Section C (Online Mock - November)
Q01) This scenario relates to two requirements
On 1 April 20X8, Peasant Co acquired 85% equity share capital of Roses Co.
Peasant has also owned 35% of Daisy Co since 1 June 20X7.
Statements of profit or loss and other comprehensive income for the year ended
31 December 20X8
Peasant Co Roses Daisy Co
Co
$'000 $'000 $'000
Revenue 915,000 534,000 256,000
Cost of sales (470,000) (132,000) (53,500)
Gross profit 445,000 402,000 202,500
Distribution costs (68,000) (36,000) (21,500)
Administrative expenses (92,000) (34,550) (31,000)
Investment income 56,500 8,000 ‐
Finance costs (15,000) (13,000) (15,500)
Profit before tax 328,700 326,450 134,500
Income tax expense (51,500) (43,000) (21,430)
Profit for the year 277,200 283,450 113,050
Other comprehensive income
Gain on revaluation of land 2,800 - -
Total comprehensive income for the 280,000 283,450 113,050
year
The following information is relevant:
1. A fair value exercise conducted on 1 April 20X8 concluded that the carrying
amounts of Roses Co's net assets were equal to their fair values with the
exception of an item of machinery which had a fair value of $10m in excess of
its carrying amount. At 1 April 20X8, the machinery had a remaining life of
five years. Depreciation is charged to cost of sales.
2. Since acquisition, Peasant Co has sold goods to Roses Co totaling $25m.
Roses Co had one quarter of these goods in inventory at 31 December 20X8.
During the year, Peasant Co also sold goods to Daisy Co for $26m, all of
which Daisy Co held in inventory at 31 December 20X8. All of these goods
had a mark‐up on cost of 35%.
3. The investment income of Peasant Co for the year ended 31 December 20X8
includes dividends from Roses Co and Daisy Co (see note (4)). It also
includes $5m interest receivable on a loan made to Roses Co on 1 April
20X8.
4. Roses Co paid a dividend to shareholders of $13m on 31 December 20X8.
Daisy Co paid a dividend on 31 December 20X8 of $29m.
5. All items in the above statements of profit or loss and other comprehensive
income are deemed to accrue evenly over the year.
(a) Prepare the consolidated statement of profit or loss and other comprehensive
income of Peasant Co for the year ended 31 December 20X8.
All figures in nearest ‘000’ (17 marks)
(b) Peasant Co is a publicly listed manufacturer of food packaging materials. Peasant
Co. has been implementing sustainable practices in its business operations and aims to
further integrate sustainability into its business activities to address growing
environmental concerns. However, the company is not yet familiar with IFRS
Sustainability Standard 1 on the general requirements for the disclosure of
sustainability-related financial information.
Provide a brief explanation of the IFRS Sustainability Standard 1 General Requirements
for Disclosure of Sustainability-related Financial Information and its importance to
Peasant Co and its stakeholders.
(3 marks)
Q01 ) Answer
Q2) This scenario relates to four requirements
The Magnolia Group operates in the fashion and accessories industry. On 1
January 20X7, Magnolia Co. disposed one of its subsidiaries, Perl Co, for cash of
$52m. Perl Co. manufactures home decor items and was sold because the
Magnolia group decided to focus on fashion and accessories sectors
internationally.
Extracts from the consolidated financial statements of the Magnolia group for the
years ended 31 December 20X6 and 20X7 are as follows:
Statement of Profit or loss 20X7 20X6
$'000 $'000
Revenue 114,800 145,900
Cost of Sales (62,400) (85,700)
Gross Profit 52,400 60,200
Operating Expenses (35,500) (45,600)
Profit from Operations 16,900 14,600
Finance Costs (4,300) (7,500)
Profit before tax 12,600 7,100
Statement of financial position
Inventories 15,400 26,800
Cash 39,700 18,900
Non-current liabilities 53,200 75,500
Following is the relevant information in this regard:
1. The accounting manager didn't account for Perl Co as a discontinued operation,
because the disposal occurred on 1 January 20X7. As the division was sold no
information from Perl Co has been included in the 20X7 financial statement extracts
above. The proceeds from the disposal have been recorded in cash, while all net
assets and goodwill have been derecognized. The accounting team is confused
about the accounting treatment of the balancing figure.
2. Magnolia Co acquired 100% of Perl Co. on 1 January 20X1, which resulted in
goodwill of $8m. The goodwill had been impaired by 30% in 20X5. The net assets
at 1 January 20X7 were at $40m.
3. Results obtained from Perl Co.’s individual published financial statements:
20X7 20X6
$'000 $'000
Revenus 45,800 42,200
Gross Profit 21,900 14,800
Profit from Operations 9,300 7,000
4 The Magnolia group has moved its accessories division to a building owned by the
. group but before disposal this building was in use of Perl Co. Previously, the
accessories division used external facilities on lease for $3m per year.
At 1st January 20X7, the Magnolia group terminated the lease with a one-off
payment of $4m to lessor and this payment was recorded in operating expenses. On
1st January 20X7, the lease still has eight years remaining.
5 The Magnolia group imports raw materials from overseas. Foreign exchange gains
. of $3.5m were recorded in 20X6 while a foreign exchange loss of $2m was made in
20X7. These were recognized within operating expenses.
(a) Calculate the gain on the disposal of Perl Co that would be included in the
consolidated statement of profit or loss for the Magnolia group for the year ended 31
December 20X7. (2 marks)
(b) Explain whether the disposal of Perl Co is likely to constitute a discontinued
operation and detail the correct accounting treatment. (3 marks)
(c) Calculate the following ratios and show the workings for the Magnolia group for
20X7 and 20X6:
- Gross profit margin
- Operating profit margin
- Interest cover; and
- Inventory turnover days (4 marks)
(d) Analyze the performance and position of the Magnolia group for the year
ended 31 December 20X7 compared to the year ended 31 December 20X6.
(11 marks)
Q2) Answers
