Depreciation charge for the year was Rs. 75 million and Rs. 15 million for APL and BL
respectively.
(iii) During the year APL acquired property, plant and equipment amounting to Rs. 250 million
against a long term loan.
(iv) The amount of long term receivables represents present value of interest free loans to
employees. The gross value of the loans is Rs. 27 million (2010: Rs. 33 million).
(v) Operating expenses include bad debt expenses amounting to Rs. 44 million. During the year,
trade debtors amounting to Rs. 30 million were written off.
(vi) Trade and other payables include APL’s unclaimed dividend amounting to Rs. 8 million (2010:
Rs. 10 million). At APL’s Board meeting held on 30 November 2011, final cash dividend of Rs.
3.0 per share has been proposed (2010: Final cash dividend of Rs 2.0 per share and 10% bonus
shares).

Required:
Prepare a consolidated statement of cash flows including all relevant notes for Alpha Pakistan
Limited for the year ended 30 September 2011 using the direct method in accordance
with International Financial Reporting Standards. (Ignore corresponding figures.)
Foreign Subsidiary
MEMO
Memo, a public limited company, owns 75% of the equity share capital of Random, a public
limited company which is situated in a foreign country. Memo acquired Random on 1
May 20X3 for 120 million crowns (CR) when the retained earnings of Random were 80
million crowns. Random has not revalued its assets or issued any equity capital since its
acquisition by Memo. The following financial statements relate to Memo and Random:
Statements of financial position at 30 April 20X4
Memo Random
$m CRm
Property, plant and equipment 297 146
Investment in Random 48 –
Loan to Random 5 –
Current assets 355 102
–––– ––––
705 248
–––– ––––

Equity and liabilities $m CRm

Equity shares of $1/1CR 60 32
Share premium account 50 20
Retained earnings 360 95
–––– ––––
470 147
Non-current liabilities 30 41
Current liabilities 205 60
–––– ––––
705 248
–––– ––––

Statements of profit or loss for year ended 30 April 20X4

Memo Random
$m CRm
Revenue 200 142
Cost of sales (120) (96)
–––– ––––
Gross profit 80 46
Distribution and administrative expenses (30) (20)
–––– ––––
Operating profit 50 26
Investment income 4 –
Finance costs – (2)
–––– ––––
Profit before taxation 54 24
Income tax expense (20) (9)
–––– ––––
Profit for the year 34 15
–––– ––––
There were no items of other comprehensive income in the financial statements of either
entity.
The following information is relevant to the preparation of the consolidated financial
statements of Memo:
(a) During the financial year Random has purchased raw materials from Memo and
denominated the purchase in crowns in its financial records. The details of the
transaction are set out below:
Date of Purchase Profit percentage
transaction price on selling price
$m
Raw materials 1 February 20X4 6 20%
At the year-end, half of the raw materials purchased were still in the inventory of
Random. The inter-company transactions have not been eliminated from the
financial statements and the goods were recorded by Random at the exchange rate
ruling on 1 February 20X4. A payment of $6 million was made to Memo when the
exchange rate was 2.2 crowns to $1. Any exchange gain or loss arising on the
transaction is still held in the current liabilities of Random.
(b) Memo had made an interest free loan to Random of $5 million on 1 May 20X3. The
loan was repaid on 30 May 20X4. Random had included the loan in non-current
liabilities and had recorded it at the exchange rate at 1 May 20X3.
(c) The fair value of the net assets of Random at the date of acquisition is to be assumed
to be the same as the carrying value. Memo uses the full goodwill method when
accounting for acquisition of a subsidiary. Goodwill was impairment tested at the
reporting date and had reduced in value by ten per cent. At the date of acquisition,
the fair value of the non-controlling interest was CR38 million.
(d) Random operates with a significant degree of autonomy in its business operations.

(e) The following exchange rates are relevant to the financial statements:
Crowns to $
30 April/1 May 20X3 2.5
1 November 20X3 2.6
1 February 20X4 2
30 April 20X4 2.1
Average rate for year to 30 April 20X4 2
(f) Memo has paid a dividend of $8 million during the financial year.

