Professional Documents
Culture Documents
of Group Accounts:
A European Perspective
Aileen Pierce
and
Niamh Brennan
aileen.pierce@ucd.ie
niamh.brennan@ucd.ie
(W2) Goodwill B B
Investment at cost 71,000
Net assets acquired
Ordinary share capital 80,000
General reserves 5,000
Profit and loss account 2,500
87,500
Group acquired (87,500@80%) 70,000
Goodwill 1,000
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Minority interest
B B
Consolidated balance sheet 22,100 Share capital (50,000Box @ 20%minority share) 10,000
Profit and loss (40,000Box @ 20%minority share) 8,000
______ Capital reserve (20,500Box @ 20%minority share) 4,100
22,100 22,100
Capital reserves
B B
Cost of control 8,000 Jack 10,000
Minority interest 4,100 Box 20,500
Consolidated balance sheet 18,400 ______
30,500 30,500
Jack Group
Consolidated balance sheet at 31 March 20X7
B B
Fixed assets
Intangible Goodwill 2,000
Tangible ([25,400+14,200+3,200+3,160]Jack +
[10,100 + 8,180 + 1,020+2,100]Box) 67,360
69,360
Current assets
Stock (34,140Jack + 32,100Box + 700stock in transit) 66,940
Debtors (16,800Jack + 48,050Box 2,800inter-company debtors) 62,050
Prepayments (1,200Jack + 5,050Box) 6,250
Cash and bank (1,470Jack + 38,200Box + 30Jack + 900Box) 40,600
175,840
Creditors and accruals (44,500Jack + 34,000Box + (81,100)
3,500Jack + 1,200Box 2,100inter-company creditors) 94,740
164,100
Financed by
Share capital 100,000
Capital reserve 18,400
Profit and loss account 23,600
142,000
Minority interest 22,100
164,100
Minority interest
B000 B000
Balance c/d 275 Ordinary share capital 150
Preference share capital 50
___ Revenue reserves (300Peeler @ 25%minority share) 75
275 275
Current liabilities
Creditors (W3) 1,450
Taxation (W3) 600
Proposed dividends 300
2,350
Net current assets 1,635
4,335
Shareholders funds
Share capital 3,000
Revenue reserves 1,060
4,060
Minority interest 275
4,335
(Note: Completing the entries approach has been taken to deal with the proposed dividends in Screen)
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Minority interest
B000 B000
Balance c/d 2,350 Ordinary share capital 1,000
Preference share capital 500
Capital reserves (2,000Screen @ 25%minority share) 500
_____ Revenue reserves (1,400Screen @ 25%minority share) 350
2,350 2,350
Minority interest
B000 B000
Consolidated balance sheet 4,400 Ordinary share capital (15,000Tiny @ 20%minority share) 3,000
_____ Revenue reserves (7,000Tiny @ 20%minority share) 1,400
4,400 4,400
1
The net assets subject to fair value adjustments at the time of acquisition have been consumed/disposed of by the
balance sheet date. Consequently, group revenue reserves are reduced by the amounts effectively treated as
pre-acquisition reserves.
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Consolidated balance sheet
B000
Goodwill 576
Sundry net assets (20,100Teeny + 22,000Tiny) 42,100
42,676
Share capital 12,000
Revenue reserve 26,276
38,276
Minority interest 4,400
42,676
(W2) Goodwill
B000 B000
Investment at cost
Simple investment (10%) 1,750
Majority share (70%) 14,650 16,400
Net assets acquired
Ordinary share capital 15,000
Profit and loss account 6,2501
Fair value adjustment 600
21,850
Group acquired 80% 17,480
Negative goodwill (1,080)
1
[5,500 + (6/12 1,500) = 6,250].
2
Negative goodwill is assumed to be treated in a parallel way to positive goodwill.
1 The net assets subject to fair value adjustments at the time of acquisition have been consumed/disposed of by the
balance sheet date. Consequently, group revenue reserves are reduced by the amounts treated as pre-acquisition
reserves.
*[5,500Tiny opening balance profit and loss account + (1,500Tiny profit for year @ 6months /12months) = 6,250]
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Consolidated revenue reserves
B000 B000
Cost of control pre-acquisition 3,500 Teeny 24,500
Cost of control fair value adjustment1 160 Tiny 7,000
Cost of control fair value adjustment1 240
Minority interest 1,400
Goodwill amortisation 1.7.X4 144
Amortisation year ending 30.6.X5 100
Consolidated balance sheet 25,956 ______
31,500 31,500
1 The net assets subject to fair value adjustments at the time of acquisition have been consumed/disposed of by the balance sheet
date. Consequently, group revenue reserves are reduced by the amounts effectively treated as pre-acquisition reserves.
