Self-test Answer the following questions 1. Vayner ple acquired 100,000 ordinary shares in Weeton Ltd and 40,000 ordinary shares in Yarlet Ltd some years ago. Extracts from the statements of financial position of the three companies as on 30 September 20X7 were as follows. Vaynor ple Weeton Ltd Yarlet Ltd £ £ £ Ordinary shares of £1 each 500,000 100,000 50,000 Retained earnings 90,000 40,000 70,000 ‘At acquisition Weeton Ltd had retained losses of £10,000 and Yarlet Ltd had retained earnings of £30,000. What were the consolidated retained earnings of Vaynor ple on 30 September 20X7? 2 Wolf ple acquired 80,000 £1 ordinary shares in Fox ple on 1 April 20X5 at a cost of £77,000. Fox ple's retained earnings at that date were £50,000 and its issued ordinary share capital ‘was £100,000, Non-controlling interest is valued at fair value of £32,000. What is the amount of the gain on a bargain purchase arising on the acquisition? 2._Ling ple purchased 80% of the ordinary shares of Moy Ltd on 1 June 20X0 for £5,400,000. ‘The summarised statement of financial position of Moy Ltd on this date showed the following. £ ‘Ordinary share capital 1,000,000 Share premium account 500,000 Revaluation surplus 400,000, Retained earnings 2,700,000, 4,600,000, The fair value of the identifiable net assets of Moy Ltd exceeded their carrying amount by £150,000. The statement of financial position of Moy Ltd inclucied goodwill of £500,000, Ling ple has chosen to use the proportionate basis to measure the goodwill and non- controlling interest arising on the acquisition of Moy Ltd. In accordance with IFRS 3, Business Combinations what is the amount of goodwill acquired inthe business combination? 4 Sansom ple has two subsidiaries, Mabbutt Ltd and Waddle Ltd. It purchased 10,000 shares in Mabbutt Ltd on 1 January 20X1 for £35,000 when the retained earnings of Mabbutt Ltd stood at £21,000 and the fait value of the NCI was £13,000. It purchased 15,000 £1 shares in Waddle Ltd for £20,000 on 31 December 20X1 when the retained ‘earnings of Waddle Ltd stood at £16,000 and the fair value of the NCI was £10,000, Non- controlling interests at the acquisition date are to be measured at their fair value The issued share capital of the two subsidiaries is as follows. Mabbutt Ltd £15,000 Waddle Lid £20,000 By the end of 20X4 goodwill impairment losses totalled £4,400, What is the carrying amount of goodwill in the consolidated statement of financial position at 31 December 20K4? Icaew 2009 Group secounts base princes 4695 Tom ple has purchased all the share capital of Jerry Ltd during the year. Which of the following items should Tam ple take into account when calculating the fair value of the net assets acquired in accordance with IFRS 3 (Revised), Business Combinations? (1) Apossible loss dependent on the outcome of a legal case which has not been provided for in Jerty Ltd's books. The acquisition date fair value of the loss can be estimated reliably. (2) Aptovision required to cover the costs of reorganising Jerry Ltd’s departments to fit in with Tom ple's structure. (3) Awarranty provision in Jerry Ltd's books to cover the costs of commitments made to 6 Wilsons ple purchased 70% of Watneys Ltd for £20,000 on 30 June 20X2. The fair value of the non-contralling interest at that date was £7,000, The statements of financial position of Watneys Ltd are as follows. 30 September 202 -20X1 £ £ Ordinaty share capital 1,000 1,000 Share premium 2000 2,000 Retained earnings 21,000 000 74,000 75,000 Profits accrue evenly over the year. Wilsons ple uses fair value wherever possible as 2 preferred method of accounting What is the goodwill acquired in the business combination? 7 Leeds Ltd acquired the whole of the issued share capital of Cardiff Ltd for £12 million in ‘ash, In arriving at the purchase price Leeds Ltd had taken into account future costs for reorganising Cardiff Ltd of £1 million and Cardiff Ltd's anticipated future trading losses of £2 million. The fair value of the net assets of Cardiff Lid before taking into account these matters was £7 million. In accordance with IFRS 3 (Revised), Business Combinations, what is the amount of goodwill acquired inthe business combination? 8 Castor ple acquires 75% of the share capital of Pollux Ltd on 1 December 20X1. The consideration transferred is £1 million in cash and 300,000 £1 ordinary shares of Castor ple. ‘The market value of each of Castor ple's shares on 1 December 20X1 is 300 pence. On 1 December 20X1 the fair value of Pollux Ltd's net assets is £1 milion. Castor ple intends to recognise the non-controlling interest in Pollux Ltd at its fair value on 1 December 20X1 of, £280,000, In accordance with IFRS 3, Business Combinations what is the amount of goodwill acquired in the business combination to be dealt with in Castor ple’s consolidated accounts? 