SBR - Mock B - Questions

ACCA
SBR (INT/UK)
Strategic Business Reporting
QUESTIONS
Mock B
We're not sure whether it is Becker's mock exam or

Kaplan's, or someone else's. Whomever it is, we are
grateful to them.
Section A – Both questions are compulsory and MUST be attempted
1 Background
Ganges is the parent of a group of companies that operates within the manufacturing
sector. It prepares financial statements to 31 March 20X5. Several years ago Ganges
acquired control of:
 Erasure, by acquiring 80% of its equity shares;

 Baddiel, an overseas subsidiary, by acquiring 70% of its equity shares;
 Zarqa, by acquiring 90% of its equity shares.
During the year Ganges sold shares in these three companies. In addition it acquired an
equity interest in Mekong and purchased some property plant and equipment.
Sale of shares in Erasure
Ganges sold 10% of the equity in Erasure to an overseas investor, reducing its holding to
70%. Following the sale of shares, Ganges remains in control of Erasure. The
consideration receivable by Ganges was Dinars 10 million. On the date of the transaction,
when the monetary receivable was created, the exchange rate was Dinars 2 to $1.
However, when Ganges received the Dinars 10 million two months later, the exchange rate
was Dinars 2.1 to $1.
In the consolidated financial statements of Ganges, the goodwill arising on acquisition of
Erasure was $3 million. This was correctly calculated, based on the non-controlling
interest (NCI) measured at its fair value of $1 million and net assets measured at their fair
value of $5 million. Goodwill has subsequently been reviewed but never impaired. At the
date of the sale of the shares, Erasure had net assets of $6 million.
Disposal of Baddiel
Ganges sold its entire interest in the equity shares of Baddiel for $30 million. At the date
of the transaction Baddiel had net assets of $20 million, unimpaired goodwill of $5 million
and a NCI with a carrying value of $4 million. Other components of equity included a debit
balance of $500,000 for cumulative foreign exchange losses in respect of the group’s
interest in Baddiel.
Sale of shares in Zarqa
Ganges sold half its equity interest in Zarqa. As a result of the sale of these
shares Ganges’s holding in Zarqa has fallen to 45%. The other shares in Zarqa are held by
unconnected investors, with no single investor holding more than 6%. There are no
agreements between different shareholder groups to act together and they have no desire
to do so.
Purchase of options to acquire shares in Mekong
On 1 April 20X4, the first day of the accounting period, Ganges purchased 10 million
options to acquire shares in Mekong, a listed entity. This transaction did not give Ganges
any control or influence over Mekong. Ganges paid $1 per option, which allows Ganges to
purchase shares in Mekong for a price of $4 per share. The exercise date for the options
was 30 November 20X4. On 30 November 20X4, when the market value of a share in
Mekong was $6.30 Ganges exercised all its options to acquire shares in Mekong. In
addition to the purchase price, Ganges incurred directly attributable acquisition costs of
$200,000 on the transaction. Ganges regarded the shares it purchased in Mekong as part
of a trading portfolio. At 31 March 20X5, Ganges’s reporting date, Ganges still held these
shares in Mekong which had a market value of $7.50.
Purchase of plant equipment
On 1 April 20X4, the first day of the accounting period, Ganges acquired an item of plant
and equipment. The asset is measured using the cost model and was estimated to have a
useful life of 10 years. The consideration paid to acquire the asset was 100,000 of Ganges’
own shares. The shares had a fair value of $7 each on 1 April 20X4 and $8 each on 31
March 20X5. The fair value of the asset on 1 April 20X4 was $500,000. Ganges has
recorded the acquisition of the asset at $700,000 and has not charged depreciation in the
current year because the asset has risen in value.
2
Required:
Draft an explanatory note to the directors of Ganges, addressing the following:
(a) Explain, with supporting calculations, how each of the following should
be accounted for in the consolidated financial statements of Ganges for
the year ended 31 March 20X5.
(i) the sale of the equity shares in Erasure; (6 marks)
(ii) the sale of the equity shares in Baddiel (6 marks)
(b) Discuss whether Ganges should account for Zarqa as a subsidiary or as
an associate following the sale of the equity in Zarqa. (6 marks)
(c) Explain and show how the transactions relating to Mekong should be
accounted for at initial recognition, on the exercise of the option, and in
the financial statements of Ganges for the year ended 31 March 20X5.
(9 marks)
(d) Explain and show how the purchase of the plant and equipment should
be accounted for in the year ended 31 March 20X5, including any
correcting journal entry required. (3 marks)
(30 marks)

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How should Ganges account for the sale of shares in Erasure and Baddiel?

Should Ganges account for Zarqa as a subsidiary or associate after selling shares?

ACCA

Strategic Business Reporting

We're not sure whether it is Becker's mock exam or

 Erasure, by acquiring 80% of its equity shares;

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