80%
30.6.X2
40%
31.12.X1
Tac
Tac Toe
% %
Group share (direct) 80 35
Indirect 32 (80% 40%)
80 67
Minority share (direct) 20 25
Indirect 8 (20% 40%)
20 33
Tac is a subsidiary on 30 June 20X2. Pre-acquisition reserves of Tac at that date are B6m.
Toe is an associate at 30 June 20X2 and becomes a subsidiary at 31 December 20X2.
Consequently, Toe is a piecemeal acquisition using the step-by-step approach to identifying the pre-acquisition reserves: Pre-
acquisition reserves for associate undertaking status are those at 30 June 20X2, i.e., B4.5m. Pre-acquisition reserves when
subsidiary status is achieved are those at 31 December 20X2, i.e., B5m.
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Minority interest
B000 B000
Minority share of cost of Tac: Ordinary share capital (20,000 @ 20%group share) 4,000
Tacs investment in Toe Toe: Ordinary share capital (10,000 @ 33%group share) 3,300
(20% 5,900) 1,180 Tac: Revenue reserves (16,000 @ 20%minority share) 3,200
Consolidated balance sheet 12,620 Toe: Revenue reserves (10,000 @ 33%minority share) 3,300
13,800 13,800
80%
1.1.20X4
Rose
80%
1.7.20X6
Stem
Rose Stem
% %
Group share (direct) 80
Indirect 64 (80% 80%)
80 64
Minority share (direct) 20 20
Indirect 16 (20% 80%)
20 36
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(W2) Consolidated balance sheet working accounts
Cost of control
B000 B000
Cost Rose 180 Rose: Ordinary share capital (100,000 @ 80%group share) 80.0
Rose: Share premium (60,000 @ 80%group share) 48.0
Rose: Revaluation reserve (10,000 @ 80%group share) 8.0
Rose: P/L (20,000 @ 80%group share) 16.0
Cost Stem (100 @ 80%group share) 80 Stem: Ordinary share capital (40,000 @ 64%group share) 25.6
Stem: P/L (60,000 @ 64%group share) 38.4
___ Goodwill (28Rose + 16Stem) 44.0
260 260.0
Balance b/d 44 Profit and loss account 20X4 (284) 7
Profit and loss account 20X5 (284) 7
Profit and loss account 20X6 (284) + (164) 11
__ Balance c/d 19
44 44
Minority interest
B000 B000
Rose: Ordinary share capital (100,000 @ 20%minority share) 20.0
Rose: Share premium (60,000 @ 20%minority share) 12.0
Investment in Stem Rose: Revaluation reserve (50,000 @ 20%minority share) 10.0
Rose: P/L (84,000 @ 20%minority share) 16.8
(100 @ 20%minority share) 20.0 Stem: Ordinary share capital (40,000 @ 36%minority share) 14.4
Stem: P/L (70,000 @ 36%minority share) 25.2
Consolidated balance sheet 78.4
98.4 98.4
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80%
1.1.20X4
Winner
75%
1.9.20X3
Trier
Minority interest
B000 B000
Ordinary share capital (750Winner @ 20%) 150
Investment in Trier (1500cost @ 20%) 300 Ordinary share capital (500Trier @ 40%) 200
Revenue reserves (1,750Winner 100profit on disposal @ 20%) 330
Revenue reserves (1,290Trier 100profit on sale stock@ 40%) 476
Balance c/d 926 Revaluation surplus (350land note (iv) @ 20%) 70
1,226 1,226
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Consolidated revenue reserves account
B B
Unrealised profit in stock (note v) 100 Champion 2,970
Unrealised fixed asset profit (note vii) 100 Winner 1,750
Minority Winner (1,750reserves Trier 1,290
100unrealised fixed assets profit @20%) 330
MinorityTrier (1,290reserves Depreciation adjustment (25adjustment pa 3years) 75
100unrealised stock profit @ 40%) 476
Cost of control Winner 1,160 Associated company
Cost of control Trier 564 (120[420 retained profits 300 pre-acquisition] @ 30%group share) 36
Goodwill amortised: Subsidiaries 597
Associatesee below 45
Balance c/d 2,749
6,121 6,121
Current assets
Stocks (W7) 1,208
Debtors (W7) 1,975
Bank (W7) 1,298
4,481
Less: Creditors due within one year (W7) 2,201
Net current assets 2,280
6,675
Creditors falling due after more than one year (W7) 1,000
Share capital and reserves
Ordinary share capital 2,000
Revenue reserves (W5) 2,749
Minority interest (W5) 926
6,675
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(W2) Adjustments
Bonus issue B B
Dr Capital reserve 20,000
Cr Share capital 20,000
Devaluation
Dr Capital reserve 14,000
Cr Fixed assets 14,000
Minority interest
B B
Unrealised profit (W3) 200 Ordinary share capital (100Warm 25%minority share) 25,000
