Basic Consolidation
Question 92
QUESTION 92: BASIC CONSOLIDATION
Below are the summarised statements of financial position for three companies as at 31 March
2009:
Pacemaker
Syclop
Vardine
$m
$m
$m
$m
$m
$m
Assets
Non-current assets
Property, plant and equipment
520
280
240
Investments
345
40
nil
865
320
240
Current assets
Inventory
142
160
120
Trade receivables
95
88
50
Cash and bank
8
245
22
270
10
180
Total assets
1,110
590
420
Equity and liabilities
Equity shares of $1each
Share premium
Retained earnings
Non-current liabilities
10% loan notes
Current liabilities
Total equity and liabilities
500
100
130
230
730
180
200
1,110
145
nil
260
260
405
100
nil
240
20
165
590
240
340
nil
80
420
Notes:
Pacemaker is a public listed company that acquired the following investments:
(i)
Investment in Syclop
On 1 April 2007 Pacemaker acquired 116 million shares in Syclop for an immediate cash
payment of $210 million and issued at par one 10% $100 loan note for every 200 shares
acquired. Syclop’s retained earnings at the date of acquisition were $120 million.
(ii)
Investment in Vardine
On 1 October 2008 Pacemaker acquired 30 million shares in Vardine in exchange for 75
million of its own shares. The stock market value of Pacemaker’s shares at the date of this
share exchange was $1·60 each. Pacemaker has not yet recorded the investment in
Vardine.
(iii)
Pacemaker’s other investments, and those of Syclop, are classified as fair value through
other comprehensive income which are carried at their fair values as at 31 March 2008. The
fair value of these investments at 31 March 2009 is $82 million and $37 million respectively.
Other relevant information:
(iv)
Pacemaker’s policy is to value non-controlling interests at their fair values. The directors of
Pacemaker assessed the fair value of the non-controlling interest in Syclop at the date of
acquisition to be $65 million.
There has been no impairment to goodwill or the value of the investment in Vardine.
Page 1 of 5 (kashifadeel.com)
Basic Consolidation
(v)
Question 92
At the date of acquisition of Syclop owned a recently built property that was carried at its
(depreciated) construction cost of $62 million. The fair value of this property at the date of
acquisition was $82 million and it had an estimated remaining life of 20 years.
For many years Syclop has been selling some of its products under the brand name of
‘Kyklop’. At the date of acquisition the directors of Pacemaker valued this brand at $25
million with a remaining life of 10 years. The brand is not included in Syclop’s statement of
financial position.
The fair value of all other identifiable assets and liabilities of Syclop were equal to their
carrying values at the date of its acquisition.
(vi)
The inventory of Syclop at 31 March 2009 includes goods supplied by Pacemaker for $56
million (at selling price from Pacemaker). Pacemaker adds a mark-up of 40% on cost when
selling goods to Syclop. There are no intra-group receivables or payables at 31 March
2009.
(vii)
Vardine’s profit is subject to seasonal variation. Its profit for the year ended 31 March 2009
was $100 million. $20 million of this profit was made from 1 April 2008 to 30 September
2008.
(viii)
None of the companies have paid any dividends for many years.
Required:
Prepare the consolidated statement of financial position of Pacemaker as at 31 March 2009.
(25 marks)
ACCA F7 – June 2009 – Q1a
Page 2 of 5 (kashifadeel.com)
Basic Consolidation
Question 92
ANSWER TO QUESTION 92: BASIC CONSOLIDATION
Pacemaker
Consolidated Statement of Financial Position
As at 31 March 2009
Assets
PPE $520+280+20 J4 – 2 J5
Goodwill W3
Brand $25 J4 – 5 J5
Investment in associate $120 J2 + 24 J7
Other investments $345+40 – 268 J1 + 2 J3
$m
818
23
20
144
119
Current assets
Inventory $142+160 – 16 J6
Trade receivables $95+88
Cash and bank $8+22
Total assets
286
183
30
Equity
Equity shares $500+75 J2
Share premium $100 + 45 J2
Retained earnings W6
575
145
247
967
91
Non Controlling Interest W5
$m
1,124
499
1,623
1,058
Non - current liabilities
10% loan notes $180+20
200
Current Liabilities $200+165
365
Total equity and liabilities
W1 GROUP STRUCTURE
Syclop
Subsidiary
Vardine
Associate
1,623
Acquisition date:1 Apr 2007
Acquisition date:1 Oct 2008
Group = 80%
Group = 40%
NCI 20%
$m
W2 NET ASSETS (of subsidiary) AT ACQUISITION
Equity share capital
Retained earnings (pre)
J4
W3 GOODWILL
InvestmentJ1
Less: 310 W2 x 80%W1
S
145
120
45
310
S
268
(248)
20
65
(62)
3
23
Fair value of NCI
Less: 310W2 x 20%W1
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Basic Consolidation
Question 92
W4 POST ACQUISITION RESERVES (of subsidiary)
Balance [260 - 120]
J3
J5
RE
140
(3)
(7)
130
W5 NON CONTROLLING INTEREST
310 W2 x 20%W1
NCI goodwill W3
130 W4 x 20% W1
S
62
3
26
91
W6 GROUP RESERVES
Parent reserves
J3
J6
J7
RE
130
5
(16)
24
143
104
247
130W4 x 80% W1
JOURNAL ENTRIES WITH WORKINGS
Dr. $ million Cr.
Investment in subsidiary
Other investments
$210m + 116m shares x $100 / 200 shares = $268m
268
Investment in associate 75m x $1.6
Share capital 75m x $1
(ii)
2
Share premium 75m x $0.6
Investment now recorded
120
(i)
1
Other investments
(iii)
3 OCI / OR (Syclop)
OCI / OR (Pacemaker)
Parent
$82 – (345-268)
= $5 gain
Subsidiary $37 – 40
= $3 loss
(iv)
4
PPE
Brand
268
75
45
2
3
5
20
25
Reserves Pre (Syclop)
Fair value adjustment
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Basic Consolidation
Question 92
RE (Syclop)
PPE $20 /20 years x 2 years
(iv)
5
Brand $25/10 years x 2 years
Extra depreciation or amortization due to fair value adjustment
7
RE (Pacemaker)
Inventories
Unrealized profit $56m x 40/140 = $16m
16
Investment in associate
RE (Pacemaker)
Share of profit from associate
$(100m-20m) = $80m x 30% = $24m
24
(v)
(vi)
6
7
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