Contents

ZANDA MAR-JUN 2016..........................................................................................................................................1

PARADIGM Q1 JUNE 2013....................................................................................................................................3
PARTY – SEPDEC 2017.........................................................................................................................................4
PYRAMID (6/12)........................................................................................................................................................6
JOGGER Co (CBE Sep/Dec 19) – Consolidated BS........................................................................................7
BYCOMB Q1 JUNE 2015........................................................................................................................................8
PLASTIK Q3 DEC 14...............................................................................................................................................9
PENKETH Q1 JUN 2014.......................................................................................................................................11
PANDAR 12/09 - CSOPL......................................................................................................................................12
PREMIER 12/10 – CSOPL OCI & CSOFP..........................................................................................................14
PRODIGAL 12/10 – CSOPL OCI & CSOFP.......................................................................................................16
PLANK CO (MJ20) – COSPLOCI........................................................................................................................18
SILVER (CBE MJ21) – CSOPL OCI & CSOFP.................................................................................................19
DARGENT MAR/ JUN 2017..................................................................................................................................20

No Question Period Required Working

1 PREMIER DEC 10 CSOPL,CSOFP URP (S->P)
2 PRODIGAL DEC 10 CSOPL, Equity section
3 PYRAMID JUN 12 CSOFP, Associate FV adj - DTL, GIT, CIT
4 PANDAR SEP 12 GW, associate, CSOPL Interest, Intra dividend
PARADIG
5 JUN 13 CSOFP Share exchange, FV Plant, URP (P->S), CIT
M
6 PLASTIK DEC 14 CSOPL,CSOFP URP (P->S), GW impairment
7 PENKETH JUN 14 GW, CSOPL, Associate URP (P->S), Dividend from associate
8 BYCOMB JUN 15 GW, CSOPL extract Interest (IAS 23)
9 ZANDA MJ 16 Goodwill, RE, NCI, CSOFP
10 DARGENT MJ 2017 CSOFP, associate Decomission cost, GIT, associate
11 PARTY SD 17 CSOFP Deferred consideration, FV adj - Inventory
12 JOGGER SD 19 CSOFP, Associate (b) URP (S->P)
13 PLANK CO MJ 20 CSOPL (associate), CA of associate Intragroup dividend
14 SILVER MJ 21 GW, CSOPL FV adj - contigent, dividend, convertible LN
ZANDA MAR-JUN 2016
On 1 October 2015, Zanda Co acquired 60% of Medda Co’s equity shares by means of a share
exchange of one new share in Zanda Co for every two acquired shares in Medda Co. In addition, Zanda
Co will pay a further $0·54 per acquired share on 30 September 2016.

Zanda Co has not recorded any of the purchase consideration and its cost of capital is 8% per annum.
The market value of Zanda Co’s shares at 1 October 2015 was $3·00 each. The summarised
statements of financial position of the two companies as at 31 March 2016 are:

The following information is relevant:

(i) At the date of acquisition, Zanda Co conducted a fair value exercise on Medda Co’s net assets
which were equal to their carrying amounts (including Medda Co’s financial asset equity
investments) with the exception of an item of plant which had a fair value of $2.5m below its
carrying amount. The plant had a remaining useful life of 30 months at 1 October 2015. The
directors of Zanda Co are of the opinion that an unrecorded deferred tax asset of $1·2 million at
1 October 2015, relating to Medda Co’s losses, can be relieved in the near future as a result of
the acquisition. At 31 March 2016, the directors’ opinion has not changed, nor has the value of
the deferred tax asset.
(ii) Zanda Co’s policy is to value the non-controlling interest at fair value at the date of acquisition.
For this purpose, a share price for Medda Co of $1·50 each is representative of the fair value of
the shares held by the noncontrolling interest.
(iii) At 31 March 2016, Medda Co held goods in inventory which had been supplied by Zanda Co at a
mark-up on cost of 35%. These goods had cost Medda Co $2·43 million.
 (iv) The financial asset equity investments of Zanda Co and Medda Co are carried at their fair values
at 1 April 2015. At 31 March 2016, these had fair values of $6·1 million and $1·8 million
respectively, with the change in Medda Co’s investments all occurring since the acquisition on 1
October 2015.
(v) There is no impairment to goodwill at 31 March 2016.

Required: Prepare the following extracts from the consolidated statement of financial position of
Zanda Co as at 31 March 2016: (i) Goodwill; (ii) Retained earnings; (iii) Non-controlling interest.

