COMPLEX GROUP
1. FELLOW SUBSIDIARY
Question A
Plate Plc has two subsidiaries (Spoon and Knife) and one associate (Fork). Since the adoption of IFRS
by Government, Plate has been preparing its consolidated financial statements in accordance with the
principles of International Financial Reporting Standards (IFRS). The draft Statements of Financial
Position of Plate and its two subsidiaries as at 31 May 2013 are as follows:
Plate
Spoon
Knife
Non-current assets:
N’m
N’m
N’m
Plant
5,300
4,600
3,220
Investment- Spoon
6,000
Knife
2,560
Fork
400
Available for sale investment
1,020
120
100
Current assets:
Inventory
2,700
1,100
1,460
1,820
2,040
21,840
900
2,000
8,720
640
160
5,580
Equity & Liabilities:
Share capital
Retained earnings
Other components of equity
10,400
4,800
240
4,400
3,000
80
2,000
1,600
140
Non-current liabilities:
Long term loans
Deferred tax
2,400
500
300
180
100
60
2,300
1,200
21,840
600
160
8,720
1,200
480
5,580
Trade receivables
Cash & cash equivalents
Current liabilities:
Trade payables
Current tax payable
The following information is relevant to the preparation of the group financial statements:
i. On 1 June, 2012, Plate acquired 80% of the equity interest of Spoon Plc. On the date of acquisition,
the retained earnings of Spoon was N2.72billion and other components of equity were N80million.
There had been no new issue of capital by Spoon since the date of acquisition. The purchase
consideration comprised cash of N6billion whereas the fair value of the identifiable net assets of
Spoon on this date was N8billion. The excess of the fair value of the net assets is due to an increase in
the value of non-depreciable land. An independent valuer has stated that the fair value of the noncontrolling interests in Spoon was N1.72billion on 1 June, 2012. It is the policy of Plate to measure
non-controlling interests on the basis of their proportionate share in the identifiable net assets of the
acquired subsidiary and not at fair value (full goodwill method).
II. Spoon has an internally developed brand name which has a fair value of N10 million on acquisition
date.
III. N50 million cost relating to the acquisition of Spoon plc are also included in the cost of investment.
N20 million of these acquisition cost were costs in connection with issuance of shares.
iV. Also on 1 June, 2012, Plate acquired 70% of the ordinary shares of Knife. The consideration for the
acquisition of these shares was N2.56billion. Under the purchase agreement of 1 June, 2012, Plate is
required to pay the former shareholders of Knife 30% of the profits of Knife on 31 May, 2014 for each
of the financial years to 31 May, 2013 and 31 May, 2014. The fair value of this arrangement was
estimated at N120million at 1 June, 2012 and this value has not changed. This amount has not been
included in the financial statements.
The fair value of the identifiable net assets at 1 June, 2012 of Knife was N3.52billion and the retained
earnings and other components of equity were N1.1billion and N140million respectively. There had
been no new issue of share capital by Knife since the date of acquisition and the excess of the fair
value of the net assets is due to an increase in the value of property, plant and equipment (PPE). The
fair value of the non-controlling interests in Knife was N1.06billion on this date. PPE is depreciated on
a straight-line basis over seven years.
V. Finally, Plate acquired a 25% interest in Fork Plc on 1 June, 2012 for N400million achieving
significant influence over that company in its financial and operating policy decisions. Fork Plc retained
earnings for the year to 31 May, 2013 was N200 million.
VI. Included in trade receivables of Plate at 31 May, 2013 is a receivable from Spoon of N30million.
Unknown to Plate, Spoon has paid this amount through a bank transfer by the close of work on 31
May, 2013 but it had not yet been reflected in the bank statement of Plate. Spoon has already passed
accounting entries to reflect this transaction.
VII. Goodwill arising on the purchase of Knife was tested for impairment on 31 May, 2013 and this
provided evidence of impairment to the tune of N36million. No accounting entries have been passed
to reflect the impairment.
Required:
Prepare a consolidated statement of financial position as at 31 May, 2013 for the Plate Group
2. SUB-SUBSIDIARY
A. The draft statements of financial position of Eye, Nose & Mouth as at 30thSeptember 2009, are as
follows:
Eye
Nose
Mouth
N’000
N’000
N’000
Assets:
PPE
800,600
420,800 300,750
Shares in Nose
280,900
Shares in Mouth
270,000
Current Assets:
Equity & Liabilities:
Equity capital
Share premium
Retained earnings
1,450,000 369,100 499,100
2,531,500 1,059,900 799.850
======= ======= ======
200,000
410,000
720,800
150,000
80,000
295,500
100,000
50,000
183,600
Non-current liabilities
680,100
209,100
180,350
Current liabilities
520,600
325,300 285,900
2,531,500 1,059,900 799.850
======= ======= ======
Additional information:
• Eye acquired 55% shares in Nose on 1 January, 2007 when the retained earnings of Nose
amounted to N88 million.
• Nose acquired 80% shares in Mouth on 30 June 2008 when the retained earnings of Mouth
amounted to N70.5 million. Mouth retained earnings as at 1 January, 2007 stood at N48.2
million.