9 Inaccordance with IFRS 3, Business Combinations the timetable for the acquisition of a subsidiary will usually include the following four dates. (1). The date on which consideration passes (2). The date on which an offer becomes oris declared unconditional (3). The date from which the acquiring company has the right to share in the profits of the acquired business under the agreement (4) The date on which control passes What will be the effective date for accounting for the business combination? 470. Financial Accounting and Reporting IFRS10. Sam Ltd has a share capital of £10,000 split into 2,000 A ordinary shares of £1 each and. 8,000 B ordinary shares of £1 each. Each A ordinary share has ten votes and each B ordinary share has one vote. Both classes of shares have the same rights to dividends and ‘on liquidation. Tom ple owns 1,500 A ordinary shares in Sam Ltd. Dick ple owns 5,000 B ‘ordinary shares in Sam Ltd. All three companies conduct similar activities and there is no special relationship between '@ companies other than that already stated. The shareholdings in Sam Ltd are held as long-term investments and are the only shareholdings of Tom ple and Dick ple. In accordance with IFRS 10, Consolidated Financial Statements which companyl/ies) should prepare consolidated financial statements? 11 Andress Ltd The statement of profit or loss and statement of financial position for the year 20X0 for Andress Ltd and Bacall Ltd are given below. Statements of profit or loss for the year ended 31 December 20X0 Andress Ltd Bacall Ltd £ £ Revenue 10,000 7,000 Cost of sales (6,000) (2,000) Gross profit 2,000 5,000 Expenses and tax (3,000) (2,000) Profi ‘000 3,000 Statements of financial position as at 31 December 20X0 Andress Ltd Bacall Ltd £ £ ASSETS Non-current assets Property, plant and equipmer 25,300 9,000 Investments (3,200 shares in Bacall Ltd at cost) 3,200 = 78,500 3000 Current assets 22,500 7,000 Total assets 51,000, 76000 EQUITY AND LIABILITIES Equity ‘Ordinary share capital Share premium account Retained earnings Total equity Non-current liabilities Current liabilities Total equity and liabilities Andress Ltd has owned 80% of Bacall Ltd since incorporation Requirement Prepare, for Andress Ltd, the consolidated statement of profit or loss for the year ended 31 December 20X0 and the consolidated statement of financial position at that date 12. Crawford Ltd Part 1 ‘The statements of financial position and statements of profit or loss for Crawford Ltd and Dietrich Ltd are given as follows Icaew 2009 Group secounts basic prineales 471Statements of financial position as at 30 June 20X0 Crawford Ltd Dietrich Ltd £ £ ASSETS Non-current assets Property, plant and equipment 27,000 12,500 Investments (2,000 £1 shares in Dietrich Ltd at 2,000 - cost) 29,000 Current assets Total assets, EQUITY AND LIABILITIES Equity Ordinary share capital 20,000 Share premium account 6,000 Retained earnings 9,000 Total equity 35,000 Non-current liabilities 12,000 - Current liabilities 7,000 7,500 Total equity and liabilities 54,000 24,500 Crawford Ltd acquired its shares in Dietrich Ltd five years ago when Dietrich's retained ‘earnings were nil. At the start of the current year retained earnings were £2,000 and £4,000 respectively Statement of profit or loss for the year ended 30 June 20X0 Crawford Lid Dietrich Ltd € £ Revenue 24,000 30,000 Cost of sales (9,000) (11,000) Gross profit 15,000 79,000 Distribution costs (2,300) (1,300) Administrative expenses (1,500) Profit from operations 17,200 Finance cost Profit before tax Income tax expense Profit for the year Requirement (a) Briefly explain the objectives of producing group accounts, (3 marks) (b) Briefly explain the following words/ahrases. (1). Single entity concept (2) Cont (3) Equity (6 marks) (c)_ Prepare, for Crawford Ltd, the consolidated statement of profit or loss and the consolidated statement of changes in equity (retained earnings and the non- controlling interest columns only) for the year ended 30 June 20X0 and the consolidated statement of financial position as at that date. (12 marks) Total: 21 marks Now, go back to the Learning outcomes in the Introduction. you are s: achieved these objectives, please tick them off. fied you have 472. Financial Accounting and Reporting IFRS