Required:
Prepare a consolidated statement of profit or loss and other comprehensive income for
the year ended 30 April 20X4 and a consolidated statement of financial position,
including separate disclosure of the group foreign exchange reserve, at 30 April 20X4 in
accordance with International Financial Reporting Standards.
Foreign Subsidiary
Bennie, a public limited company whose functional currency is the dollar ($), acquired 80% of
Jennie, a limited company, for $993,000 on 1 January 20X1. Jennie is a foreign operation whose
functional currency is the jen (J).

STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 20X2

Bennie Jennie
$’000 J’000
Property, plant and equipment 5,705 7,280
Cost of investment in Jennie 993 –
6,698 7,280
Current assets 2,222 5,600
8,920 12,880
Share capital 1,700 1,200
Pre‑acquisition retained earnings 5,280
Post‑acquisition retained earnings 5,185 2,400
6,885 8,880
Current liabilities 2,035 4,000
8,920 12,880

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 20X2

Bennie Jennie
$’000 J’000
Revenue 9,840 14,620
Cost of sales (5,870) (8,160)
Gross profit 3,970 6,460
Operating expenses (2,380) (3,570)

Dividend from Jennie 112 –––––

Profit before tax 1,702 2,890
Income tax expense (530) (850)
Profit/total comprehensive income for the year 1,172 2,040
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR (Extract for retained earnings)

Bennie Jennie
$’000 J’000
Balance at 1 January 20X2 4,623 6,760
Dividends paid (610) (1,120)
Total profit/comprehensive income for the year 1,172 2,040
Balance at 31 December 20X2 5,185 7,680

Jennie pays its dividends on 31 December. Jennie’s profit for 20X1 was 2,860,000 Jens and a
dividend of 1,380,000 Jens was paid on 31 December 20X1.
Jennie’s statements of financial position at acquisition and at 31 December 20X1 were as follows.
JENNIE

STATEMENTS OF FINANCIAL POSITION AS AT:

1.1.X1 31.12.X1
J’000 J’000
Property, plant and equipment 5,710 6,800
Current assets 3,360 5,040
9,070 11,840
Share capital 1,200 1,200
Retained earnings 5,280 6,760
6,480 7,960
Current liabilities 2,590 3,880
9,070 11,840

Exchange rates were as follows:

1 January 20X1 $1: 12 Jens

31 December 20X1 $1: 10 Jens
31 December 20X2 $1: 8 Jens
Weighted average rate for 20X1 $1: 11 Jens
Weighted average rate for 20X2 $1: 8.5 Jens

The fair values of the identifiable net assets of Jennie were equivalent to their book values at the
acquisition date. Bennie chose to measure the non-controlling interests in Jennie at fair value at
the date of acquisition. The fair value of the non-controlling interests in Jennie was measured at
2,676,000 Jens on 1 January 20X1.
An impairment test conducted at the year-end 31 December 20X2 revealed impairment losses of
1,870,000 Jens on recognised goodwill. No impairment losses were necessary in the year ended 31
December 20X1.
Ignore deferred tax on translation differences.
Required
Prepare the consolidated statement of financial position as at 31 December 20X2 and
consolidated statement of profit or loss and other comprehensive income for the Bennie Group for
the year then ended.
 Foreign Subsidiary
Consolidated Statement of Cash flows [Indirect Metod]

Set out below is a summary of the accounts of Weller for the year ended 31
December 20X7.

Consolidated statement of total comprehensive income for the year ended 31

December 20X7.

$000
Revenue 44,754
Cost of sales and other expenses (39,613)
Income from associates 30
Finance cost (note 3) (305)
------------
Profit before tax 4,866
Income tax (2,038)
-------------
Profit for the period 2,828

Other comprehensive income: items that may be reclassified to

profit or loss in future periods
Group exchange difference on retranslation of foreign subsidiary 302
(note 5)
------------
Total comprehensive income 3,130
------------

Profit for the year attributable to:

Attributable to owners of the parent 2,805
Attributable to Non-controlling interests 23
------------
Profit for the period 2,828
------------

Attributable to owners of the parent 3,107

Attributable to Non-controlling interests 23
-------
Total comprehensive income 3,130
-------