Consolidated balance sheet 29,800 Revenue reserve (10Warm @ 25%minority share) 2,500
______ Profit and loss account (10 Warm @ 25%minority share) 2,500
30,000 30,000
Alternative approach (assuming share capital and capital reserves are before bonus issue and fixed asset
write down)
Alternative cost of control
B B
Cost 100,000 Ordinary share capital (80Warm @ 75%group share) 60,000
Capital reserve (34pre-acquisition 75%group share) 25,500
Devaluation (14 @ 75%group share) 10,500 Revenue reserve (10 pre-acquisition 75%group share) 7,500
Unrealised profit (W3) 600 Profit and loss account (10 pre-acquisition 75%group share) 7,500
_______ Balance c/d goodwill 10,600
111,100 111,100
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Alternative minority interest
B B
Unrealised profit (W3) 200 Ordinary share capital (80Warm @ 25%minority share) 20,000
Devaluation (14 25%minority share) 3,500 Capital reserve (34Warm @ 25%minority share) 8,500
Consolidated balance sheet 29,800 Revenue reserve (10Warm @ 25%minority share) 2,500
______ Profit and loss account (10Warm @ 25%minority share) 2,500
33,500 33,500
Note: There is a contingent liability for bills receivable discounted of B900 (B1,200Q 300inter-company bills receivable discounted and now eliminated).
9.1 Harold
(W1) Group structure
100%
Harold Sivex
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9.2 Mergacquis
(W1) Group structure
90%
Mergacquis Sivex
B000 B000
*Capital reserves
Mergacquis 80.0
Sambon (15,000 @ 90%group share) 13.5
93.5
Nominal value of shares: Issued 100.0
Acquired 72.0 (28.0)
65.5
60%
Small
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(W4) Consolidated profit and loss Large Medium Small Adjustment Consolidated
account profit and
loss account
B000 B000 B000 B000 B000
Sales 17,000 10,000 1,500 (1,500) 27,000
Cost of sales (12,000) (6,000) (1,000) 1,400 (17,600)
Gross profit 5,000 4,000 500 (100) 9,400
Expenses (3,600) (2,400) (280) (6,280)
Investment income 216 (216)
Profit before tax 1,616 1,600 220 (316) 3,120
Tax (628) (650) (70) (1,348)
Profit after tax 988 950 150 (316) 1,772
Minority interest preference (40)
Minority interest ordinary (91) (60)
Minority interest in unrealised profit ___ ____ ___ 40
(131) (60) 40 (151)
Profit after tax after minority interest 988 819 90 (276) 1,621
Dividends: Large (400) (400)
Dividends: Medium (180) 180
Dividends: Small ___ ___ (36) 36 _____
Retained for year 588 639 54 (60) 1,221
Retained b/f 912 540 310
Less: Pre-acquisition (140) (110)
Post-acquisition 912 400 200
Group share (90% / 60%) 912 360 120 1,392
Retained c/f 1,500 999 174 (60) 2,613
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Minority interest
B000 B000
Depreciation adjustment (W2) 1 Ordinary share capital (150Toe @ 20%minority share) 30
Consolidated balance sheet 192 Revaluation surplus (175excess fair value @ 20%minority share) 35
___ Profit & loss account (640Toe@ 20%minority share) 128
193 193
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Consolidated profit and loss account for year ended 31 March
20X5 20X4
B000 B000
Turnover 1,600
Cost of sales (895) C
Gross profit 705 O
Operating expenses (180) M
Operating profit 525 P
Interest payable (6) A
Profit before taxation 519 R
Taxation (120) A
Profit after tax 399 T
Minority interest (19) I
380 V
Dividends (80) E
Profit retained for year 300 S
Retained earnings b/f (W9) 160
Retained earnings c/f 460
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Golf Group
Consolidated profit and loss account
for the year ended 30 June 20X3
Notes B
Turnover 1 2,876
Expenses (2,548)
Operating profit 2 328
Investment income 15
Share of pre-tax profits of associate 63
Profit before tax 3 406
Taxation
Group (124)
Associate (25.5)
Profit after tax 256.5
Minority interest (14)
Profit attributable to group 4 242.5
Dividends (132)
Profit retained for year 110.5
Balance b/f 450
Retained profit c/f 5 560.5
*Adjustments to sales and expenses are incomplete, and based only on details relating to goods remaining in stock at the year-end.