The following mark allocation is provided as guidance for this question: (i) 6 marks (ii) 7 marks (iii) 2
marks

PARADIGM Q1 JUNE 2013

(a)On 1 October 2012, Paradigm acquired 75% of Strata’s equity shares by means of a share
exchange of two new shares in Paradigm for every five acquired shares in Strata. In addition,
Paradigm issued to the shareholders of Strata a $100 10% loan note for every 1,000 shares it
acquired in Strata. Paradigm has not recorded any of the purchase consideration, although it does
have other 10% loan notes already in issue. The market value of Paradigm’s shares at 1 October
2012 was $2 each. The summarised statements of financial position of the two companies as at 31
March 2013 are:

The following information is relevant:

(i) At the date of acquisition, Strata produced a draft statement of profit or loss which showed it had
made a net loss after tax of $2 million at that date. Paradigm accepted this figure as the basis for
calculating the
 pre- and post-acquisition split of Strata’s profit for the year ended 31 March 2013.
Also at the date of acquisition, Paradigm conducted a fair value exercise on Strata’s net assets which
were equal to their carrying amounts (including Strata’s financial asset equity investments) with the
exception of an item of plant which had a fair value of $3million below its carrying amount. The plant had
a remaining economic life of three years at 1 October 2012.

Paradigm’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this
purpose, a share price for Strata of $1·20 each is representative of the fair value of the shares held by
the
non-controlling interest.

(ii) Each month since acquisition, Paradigm’s sales to Strata were consistently $4·6 million. Paradigm
had
marked these up by 15% on cost. Strata had one month’s supply ($4·6 million) of these goods in
inventory
at 31 March 2013. Paradigm’s normal mark-up (to third party customers) is 40%.

(iii) Strata’s current account balance with Paradigm at 31 March 2013 was $2·8 million, which did not
agree with Paradigm’s equivalent receivable due to a payment of $900,000 made by Strata on 28 March
2013, which was not received by Paradigm until 3 April 2013.

(iv) The financial asset equity investments of Paradigm and Strata are carried at their fair values as at 1
April 2012. As at 31 March 2013, these had fair values of $7·1 million and $3·9 million respectively.

(vi) There were no impairment losses within the group during the year ended 31 March 2013.

Required:
Prepare the consolidated statement of financial position for Paradigm as at 31 March 2013.

PARTY – SEPDEC 2017

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

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

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

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

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

Required:

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

(b) Party Co has a strategy of buying struggling businesses, reversing their decline and then selling
them on at a profit within a short period of time. Party Co is hoping to do this with Streamer Co.

As an adviser to a prospective purchaser of Streamer Co, explain any concerns you would raise
about making an investment decision based on the information available in the Party Group’s
 consolidated financial statements in comparison to that available in the individual financial
statements of Streamer Co.

PYRAMID (6/12)
On 1 April 20X1, Pyramid acquired 80% of Square’s equity shares by means of an immediate share
exchange and a cash payment of 88 cents per acquired share, deferred until 1 April 20X2. Pyramid has
recorded the share exchange, but not the cash consideration. Pyramid’s cost of capital is 10% per annum.

The summarised statements of financial position of the two companies as at 31 March 20X2 are:

The following information is relevant:

(i) At the date of acquisition, Pyramid conducted a fair value exercise on Square’s net assets which were
equal to their carrying amounts with the following exceptions:

– An item of plant had a fair value of $3 million above its carrying amount. At the date of acquisition it had a
remaining life of five years. Ignore deferred tax relating to this fair value.

– Square had an unrecorded deferred tax liability of $1 million, which was unchanged as at 31 March 20X2.
Pyramid’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this
purpose a share price for Square of $3·50 each is representative of the fair value of the shares held by the
non-controlling interest.

(ii) Immediately after the acquisition, Square issued $4 million of 11% loan notes, $2·5 million of which were
bought by Pyramid. All interest due on the loan notes as at 31 March 20X2 has been paid and received.

(iii) Pyramid sells goods to Square at cost plus 50%. Below is a summary of the recorded activities for the
year ended 31 March 20X2 and balances as at 31 March 20X2:

On 26 March 20X2, Pyramid sold and despatched goods to Square, which Square did not record until they
were received on 2 April 20X2. Square’s inventory was counted on 31 March 20X2 and does not include
any goods purchased from Pyramid.

On 27 March 20X2, Square remitted to Pyramid a cash payment which was not received by Pyramid until 4
April 20X2. This payment accounted for the remaining difference on the current accounts.