Statement of Changes in Group Equity

Shares OCE Retained Earnings NCI Total

$000 $000 $000 $000 $000

Opening balance 7,000 805 6,359 17 14,181
Comprehensive income 302 2,805 23 3,130
Dividends paid (445) (20) (465)
Acquisition of a subsidiary 150 150
-------- ------- ---------- ----- ---------
Closing balance 7,000 1,107 8,719 170 16,996
--------- ------- ---------- ----- -------
Consolidated statements of financial position at 31 December

20X7 20X6
Note $000 $000 $000 $000
Non-current assets
Intangible asset goodwill (4&5) 500 85
Tangible assets (1) 11,157 8,900
Investment in associate 300 280
----------- -----------
11,957 9,265
Current assets
Inventories 9,749 7,624
Receivables 5,354 4,420
Investments (30 day bonds) 1,543 741
Cash at bank and in hand 1,013 17,659 394 13,179
------------- ---------- ---------- -----------
29,616 22,444
---------- ----------
Equity and liabilities
Equity share capital 7,000 7,000
OCE 1,107 805
Retained earnings 8,719 6,359
NCI 170 17
----------- ----------
Total equity 16,996 14,181
Non-current liabilities:
Loans 2,102 1,682
Provision for deferred tax 555 689
Pension deficit (3) 735 246

Current liabilities (2) 9,228 5,646

---------- ----------
29,616 22,444
----------- ----------

Notes to the accounts

(1) Tangible assets

Non-current asset movements included the following:
$000
Disposals at carrying amount 305
Proceeds from asset sales 854
Depreciations provided for the year 907

(2) Current liabilities

20X7 20X6
$000 $000
Bank overdraft 1,228 91
Trade payables 4,278 2,989
Tax 3,722 2,566
--------- --------
9,228 5,646
--------- --------
(3) Pension fund deficit

The company has a defined benefit pension fund and the

reconciliation of its deficit is as follows.

$000
At 31 December 20X6 246
Net finance cost 29
Current service cost 560
Cash contribution (100)
---------
At 31 December 20X7 735
---------
(4) Hannah

During the year, the company acquired 82% of the issued equity capital of
Hannah for a cash consideration of $1,268,000. The non-controlling interest is
valued using the proportion of net assets method
$000
Non-current assets 208
Inventories 612
Trade receivables 500
Cash in hand 232
Trade payables (407)
Debenture loans (312)
---------
833
-------

(5) Group Exchange gains

Exchange gains on translating the financial statements of a wholly-owned

subsidiary have been taken to equity and comprise differences on the
retranslation of the following:
$000
Goodwill 9
Non-current assets – PPE 100
Inventories 116
Trade receivables 286
Trade payables (209)
---------
302
-------

Required:

Prepare the statement of cash flows for the Weller group for the year ended 31
December 20X7 using the indirect method.
Joint arrangement – Joint Opera�on

ABM Mining entered into an arrangement with another en�ty, Delta Extrac�ve Industries, and the
na�onal Government to extract coal from a surface mine. Under the terms of the agreement, each of
the two en��es is en�tled to 40% of the income from selling the coal with the remainder allocated to
the government. Machinery is purchased by each investor as necessary and all costs (including
deprecia�on in the case of the machinery which remains the property of each en�ty) are shared in the
same propor�ons as the income. Coal inventories on hand at any point in �me belong to the three
par�es in the same propor�ons. All decisions must be made unanimously by the three par�es.
During the first accoun�ng period where the arrangement existed, 460,000 tons of coal were extracted
by ABM and sold at an average market price of $120 per ton. 540,000 tons were extracted and sold by
Delta at an average price of $118 per ton. All coal extracted was sold before the year end. The price of
coal at the year end was $124 per ton.
Required: Discuss, with suitable computa�ons, the accoun�ng treatment of the above arrangement
in ABM Mining’s financial statements during the first accoun�ng period.
Solu�on
The rela�onship between the three par�es qualifies as a joint arrangement as decisions have to be
made unanimously. It appears that each party has direct rights to the assets of the arrangement,
illustrated by the ownership of coal inventories. Similarly, each party has obliga�ons for the liabili�es
as all costs are shared in the same propor�ons as the income. Consequently, the arrangement should
be accounted for as a joint opera�on.
Total revenue earned by the opera�on in the period is $118.92 million ((460,000 × $120) + (540,000 ×
$118)). ABM’s share of this revenue recognised in its own financial statements is 40%, i.e. $47,568,000.
The remainder of the revenue ABM collects of $7,632,000 ((460,000 × $120) – $47,568,000) is
recognised as a liability (in the joint opera�on account), represen�ng amounts owed to the na�onal
government.
ABM will record the machinery it purchased in full in its own financial statements. 40% of the
deprecia�on will be charged to cost of sales and the remainder recognised as a receivable balance (in
the joint opera�on account). The same treatment will apply to other joint costs incurred by ABM. ABM
is also required to recognise a 40% share of costs incurred by the other operators and a corresponding
liability (in the joint opera�on account).
Joint arrangement – Joint Opera�on