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Leek Sage
Neep
(W2) Adjustments
Neeps gross margin
3,105/6,900 = 45%
Unrealised profit
B222,435 @ 45% = B100,096
Say B100,000
Paragraph 31(b) FRS 9: Adjust for associated company unrealised profit in stock.
Adjust for the group share of unrealised profit, against the group share of the associated companys profit (i.e., B40,000).
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(W5) For information only: Balance sheet workings
Consolidated revenue reserves
B000 B000
Unrealised profit 40.0 Kale 3,796
Sage: Pre-acquisition (463retained profit b/f +
[201retained profit for year 1/12] @ 90%group share) 431.8 Leek 182
Sage: Pre-acquisition dividend
(250dividend 90%group share 1month/12months) 18.8 Sage 664
Minority Interest Neep (133current year retained profit @ 40%group share) 53
Leek (182retained profit @ 20%minority share) 36.4 Leek: Pre-acquisition (15debit on p/l @ 80%group share) 12
Sage (664 retained profit @ 10%minority share) 66.4
Consolidated balance sheet 4,113.6 _____
4,707.0 4,707
Kale Group
Consolidated profit and loss account for year ended 28 February 20X5
Notes B000
Turnover 1 26,803
Cost of sales (13,550)
Gross profit 13,253
Distribution costs (3,626)
Administration expenses (7,523)
Operating profit 2,104
Share of pre-tax profits of associated undertaking 132
Profit on ordinary activities before tax 2 2,236
Taxation 3 (911)
Profit after tax 1,325
Minority interest (78)
Profit attributable to group 4 1,247
Dividends (500)
Profit retained for year 747
Balance b/f 3,368
Retained profit c/f 5 4,115
25
Minority interest
B B
Current liability (20proposed dividend 25%minority share) 5 Share capital (200 @ 25%minority interest) 50
Consolidated balance sheet 200 Revenue reserves (620 @ 25%minority interest) 155
205 205
(W5) Alternative approach to balance sheet workings: Complete the entries and net cost
Cost of control
B B
Cost of investment 700.00 Ordinary share capital (200 @ 75%group share) 150.00
Less: Pre-acquisition dividends receivable Reserves ([600Q 28retained profit for year] + [28profit for year
(20proposed dividend 9months /12months @ 75%group share) (11.25) 9/12] @ 75%group share) 444.75
______ Goodwill 94.00
688.75 688.75
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Minority interest
B B
Ordinary share capital (200 @ 25%group share) 50
Consolidated balance sheet 200 Reserves (600 @ 25%minority interest) 150
200 200
Dividend elimination
B B
Investment @ cost 11.25 Proposed dividend: Bartram 20
Revenue reserves 3.75
Due to minority 5.00 __
20.00 20
(W6) Consolidated profit and loss account for year ended 31 December 20X6 (d)
B000
Operating profit 550
Loss on disposal of subsidiary (38)
Profit before tax 512
Tax (286)
Profit on ordinary activities after tax 226
Minority interest (3)
Profit attributable to group shareholders 223
Dividends (60)
Retained profit 163
Balance b/f 746
Balance c/f 909
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Minority interest
B000 B000
Cross (100ordinary share capital @ 30%minority share) 30
Bun (100ordinary share capital @ 10%minority share) 10
Cross (10reserves @ 30%minority share) 3
Consolidated balance sheet 49 Bun (60reserves @ 10% minority share) 6
49 49
Dividend elimination
B000 B000
Dividends receivable: Bun proposed dividend 20
Cost of control: Bun pre-acquisition dividend 13.5
(20proposed dividend 90%group share 9months /12months)
Revenue reserves 4.5
Due to minority (20proposed dividend 10%minority share) 2.0 __
20.0 20
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(W5) Consolidated profit and loss account columnar workings
3/12
Hot Cross Bun Adjustment Total
B000 B000 B000 B000 B000
Operating profit 250.0 (20) 16.25 246.25
Profit on disposal 10.0 4.0 14.00
Dividends receivable (20,000 90%group share 3/12) 4.5 ___ _____ (4.5) ______
Profit before tax 264.5 (20) 16.25 (0.5) 260.25