(iv) Pyramid bought 1·5 million shares in Cube on 1 October 20X1; this represents a holding of 30% of
Cube’s equity. At 31 March 20X2, Cube’s retained profits had increased by $2 million over their value at 1
October 20X1. Pyramid uses equity accounting in its consolidated financial statements for its investment in
Cube.

(v) The other equity investments of Pyramid are carried at their fair values on 1 April 20X1. At 31 March
20X2, these had increased to $2·8 million.

(vi) There were no impairment losses within the group during the year ended 31 March 20X2.

Required : Prepare the consolidated statement of financial position for Pyramid as at 31 March
20X2.

JOGGER Co (CBE Sep/Dec 19) – Consolidated BS

On 1 April 20X4, Runner Co acquired 80% of Jogger Co's equity shares when the retained earnings of
Jogger Co were $19.5m. The consideration consisted of cash of $42.5m paid on 1 April 20X4 and a further
cash payment of $21m, deferred until 1 April 20X5. No accounting entries have been made in respect of the
deferred cash payment. Runner Co has a cost of capital of 8%. The appropriate discount rate is 0.926.

The draft, summarised statements of financial position of the two companies at 31 March 20X5 are shown
below:

Runner Co Jogger Co
$'000 $'000

ASSETS
Non-current assets
Property plant and equipment 455,800 44,700
Investments 55,000 –
510,800 44,700
Current assets
Inventory 22,000 16,000
Trade receivables 35,300 9,000
Bank 2,800 1,500
60,100 26,500
Total assets 570,900 71,200

Equity and liabilities

Equity
Equity shares of $1 each 202,500 25,000
Retained earnings 286,600 28,600
489,100 53,600
Current liabilities
Trade Payables 81,800 17,600
Total equity and liabilities 570,900 71,200

i. Runner Co’s policy is to value the non-controlling interest at fair value at the date of
acquisition. The fair value of the non-controlling interest in Jogger Co on 1 April 20X4 was
estimated at $13m.
The fair values of Jogger Co's other assets, liabilities and contingent liabilities at 1 April 20X4
were equal to their carrying amounts with the exception of a specialised piece of plant which had
a fair value of $10m in excess of its carrying amount. This plant had a ten year remaining useful
life on 1 April 20X4.

ii. In December 20X4 Jogger Co sold goods to Runner Co for $6.4m, earning a gross margin of
15% on the sale. Runner Co still held $4.8m of these goods in its inventories at 31 March 20X5.
Jogger Co still had the full invoice value of $6.4m in its trade receivables at 31 March 20X5,
however, Runner Co’s payables only showed $3.4m as it made a payment of $3m on 31 March
20X5.

(a) Prepare the consolidated statement of financial position for Runner Co as at 31 March 20X5.
(16 marks)

(b) Runner Co acquired 30% of Walker Co's equity shares on 1 April 20X5 for $13m, Walker Co had been
performing poorly over the last few years and Runner Co hoped its influence over Walker Co would help to
turn the company around. In the year ended 31 March 20X6 Walker Co made a loss of $30m. Runner Co
has no contractual obligation to make good the losses relating to Walker Co.

Explain how Walker Co should be accounted for in the consolidated Statement of financial position
of Runner Co for the year ended 31 March 20X6. Your answer should also include a calculation of
the carrying amount of the investment in the associate at that date.

BYCOMB Q1 JUNE 2015

On 1 July 2014 Bycomb acquired 80% of Cyclip’s equity shares on the following terms:
– a share exchange of two shares in Bycomb for every three shares acquired in Cyclip; and

– a cash payment due on 30 June 2015 of $1·54 per share acquired (Bycomb’s cost of capital is 10% per
annum). At the date of acquisition, shares in Bycomb and Cyclip had a stock market value of $3·00 and
$2·50 each respectively. Statements of profit or loss for the year ended 31 March 2015:

The following information is also relevant:

(i) At the date of acquisition, the fair values of Cyclip’s assets were equal to their carrying amounts
with the exception of an item of plant which had a fair value of $720,000 above its carrying
amount. The remaining life of the plant at the date of acquisition was 18 months. Depreciation is
charged to cost of sales.
(ii) On 1 April 2014, Cyclip commenced the construction of a new production facility, financing this
by a bank loan. Cyclip has followed the local GAAP in the country where it operates which
prohibits the capitalisation of interest. Bycomb has calculated that, in accordance with IAS 23
Borrowing Costs, interest of $100,000 (which accrued evenly throughout the year) would have
been capitalised at 31 March 2015. The production facility is still under construction as at 31
March 2015.
(iii) Sales from Bycomb to Cyclip in the post-acquisition period were $3 million at a mark-up on cost
of 20%. Cyclip had $420,000 of these goods in inventory as at 31 March 2015.
(iv) Bycomb’s policy is to value the non-controlling interest at fair value at the date of acquisition. For
this purpose Cyclip’s share price at that date can be deemed to be representative of the fair
value of the shares held by the non-controlling interest.
(v) On 31 March 2015, Bycomb carried out an impairment review which identified that the goodwill
on the acquisition of Cyclip was impaired by $500,000. Impaired goodwill is charged to cost of
sales.

(a) Calculate the consolidated goodwill at the date of acquisition of Cyclip. (6 marks)
 (b) Prepare extracts from Bycomb’s consolidated statement of profit or loss for the year ended
31 March 2015, for: (i) revenue; (ii) cost of sales; (iii) finance costs; (iv) profit or loss attributable
to the non-controlling interest.

PLASTIK Q3 DEC 14
On 1 January 2014, Plastik acquired 80% of the equity share capital of Subtrak. The consideration was
satisfied by a share exchange of two shares in Plastik for every three acquired shares in Subtrak. At the
date of acquisition, shares in Plastik and Subtrak had a market value of $3 and $2·50 each respectively.
Plastik will also pay cash consideration of 27·5 cents on 1 January 2015 for each acquired share in Subtrak.
Plastik has a cost of capital of 10% per annum. None of the consideration has been recorded by Plastik.
Below are the summarised draft financial statements of both companies.

Statements of profit or loss and other comprehensive income for the year ended 30 September 2014:

Statements of financial position as at 30 September 2014:

The following information is relevant:

(i) At the date of acquisition, the fair values of Subtrak’s assets and liabilities were equal to their
carrying amounts with the exception of Subtrak’s property which had a fair value of $4 million
above its carrying amount. For consolidation purposes, this led to an increase in depreciation
charges (in cost of sales) of $100,000 in the post-acquisition period to 30 September 2014.
Subtrak has not incorporated the fair value property increase into its entity financial statements.
The policy of the Plastik group is to revalue all properties to fair value at each year end. On 30
September 2014, the increase in Plastik’s property has already been recorded, however, a
further increase of $600,000 in the value of Subtrak’s property since its value at acquisition and
30 September 2014 has not been recorded.
(ii) On 30 September 2014, Plastik accepted a $1 million 10% loan note from Subtrak.
(iii) Sales from Plastik to Subtrak throughout the year ended 30 September 2014 had consistently
been $300,000 per month. Plastik made a mark-up on cost of 25% on all these sales. $600,000
(at cost to Subtrak) of Subtrak’s inventory at 30 September 2014 had been supplied by Plastik in
the post-acquisition period.
(iv) Plastik had a trade receivable balance owing from Subtrak of $1·2 million as at 30 September
2014. This differed to the equivalent trade payable of Subtrak due to a payment by Subtrak of
$400,000 made in September 2014 which did not clear Plastik’s bank account until 4 October
2014. Plastik’s policy for cash timing differences is to adjust the parent’s financial statements.
(v) Plastik’s policy is to value the non-controlling interest at fair value at the date of acquisition. For
this purpose Subtrak’s share price at that date can be deemed to be representative of the fair
value of the shares held by the non-controlling interest.
 (vi) Due to recent adverse publicity concerning one of Subtrak’s major product lines, the goodwill
which arose on the acquisition of Subtrak has been impaired by $500,000 as at 30 September
2014. Goodwill impairment should be treated as an administrative expense.
(vii) Assume, except where indicated otherwise, that all items of income and expenditure accrue
evenly throughout the year.

Required:

(a) Prepare the consolidated statement of profit or loss and other comprehensive income for
Plastik for the year ended 30 September 2014.

(b) Prepare the consolidated statement of financial position for Plastik as at 30 September 2014.

PENKETH Q1 JUN 2014

On 1 October 2013, Penketh acquired 90 million of Sphere’s 150 million $1 equity shares. The acquisition
was achieved through a share exchange of one share in Penketh for every three shares in Sphere. At that
date the stock market prices of Penketh’s and Sphere’s shares were $4 and $2·50 per share respectively.
Additionally, Penketh will pay $1·54 cash on 30 September 2014 for each share acquired. Penketh’s
finance cost is 10% per annum.

The retained earnings of Sphere brought forward at 1 April 2013 were $120 million.