Blast has a 30% share in a joint opera�on. The assets, liabili�es, revenues and costs of the joint
opera�on are appor�oned on the basis of shareholdings. The following informa�on relates to the joint
arrangement ac�vity for the year ended 30 November 20X2:
 The manufacturing facility cost $30m to construct and was completed on 1 December 20X1 and is
to be dismantled at the end of its es�mated useful life of 10 years. The present value of this
dismantling cost to the joint arrangement at 1 December 20X1, using a discount rate of 8%, was
$3m.
 During the year ended 30 November 20X2, the joint opera�on entered into the following
transac�ons:
- goods with a produc�on cost of $36m were sold for $50m
- other opera�ng costs incurred amounted to $1m
- administra�on expenses incurred amounted to $2m.
Blast has only accounted for its share of the cost of the manufacturing facility, amoun�ng to $9m. The
revenue and costs are receivable and payable by the two other joint opera�on partners who will setle
amounts outstanding with Blast a�er each repor�ng date.
Required: Show how Blast will account for the joint opera�on within its financial statements for the
year ended 30 November 20X2.
 Joint Venture and Joint Operation
Statement of Financial Position

On 1 July 2012 Alpha Limited (AL) and Beta Limited (BL) entered into an agreement to set
up two Separate Vehicles (SVs) to manufacture and distribute their products. Each company
has 50% share in both SVs. The following are the extracts from draft statements of financial
position and comprehensive income of AL and the SVs for the year ended 30 June 2016.

Statements of financial position

AL SV-1 SV-2 AL SV-1 SV-2
Rs. in million Rs. in million
Property, plant and equipment 2,650 750 365 Capital 2,000 400 200
Investment in SVs - at cost 443 - - Accumulated profit 1,193 55 305
Stock in hand 695 250 140 10% bank loan 500 320 -
Other assets 570 180 80 Current liabilities 665 405 80
4,358 1,180 585 4,358 1,180 585

Statement of comprehensive income

AL SV-1 SV-2
-------- Rs. in million --------
Sales 4,250 650 1,000
Less: Cost of sales (2,993) (480) (750)
Gross profit 1,257 170 250
Less: Expenses (657) (145) (200)
Net profit 600 25 50

Additional information:
(i) SV-1 is classified as joint operation whereas SV-2 is classified as joint venture.
(ii) On 1 July 2015, AL acquired 60% of BL’s ownership in SV-1 at Rs. 140 million. AL
also incurred acquisition related costs amounting to Rs. 3 million which were
capitalized.
(iii) The details of transactions made during the year 2016 between AL and the SVs and
their subsequent status are given below:

Amount receivable/
Included in buyer’s
Sales (payable) in the Profit % on
closing inventories
books of AL sales
--------------- Rs. in million ---------------
AL to SV-1 350 220 320 10
AL to SV-2 250 110 70 20
SV-1 to AL 190 150 (150) 30
SV-2 to AL 60 38 (20) 15

(iv) AL follows the equity method for recording its investment in joint venture whereas
investment in joint operations is recorded in accordance with IFRS-11.

Required:
In accordance with the requirements of International Financial Reporting Standards,
prepare AL’s separate statements of financial position and comprehensive income for the
year ended 30 June 2016.