Taxation (128.0) (6.25) ____ (134.25)
Profit after tax 136.5 (20) 10.00 (0.5) 126.00
Minority interest (20,000 6/12 10%minority share) 1
(20,000 6/12 30%minority share) 3
Bun: 10% _____ ___ (1.00) ___ 3.00
Profit for year 136.5 (16) 9.00 (0.5) 129.00
Profit b/f 242.0 30 40
Minority interest (3) (4)
Pre-acquisition reserves (36) (36)
242.0 (9) 233.00
Profit c/f 378.5 (25) 9.0 (0.5) 362.00
Accumulated losses no longer consolidated 4 (4.0)
([(10)+(10)]@ 20%portion disposed of)
Proposed dividend (80.0) (80.00)
Inter-company dividend _____ ___ (4.5) 4.5 ______
298.5 (21) 4.5 282.00
80%
Step
On disposal of 62% of Jump by Leap, Jump becomes an associated undertaking half-way through the year
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Minority interest
B000 B000
Consolidated balance sheet 464 Step: (70,000ordinary share capital @ 20%minority share) 140
___ Step: (1,620Step @ 20%minority share) 324
464 464
Investment in associate
B000 B000
Investment @ cost (1,880 @ 37%group share) 705.00
Post-acquisition revenue reserves ([630reserves
520pre-acquisition profit] @ 37%group share) 41.25
Preference shares @ cost 190.00 Consolidated balance sheet 936.25
936.25 936.25
Dividend elimination
B000 B000
Revenue reserves 80 Proposed dividends: Step 100
Due to minority 20 ___
100 100
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Dividend receivable
B000 B000
Revenue reserves: Due from Jump 37.50 Consolidated profit and loss account 37.50
31
75%
Fork
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(W4) Profit brought forward
Knife Fork Spoon Group
B B B B
Profit b/f 400 400 300 1,100
Minority interest 25%
(100) 20%
(60) (160)
Pre-acquisition profit (group share) (150) 80%
(80) (230)
400 150 160 710
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4 Consideration received comprises primarily equity shares and any non-equity consideration or shares carrying reduced voting
rights represent an immaterial proportion of the fair value of consideration.
5 No equity shareholders retain any material interest in the future performance of only a part of the combined entity.
Where the five criteria for merger accounting under FRS 6 are satisfied the combination must be accounted for as a merger. These
criteria are more restrictive than the conditions in the Seventh Directive.
Non-equity consideration
Under FRS 6, the condition whereby no party to the combination is portrayed as either acquirer or acquired appears (from the
wording of the question) not to be complied with. In addition, FRS 6 requires that the consideration comprise primarily equity
shares and any non-equity consideration should represent an immaterial proportion of the fair value of the consideration.
FRS 6 provides guidance on what constitutes immaterial. Under FRS 6, the non-equity consideration should represent an
immaterial proportion of the fair value of consideration. In assessing this, any acquisition of shares by one combining party of
shares in the other party within two years before the combination should be taken into account in determining whether the non-
equity consideration is an immaterial proportion.
Consideration is: 4,250,000shares 5 B4.50 ([3shares 140cent]+ 30cent)
= B3,825,000 + B287,000earlier purchase = B4,112,000 consideration
Cash element of the consideration:
4,250,000shares/5 30cent = B255,000 + B287,000earlier purchase = B542,000 cash element of consideration
35
17.1 Charlton
(W1) Group structure
75%
1.4.20X4
Charlton Venables
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(W5)
Minority interest
B000 B000
Share capital (500 25%minority share) 125
Consolidated balance sheet 412 Reserves ([2,000 400proposed dividend 450reorganisation costs 25%) 287
412 412
(W6)
Dividend elimination account
B000 B000
Cost of control (Pre-acquisition dividend) 195 Proposed dividend Venables 400
Consolidated reserves 105
Consolidated balance sheet 100 ____