The summarised statements of profit or loss and other comprehensive income for the companies for the
year ended 31 March 2014 are:

The following information is relevant:

(i) A fair value exercise conducted on 1 October 2013 concluded that the carrying amounts of Sphere’s
net assets were equal to their fair values with the following exceptions:

– the fair value of Sphere’s land was $2 million in excess of its carrying amount
 – an item of plant had a fair value of $6 million in excess of its carrying amount. The plant had a
remaining life of two years at the date of acquisition. Plant depreciation is charged to cost of sales.

– Penketh placed a value of $5 million on Sphere’s good trading relationships with its customers.
Penketh expected, on average, a customer relationship to last for a further five years. Amortisation of
intangible assets is charged to administrative expenses.

(ii) Penketh’s group policy is to revalue land to market value at the end of each accounting period. Prior
to its acquisition, Sphere’s land had been valued at historical cost, but it has adopted the group policy
since its acquisition. In addition to the fair value increase in Sphere’s land of $2 million (see note (i)), it
had increased by a further $1 million since the acquisition.

(iii) On 1 October 2013, Penketh also acquired 30% of Ventor’s equity shares. Ventor’s profit after tax
for the year ended 31 March 2014 was $10 million and during March 2014 Ventor paid a dividend of
$6 million. Penketh uses equity accounting in its consolidated financial statements for its investment in
Ventor.

Sphere did not pay any dividends in the year ended 31 March 2014.

(iv) After the acquisition Penketh sold goods to Sphere for $20 million. Sphere had one fifth of these
goods still in inventory at 31 March 2014. In March 2014 Penketh sold goods to Ventor for $15 million,
all of which were still in inventory at 31 March 2014. All sales to Sphere and Ventor had a mark-up on
cost of 25%.

(v) Penketh’s policy is to value the non-controlling interest at the date of acquisition at its fair value. For
this purpose, the share price of Sphere at that date (1 October 2013) is representative of the fair value
of the shares held by the non-controlling interest.

(vi) All items in the above statements of profit or loss and other comprehensive income are deemed to
accrue evenly over the year unless otherwise indicated.

Required:
(a) Calculate the consolidated goodwill as at 1 October 2013.

(c) Prepare the consolidated statement of profit or loss and other comprehensive income of
Penketh for the year ended 31 March 2014.

PANDAR 12/09 - CSOPL

On 1 April 20X9 Pandar purchased 80% of the equity shares in Salva. The acquisition was through a share
exchange of three shares in Pandar for every five shares in Salva. The market prices of Pandar’s and
Salva’s shares at 1 April 20X9 were $6 per share and $3.20 respectively.On the same date Pandar
acquired 40% of the equity shares in Ambra paying $2 per share. The summarised statements of profit or
loss for the three companies for the year ended 30 September 20X9 are:
The following information for the equity of the companies at 30 September 20X9 is available:

The following information is relevant:

(i) The fair values of the net assets of Salva at the date of acquisition were equal to their carrying amounts
with the exception of an item of plant which had a carrying amount of $12 million and a fair value of $17
million. This plant had a remaining life of five years (straight-line depreciation) at the date of acquisition of
Salva. All depreciation is charged to cost of sales.

In addition, Salva owns the registration of a popular internet domain name. The registration, which had a
negligible cost, has a five year remaining life (at the date of acquisition); however, it is renewable indefinitely
at a nominal cost. At the date of acquisition the domain name was valued by a specialist company at $20
million.

The fair values of the plant and the domain name have not been reflected in Salva’s financial statements.
No fair value adjustments were required on the acquisition of the investment in Ambra.

(ii) Immediately after its acquisition of Salva, Pandar invested $50 million in an 8% loan note from Salva. All
interest accruing to 30 September 20X9 had been accounted for by both companies. Salva also has other
loans in issue at 30 September 20X9.

(iii) Pandar has credited the whole of the dividend it received from Salva to investment income.

(iv) After the acquisition, Pandar sold goods to Salva for $15 million on which Pandar made a gross profit of
20%. Salva had one third of these goods still in its inventory at 30 September 20X9. There are no intragroup
current account balances at 30 September 20X9.

(v) The non-controlling interest in Salva is to be valued at its (full) fair value at the date of acquisition. For
this purpose Salva’s share price at that date can be taken to be indicative of the fair value of the
shareholding of the non-controlling interest.
(vi) The goodwill of Salva has not suffered any impairment; however, due to its losses, the value of Pandar’s
investment in Ambra has been impaired by $3 million at 30 September 20X9.