• It is the policy of the group to measure NCI at acquisition using proportionate share of net
asset basis.
• Eye supplies a component to Nose and Mouth at cost plus mark up of 25%. At 30th
September 2009, the inventories of Nose and Mouth included N3.8 million and N4.5 million
of these components respectively.
• The trade receivables of Eye showed an amount of N2 million receivable from Nose while
the trade payables of Nose showed an amount payable to Eye of N1.5 million. The
difference being as a result of cheque sent by Nose on 28th September which was not
received by Eye until 2nd of October, 2009.
• Goodwill has suffered no impairment.
Required:Prepare consolidated SFP of Eye group at 30September, 2009.
B. Slim is a company which operates in the service sector. Slim has business relationships with Fat and
Big. All three entities are public limited companies. The draft statements of financial position of
these entities are as follows:
Slim
Fat
Big
N’m
N’m
N’m
Assets:
PPE
920
300
310
Investment:
Fat
730
Big
320
Investment –skinny
48
Intangible assets
198
30
35
Current Assets:
895
480
250
2,791
1,130
595
====
=====
====
Equity & Liabilities:
Equity capital
920
400
200
Other component of equity 73
37
25
Retained earnings
895
442
139
Non-current liabilities
Current liabilities
495
123
93
408
2,791
====
128
1,130
=====
138
595
====
Additional information:
i. On 1 December 2010, Slim acquired 70% of the equity interest in Fat. The purchase consideration
comprised cash of N730million. At acquisition, the fair value of the NCI in Fat was N295million.
On 1 December 2010, the fair value of the identifiable net assets acquired was N835million and
retained earnings of Fat were N319million and other components of equity were N27million. The
excess in fair value is due to non-depreciable land.
ii. On 1 December 2011, Fat acquired 80% of the equity interest of Big for a cash consideration of
N320million. The fair value of a 20% holding of NCI was N72million; a 30% holding was
N108million and a 44% holding was N161million. At the date of acquisition, the identifiable net
assets of Big had a fair value of N362million, retained earnings were N106million and other
components of equity were N20million. The excess in fair value is due to non-depreciable land.
iii. It is the group’s policy to measure NCI at fair value at the date of acquisition.
iv. Both Fat & Big 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
Fat, N1,425million and Big, N604million, respectively. The directors of Slim felt that any
impairment of assets were due to poor performance of the intangible assets. The recoverable
amount has been determined without consideration of liabilities which relate to the financing of
operations.
v. Slim acquired a 14% interest in Skinny, a public limited company, on 1 December 2010 for a cash
consideration of N18million. The investment was accounted for under IFRS 9 financial instrument
and was designated as at a fair value through other comprehensive income. On 1 June 2012, Slim
acquired an additional 16% interest in Skinny for a cash consideration of N27million and achieved
significant influence. The value of the original 14% investment on 1 June 2012 was N21million.
Skinny made profits after tax of N20million and N30million for the years to 30 November 2011
and 30 November 2012 respectively. On 30 November 2012, Slim received a dividend from Skinny
of N2million, which has been credited to other components of equity.
vi. Slim purchased patents of N10million to use in a project to develop new products on 1 December
2011. Slim has completed the investigative phase of the project, incurring an additional cost of
N7million and has determined that the product can be developed profitably. An effective and
working prototype was created at a cost of N4million and in order to put the product for sale, a
further N3million was spent. Finally, marketing costs of N2million were incurred. All of the above
costs are included in the intangible assets of Slim.
vii. Slim 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:
N’m
PPE
49
Inventory
18
Current liabilities 3
It is anticipated that Slim will realise N30million 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 Slim group as at 30
November 2012
JOINT SUBSIDIARY
A.
The draft statement of financial position of CBN, FBN & GTB as at 31 May 2005 are as
follows:
CBN
FBN
GTB
N
N
N
90,000
60,000
60,000
Non- current Assets
Tangible assets
Investment in subsidiaries (cost):
Shares in FBN
90,000
Shares in GTB
25,000
42,000
40,000
50,000
40,000
245,000
152,000
100,000
Equity @N1
100,000
50,000
50,000
Revaluation Surplus
50,000
20,000
Retained Earnings
45,000
32,000
25,000
195,000
102,000
75,000
Current Assets
Equity/Liabilities
Non-current liabilities
12% Loan
10,000
Current Liabilities
Payables
50,000
40,000
25,000
245,000
152,000
100,000
Additional Information:
1. CBN acquired 60% of the shares in FBN on 1st Jan. 2003 when the balance on that company’s
retained earnings was N8,000 (credit) and there was no share premium account
2. CBN acquired 20% of the shares of GTB and FBN acquired 60% of the shares of GTB on 1st
Jan. 2004 when that company’s retained earnings stood at N15,000
3. It is the group’s policy to measure the NCI at acquisition at its proportionate share of the fair
value of the subsidiary’s net assets.
Required: prepare consolidated statement of financial position as at 31 may 2015.