400 400
(b)
Charlton and its subsidiary
Consolidated balance sheet as at 30 June 20X4
B000 B000
Fixed assets
Intangible assets: Goodwill (W3) 2,385
Tangible assets (5,250Charlton + 1,600Venables) 6,850
9,235
Current assets
Stocks (2,150Charlton + 800Venables) 2,950
Debtors (1,500Charlton + 600Venables) 2,100
Cash (200Charlton + 500Venables) 700
5,750
Creditors: Amounts falling due in less than one year
(1,800Charlton+1,000Venables + 450reorganisation costs +100dividends Venables) 3,350
Net current assets 2,400
Total assets less current liabilities 11,635
Creditors: Amounts falling due after more than one year (750deferred purchase consideration) (750)
10,885
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(W4) Groups share of post-acquisition reserves for the year ended 31 March 20X2
25% B32 million = B8 million
Dr. Investment account 8
Cr. Consolidated reserves 8
This treatment accords with FRS 9 on associates
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(W6) Consolidated reserves for year ending 31 March 20X2 Bm
Draft Palma 3,640
Less: Pre-acquisition dividend W2
(1)
Add: Share of post-acquisition reserves of associated company W4
8
Less: Amortisation of goodwill arising on acquisition W5
(20)
3,627
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Alternative approach to calculation
Opening reserves B
Net assets at 1.1.20X1 125,000 (160,000 at 1.28)
Less initial investment 104,000 (130,000 at 1.25)
21,000
Foreign exchange differences
(160,000 at 1.30 less 160,000 at 1.28) (1,923)
Retained profit (60,000 at 1.30) 46,153
65,230
18.2 Athgoe
(a)
Consolidated balance sheet
B000
Tangible fixed assets (17,658Athgoe + 55,000Bergin W3) 72,658
Stock (22,454Athgoe + 5,250Bergin W3) 27,704
Debtors (6,153Athgoe + 2,500Bergin W3) 8,653
Cash (1,562Athgoe + 13,500Bergin W3) 15,062
Creditors (22,457Athgoe + 6,250Bergin W3) (28,707)
Loan (12,310Athgoe + 12,400Bergin W3) (24,710)
70,660
Ordinary share capital 6,000
Retained earnings (W5) 41,620
Shareholders funds 47,620
Minority interest (W5) 23,040
70,660
Consolidated profit and loss account
B000
Turnover (92,253Athgoe+118,130Bergin W2) 210,383
Cost of sales (60,274Athgoe +78,750Bergin W2) (139,024)
Gross profit 71,359
Distribution costs (12,900Athgoe +9,440Bergin W2) (22,340)
Administration expenses (14,697Athgoe + 3,150Bergin W2) (17,847)
Other costs (1,913Athgoe +2,630Bergin W2) (4,543)
Profit before tax 26,629
Taxation (1,939Athgoe +9,460Bergin W2) (11,399)
Profit after tax 15,230
Minority interest (14,700 @ 40%minority share) (5,880)
Profit attributable to group 9,350
Dividends (1,830)
Profit retained for year 7,520
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Consolidated reserves
B000 B000
Goodwill 50 Athgoe 10,110
Pre-acquisition reserves 900 Bergin
Minority interest 21,640 (1,500 + 29,484 + 9,450 + 13,666) 54,100
Consolidated balance sheet 41,620 ______
64,210 64,210
Minority Interest
B000 B000
Consolidated balance sheet 23,040 Ordinary share capital (3,500 @ 40%) 1,400
______ Reserves (54,100 @ 40%) 21,640
23,040 23,040
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(W7) Minority interest B000
Balance at beginning (34,484W4 @ 40%minority share) 13,793.60
Share of profit for year (14,700W2 40%) 5,880.00
Share of difference on exchange (13,666 40%) 5,466.40
Dividends paid to minority (5,250 40%) 2,100.00
23,040.00
Note: No offset procedures are applied in this solution because there is no suggestion in the question that Athgoes loan is
expressed in foreign currency.
18.3 Glenmore
(a) For the year ended 30 June 20X9
Investment in Plenborg is restated using year-end rates.
DK loan of 2,100,000 is restated using year-end rates.
Differences on the borrowings are offset in reserves to the extent of the opposite difference arising on the investment.
Any balance of difference on the borrowings is taken to profit and loss account for the year.