(vii) All items in the above statements of profit or loss are deemed to accrue evenly over the year unless
otherwise indicated.

Required

(a) (i) Calculate the goodwill arising on the acquisition of Salva at 1 April 20X9; (6 marks)

(ii) Calculate the carrying amount of the investment in Ambra to be included within the consolidated
statement of financial position as at 30 September 20X9. (3 marks)

(b) Prepare the consolidated statement of profit or loss for the Pandar Group for the year ended 30
September 20X9. (16 marks)

PREMIER 12/10 – CSOPL OCI & CSOFP

On 1 June 20X1, Premier acquired 80% of the equity share capital of Sanford. The consideration consisted
of two elements: a share exchange of three shares in Premier for every five acquired shares in Sanford and
the issue of a $100 6% loan note for every 500 shares acquired in Sanford. The share issue has not yet
been recorded by Premier, but the issue of the loan notes has been recorded. At the date of z
each. Below are the summarized draft financial statements of both companies.
The following information is relevant:

(i) At the date of acquisition, the fair values of Sanford’s assets were equal to their carrying amounts with
the exception of its property. This had a fair value of $1.2 million below its carrying amount. This would lead
to a reduction of the depreciation charge (in cost of sales) of $50,000 in the post-acquisition period. Sanford
has not incorporated this value change into its entity financial statements.

Premier’s group policy is to revalue all properties to current value at each year end. On 30 September
20X1, the value of Sanford’s property was unchanged from its value at acquisition, but the land element of
Premier’s property had increased in value by $500,000 as shown in other comprehensive income.

(ii) Sales from Sanford to Premier throughout the year ended 30 September 20X1 had consistently been $1
million per month. Sanford made a mark-up on cost of 25% on these sales. Premier had $2 million (at cost
to Premier) of inventory that had been supplied in the post-acquisition period by Sanford as at 30
September 20X1.

(iii) Premier had a trade payable balance owing to Sanford of $350,000 as at 30 September 20X1. This
agreed with the corresponding receivable in Sanford’s books.

(iv) Premier’s investments include instruments that have increased in value by $300,000 during the year.
The other equity reserve relates to these investments and is based on their value as at 30 September 20X0.
There were no acquisitions or disposals of any of these investments during the year ended 30 September
20X1. Premier made an irrevocable election at initial recognition of these instruments to recognize all
changes in fair value through other comprehensive income.
(v) Premier’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this
purpose Sanford’s share price at that date can be deemed to be representative of the fair value of the
shares held by the non-controlling interest.

(vi) There has been no impairment of consolidated goodwill.

Required

(a) Prepare the consolidated statement of profit or loss and other comprehensive income for
Premier for the year ended 30 September 20X1. (9 marks)

(b) Prepare the consolidated statement of financial position for Premier as at 30 September 20X1.
(16 marks)

PRODIGAL 12/10 – CSOPL OCI & CSOFP

On 1 October 20X0 Prodigal purchased 75% of the equity shares in Sentinel. The acquisition was through a
share exchange of two shares in Prodigal for every three shares in Sentinel. The stock market price of
Prodigal’s shares at 1 October 20X0 was $4 per share. The summarised statements of profit or loss and
other comprehensive income for the two companies for the year ended 31 March 20X1 are:

The following information for the equity of the companies at 1 April 20X0 (i.e. before the share exchange
took place) is available:

The following information is relevant:

(i) Prodigal’s policy is to revalue the group’s land to market value at the end of each accounting period. Prior
to its acquisition Sentinel’s land had been valued at historical cost. During the post acquisition period
Sentinel’s land had increased in value over its value at the date of acquisition by $1 million. Sentinel has
recognised the revaluation within its own financial statements.

(ii) Immediately after the acquisition of Sentinel on 1 October 20X0, Prodigal transferred an item of plant
with a carrying amount of $4 million to Sentinel at an agreed value of $5 million. At this date the plant had a
remaining life of two and half years. Prodigal had included the profit on this transfer as a reduction in its
depreciation costs. All depreciation is charged to cost of sales.

(iii) After the acquisition Sentinel sold goods to Prodigal for $40 million. These goods had cost Sentinel $30
million. $12 million of the goods sold remained in Prodigal’s closing inventory.

(iv) Prodigal’s policy is to value the non-controlling interest of Sentinel at the date of acquisition at its fair
value which the directors determined to be $100 million.

(v) The goodwill of Sentinel has not suffered any impairment.

(vi) All items in the above statements of profit or loss and other comprehensive income are deemed to
accrue evenly over the year unless otherwise indicated.

Required

(a) (i) Prepare the consolidated statement of profit or loss and other comprehensive income of
Prodigal for the year ended 31 March 20X1; (14 marks)

(ii) Prepare the equity section (including the non-controlling interest) of the consolidated statement
of financial position of Prodigal as at 31 March 20X1. (7 marks)

(b) IFRS 3 Business combinations permits a non-controlling interest at the date of acquisition to be valued
by one of two methods: (i) at its proportionate share of the subsidiary’s identifiable net assets; or (ii) at its
fair value (usually determined by the directors of the parent company).

Required

Explain the difference that the accounting treatment of these alternative methods could have on the
consolidated financial statements, including where consolidated goodwill may be impaired

PLANK CO (MJ20) – COSPLOCI

Plank Co has owned 35% of Arch Co since 1.6.20X7 and it acquired 85% of Strip Co on 1.4.20X8. The
statement of profit & loss and other comprehensive income for the year ended 31.12.20X8 are:

Plank Co Strip Co Arch Co

$’000 $’000 $’000

Revenue 705,000 218,000 256,000

COGS (320,000) (81,000) (83,500)

Gross profit 385,000 137,000 172,500

Distribution costs (58,000) (16,000) (18,500)

Administrative expenses (92,000) (28,000) (29,000)

 Investment income 46,000 2,000 0

Finance costs (12,000) (14,000) (11,000)

Profit before tax 269,000 81,000 114,000

Income tax expense (51,500) (15,000) (21,430)

Profit for the year 217,500 66,000 92,570

Other comprehensive
income:

Gain on revaluation of land 2,800 3,000

Total comprehensive income

220,300 69,000 92,570
for the year

The following information is relevant:

(i) A fair value exercise conducted on 1.4.X8 concluded that the carrying amount of the Strip Co’s
net assets were equal to their fair values with the exception of an item of machinery which had a
fair value of $8m in excess of its carrying amount. At 1.4.X8, the machinery had a remaining life
of three years. Depreciation is charged to cost of sales.
(ii) Since acquisition, Plank Co has sold Strip Co totalling $39m. Strip Co had one quarter of these
goods in inventory at 31.12.20X8. During the year, Plank Co also sold goods to Arch Co for
$26m, all of which Arch Co held in inventory at 31.12.20X8. All of these goods had a mark-up on
cost of 30%.
(iii) The investment income of Plank Co for the year ended 31.12.20X8 includes dividends from Strip
Co and Arch Co (see note (iv)). It also includes $5m interest receivable on a loan made to Strip
Co on 1.4.20X8.
(iv) Strip Co paid a dividend to shareholders of $18m on 31.12.20X8. Arch Co paid a dividend on
31.12.20X8 of $35m.
(v) In Plank Co’s consolidated SOFP at 31.12.20X7. The carrying amount of Plank Co’s investment
in Arch Co was $145,000. This was calculated using equity accounting.
(vi) All other comprehensive income occurred after 1.4.20X8, unless otherwise indicated, all other
items in the above statements of profit or loss and other comprehensive income are deem
accrued evenly over the year.

Required:

(a) Prepare the consolidated statement of profit or loss and other comprehensive income of
Plank Co for the year ended 31.12.20X8. (18 marks)
(b) Calculate the carrying amount of the investment in Arch Co in the consolidated statement of
financial position of Plank Co as at 31.12.20X8. (2 marks)

SILVER (CBE MJ21) – CSOPL OCI & CSOFP

On 1 Jan 20X2, Gold Co acquired 90% of the 16 million $1 equity share capital of Silver Co. Gold Co issued
three new shares exchange for every five shares it acquired in Silver Co. Additionally Gold Co will pay
further consideration on 31 Dec 20X2 of $2.42 per share acquired. Gold Co’s cost of capital is 10% per
annum and the discount factor at 10% for one year is 0.9091. At the date of acquisition, shares in Gold Co
and Silver Co had fair values of $8.00 and $3.50 respectively.