Investment @ cost: DK 1,600,000 B
Translated at date of acquisition (@8) 200,000
Translated at 30 June 20X8 (@7) 228,570
Translated at 30 June 20X9 (@6) 266,667
Gain on exchange in 20X9 38,097
Credit to reserves 38,097
Borrowings of DK2,100,000
Translated at date of acquisition (@8) 262,500
Translated at 30 June 20X8 (@7) 300,000
Translated at 30 June 20X9 (@6) 350,000
Loss on exchange in 20X9 50,000
Debit to reserves 38,097
Charge in P&L account for year 11,903
50,000
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(c) (iii)
Group share of difference on translation of net assets 63 @ 80%group share = 50.4
Difference on retranslation of borrowings 50
Therefore, entire difference on borrowings can be offset against difference arising on retranslation of net assets in reserves
(d)(i) B
Investment at cost 200,000
Group share of net assets at acquisition ([1,600 + 240] 8 80%group share) 184,000
Goodwill 16,000
Less: Amortisation 20X620X9 (one-eight per annum) 8,000
Written down amount at 30 June 20X9 8,000
(ii) B
Net assets of Plenborg at 30 June 20X9 567,000
Minority interest 20% 113,400
(e) (ii) Consolidated balance sheet: Equity accounting for Plenborg B000
Tangible fixed assets 1,029.00
Investment in Plenborg [(80% 567) + 8] or [200 + (80% 337) 8] 461.60
Net current assets 2,632.43
4,123.03
Loan (350.00)
3,773.03
Ordinary share capital 1,700.00
Share premium 40.00
Revaluation reserve 70.00
Retained earnings ([1,780 28.57 50]Glenmore + [(80% 337) -8] Plenborg
) 1,963.13
Shareholders funds 3,773.03
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18.4 Carpro
(W1)
Rate Fixed asset Loan
B B
1.7.20X2 At cost (800,000/8) 100,000
1.7. 20X2 Cash (720,000/8) 90,000
30.6. 20X3 Depreciation [12% 100,000] (12,500)
30.6. 20X3 Repayment [(720,000/8) 1/3] (30,000)
30.6. 20X3 Balance sheet amount 87,500 60,000
Due within one year 30,000
Due after more than one year 30,000
60,000
(W2)
Rate B
30.6.X2 Interest accrued [(15% 720,000)/10] 10,800
(W3)
Parqs PQ=B
B1 B
Purchases 10,700 25 428
15,432 24 643
17,094 22 777
14,638 26 563
22,059 27 817
79,923 3,228
(W4)
B
Dividend income receivable [36,000/20] 1,800
(W5)
Skrams SK=B
B1 B
Hedging loan
at 1 January 20X3 9,600,000 24 400,000
at 30 June 20X3 9,600,000 30 320,000
Exchange translation gain 80,000
(W6)
B
Interest accrued on skrams loan of 9,600,000
[(6months /12months 8% 9,600,000)/30] 12,800
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(W8)
B
Interest accrued on parqs loan of 6,000,000
[(6/12 15% 6,000,000)/24] 18,750
(b)
Carpro
Profit and loss account (extract) for the year ended 30 June 20X3
Transaction (1) (2) (3) (4)
B B B B
Cost of sales
Depreciation W1
12,500
Purchases of materials W3
3,228
Income from fixed asset investments W4
1,800
Other operating income/(expense) W3
(76)
Other interest receivable and similar income W5
40,000 W7
50,000
Interest payable and similar charges W2
10,800 W6
12,800 W8
18,750
Carpro
Balance sheet (extract) as at 30 June 20X3
Transaction (1) (2) (3) (4)
B B B B
Tangible fixed assets
Plant W1
87,500
Financial fixed assets
Other investments W5
360,000
Current assets
Debtors (dividends receivable) W4
1,800
Creditors: Amounts falling due within one year
Loans W1
30,000
Trade w3
411
Other creditors (interest) W6
12,800 W8
18,750
Creditors: Amounts falling due after more than one year
Loans W1
30,000 W5
320,000 W7
250,000
(c)
The rules for individual companies apply to all the transactions as follows:
(1) Translation rate
Plant at acquisition rate transaction rate
Loan at contracted rate future settlement rate
Interest at payment date (or at average rate) transaction rate
Accounting treatment
No exchange differences; translated amounts shown at appropriate lines in final accounts
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(3) Foreign currency borrowings have been used as a hedge against foreign equity investments.
Translation rate
Equity investment at closing rate hedged investment rate
Hedging loan at closing rate unsettled monetary liability
Dividend receivable at closing rate unsettled monetary asset
Loan interest at payment date transaction rate
Accounting treatment
The exchange gain on retranslation of the hedging loan is partly offset in reserves by the exchange gain on the retranslation
of the equity investment; the excess gain is credited to profit and loss as other interest receivable and similar income, because
it results from a financing operation.
The subsequent gain when the dividend is remitted will affect that years accounts [B2,000 ((36,000/18) 1,800)].
The equity investment and its dividend receivable and accompanying hedging loan and interest are all included in the
balance sheet at translated amounts.
19.1 Plath
Cash flow statement for the year ended 31 March 20X2
Bm
Net cash outflow from operating activities (145)
Returns on investments and servicing of finance (note 1) 24
Taxation (W2) (6)
Capital expenditure and financial investment (note 1) (239)
Acquisitions and disposals
Equity dividends paid (W1) (22)
Net cash outflow before management of liquid resources and financing (388)
Management of liquid resources 25
Financing (note 1) 286
(Decrease) in cash (77)
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(b)
Depreciation
Depreciation is charged to the profit and loss account, in accordance with the accruals principle, in order not to overstate the
surplus available for distribution while maintaining capital.
It does not describe a movement in cash. It does not affect the cash newly invested in fixed assets during the year nor any cash
released by their sale.
Therefore it is not recognised in the cash flow statement but is recognised in the profit and loss account and hence becomes a
reconciling item.
Dividends paid
The profit and loss account shows dividends as an appropriation of profit. The cash flow statement shows dividends paid. The
dividends paid may be the previous years final dividend and the current years interim dividend.
However, no reconciling item is required (unlike depreciation) because the net cash inflow is being reconciled to profit before
tax which has not been influenced by appropriation. If the cash flow were being reconciled to retained profit say, then a
reconciling item would be required.
(c)
The profit and loss account is prepared under the all inclusive concept adopted by FRS 3 and therefore it explains all changes in
shareholders funds between one balance sheet date and the next, apart from share capital and reserves movements and fixed
asset revaluations.
The cash flow statement explains a selection of those changes which result in an inflow or outflow of cash.
The cash flow statement is particularly useful in evaluating liquidity and solvency because it enables a juxtaposition of cash
inflows and outflows thereby overcoming the limitations of the convention indicators which derived from a static balance sheet.
Various measures are available from the cash flow statement. For example, the ratio of working capital to net cash inflow from
operating activities or the ratio of net cash inflow to current debt. These measures all incorporate a dynamic element in
evaluation.
The standard headings prescribed by FRS 1 ensure that cash flows are reported in a form that highlights the significant
components of cash flow and facilitates comparison of the cash flow performance of different business.
A cash flow statement is considered to be more useful than a working capital based funds flow statement for the following
reasons:
1 In the assessment of short-term liquidity the business will not be alerted to a critical cash shortage where a significant
decrease in cash is masked by a compensating increase in stock, as it may be in a funds flow statement.
2 Non-accountants are more familiar with cash flows than with funds flows.
3 Cash flows can be a direct input to a business valuation model.
4 The cash flow statement and associated notes prescribed by FRS 1 may include new data i.e., not contained in balance sheet
and profit and loss account.
19.2 AZ Group
Cash flow statement for year ended 30 June 20X2
Bm
Operating activities
Cash received from customers 1,520
Cash payments to suppliers (430)
Cash paid to employees (326)
Other cash payments (237)
Net cash inflow from operating activities 527
Dividends received from associated undertakings (W1) 120
Returns on investment and servicing of finance
Interest paid (40)
Taxation paid (W2) (112)
Capital expenditure and financial investment
Purchases of tangible fixed assets (W3) (324)
Acquisitions and disposals
Purchases of subsidiary undertakings (W4) (521)
Equity dividends paid
Dividends paid (44)
Net cash outflow before use of liquid resources and financing (394)
Management of liquid resources
Financing
Repayment of amounts borrowed (38)
Decrease in cash (432)
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(W3) Fixed assets
Bm
Opening balance 2,579
Less: Depreciation (55)
Add: Purchases during the year *324
Add: Purchased on acquisition of subsidiary 486
Closing balance 3,334
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Financing B000
Issue of ordinary share capital (19,902closing share capital 9,519on acquisition of subsidiary 10,334opening share capital) 49
Debt due within a year
Increase in short-term borrowings (note 4 to the question) 2,006
Increase in short-term element of long-term loans (note 4 to the question) (847)
Debt due beyond a year: (6,633closing 2,000subsidiary acquired 2,100opening) 2,533
Capital element of finance lease rental repayments (Closing [4,454short term+ 2,806long term]
New leases [2,845note 4] Subsidiary acquired [1,107short term +710long term]
Opening [2,179short term +1,761long term]) (1,342)
Net cash inflow from financing 2,350
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(W4) Purchase of tangible fixed assets B000
Additions (W1) 6,386
Less: Inception of finance leases (note 4 to the question) (2,845)
Less: Creditors at 31/12/X2 (note 3 to the question) (94)
Add: Creditors at 31/12/X1 (note 3 to the question) 65
Payments 3,512
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(W8) Cash flow on acquisitions and disposals B000
Cash proceeds of subsidiary sold (note 1) 375
Cash balance disposed of (note 1) (650)
Net cash outflow on disposal (275)
Cash consideration for associate (note 4) (625)
Cash outflow (900)
Borrowings
Creditors > one year (1,070) (1,070)
Liquid resources
Government securities 115 255
Seven day deposits 105 505
Corporate bonds 175
Net (debt) (185) (15)
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