Statement of profit or loss for the year ended 30 Sep 20X2:

Gold Co Silver Co

$’000 $’000

Revenue 103,360 60,800

COS (81,920) (41,600)

Gross profit 21,440 19,200

Distribution costs (2,560) (2,980)

Investment income 800 0

Finance costs (672) 0

Profit before tax 12,928 12,480

Income tax expense (4,480) (2,560)

Profit for the year 8,448 9,920

The following information is relevant:

(1) At 1 Oct 20X1, the retained earnings of Silver Co were $56m

(2) At the date of acquisition, the fair value of Silver Co’s assets were equal to their carrying amounts
with the exception of two items:
- An item of plant had a fair value of $2.6m above its carrying amount. The remaining life of the
plant at the date of acquisition was three years. Depreciation is charged to cost of sales.
- Silver Co had a contingent liability which Gold Co estimated to have a fair value of $850,000.
This has not changed as at 30 Sep 20X2.
- Silver CO has not incorporated these fair value changes into its financial statements.
(3) Gold Co’s policy is to value NCI at fair value at the date of acquisition. For this purpose, Silver Co’s
share price at that date can be deemed to be representative of the fair value of the shares held by
the NCI.
(4) Sales from Gold Co to Silver Co in the post-acquisition period had consistently been $600,000 per
month. Gold Co made a mark-up on cost of 25% on these sales. Silver Co had $1.2m of these
goods in inventory as at 30 Sep 20X2.
(5) Gold Co’s investment income is a dividend received from its investment in a 40% owned associate
which it has held for several years. The associate made a profit of $3m for the year ended 30 Sep
20X2.
(6) On 1 Oct 20X1, Gold Co issue 100,000 $100 6% convertible loan notes at par value, with interest
payable annually in arerears over a five-year term. The equivalent rate for non-convertible loan
notes was 8%. Gold Co has recorded the loan notes as a liability at par value and charged the
annual 6% interest to finance costs.
Discount factors in year 5:
- 6% at 0.747
 - 8% at 0.681

Discount factors for 5 years:

- 6% at 4.212
- 8% at 3.993

(7) At 30 Sep X2, no impairment to goodwill is required.

(8) Profits accrue evenly throughout the years unless otherwise stated.

Required:

(a) Calculate goodwill arising on the acquisition of Silver Co.

(b) Prepare the consolidated SOPL for Gold Co for the year ended 30 Sep 20X2.

DARGENT MAR/ JUN 2017

On 1 January 20X6, Dargent Co acquired 75% of Latree Co’s equity shares by means of a share exchange
of two shares in Dargent Co for every three Latree Co shares acquired. On that date, further consideration
was also issued to the shareholders of Latree Co in the form of a $100 8% loan note for every 100 shares
acquired in Latree Co. None of the purchase consideration, nor the outstanding interest on the loan notes at
31 March 20X6, has yet been recorded by Dargent Co. At the date of acquisition, the share price of Dargent
Co and Latree Co is $3·20 and $1·80 respectively. The summarised statements of financial position of the
two companies as at 31 March 20X6 are:
The following information is relevant:

(i) At the date of acquisition, the fair values of Latree Co’s assets were equal to their carrying
amounts. However, Latree Co operates a mine which requires to be decommissioned in five
years’ time. No provision has been made for these decommissioning costs by Latree Co. The
present value (discounted at 8%) of the decommissioning is estimated at $4m and will be paid
five years from the date of acquisition (the end of the mine’s life).
(ii) Dargent Co’s policy is to value the non-controlling interest at fair value at the date of acquisition.
Latree Co’s share price at that date can be deemed to be representative of the fair value of the
shares held by the non-controlling interest.
(iii) The inventory of Latree Co includes goods bought from Dargent Co for $2·1m. Dargent Co
applies a consistent mark-up on cost of 40% when arriving at its selling prices. On 28 March
20X6, Dargent Co despatched goods to Latree Co with a selling price of $700,000. These were
not received by Latree Co until after the year end and so have not been included in the above
inventory at 31 March 20X6. At 31 March 20X6, Dargent Co’s records showed a receivable due
from Latree Co of $3m, this differed to the equivalent payable in Latree Co’s records due to the
goods in transit.
The intra-group reconciliation should be achieved by assuming that Latree Co had received the
goods in transit before the year end.
(iv) The investment in Amery Co represents 30% of its voting share capital and Dargent Co uses
equity accounting to account for this investment. Amery Co’s profit for the year ended 31
March 20X6 was $6m and Amery Co paid total dividends during the year ended 31 March 20X6
of $2m. Dargent Co has recorded its share of the dividend received from Amery Co in
investment income (and cash).
(v) All profits and losses accrued evenly throughout the year.
(vi) There were no impairment losses within the group for the year ended 31 March 20X6.

Required: Prepare the consolidated statement of financial position for Dargent Co as at 31

March 20X6.