SECTION B

The following scenario relates to questions 346–350

On 1 April 20X4 Penfold acquired 80% of Superted’s equity shares in a share for share exchange.
Penfold issued 2 shares for every 5 acquired in Superted. Penfold’s share price on 1 April 20X4 was
$5.30. The share exchange has not yet been recorded.
Extracts from the individual financial statements of Penfold and Superted as at 30 September 20X4
are shown below.
Penfold Superted
$000 $000
Property, plant and equipment 345,000 141,000
Trade receivables 32,400 38,000
Equity shares of $1 each 170,000 15,000
Other components of equity (share premium) 6,000 2,000
(i) During the year, Penfold traded with Superted, and had a payable of $6 million at
30 September 20X4. Superted’s receivable balance differed from this due to a $2 million
payment from Penfold not being received until October 20X4.
(ii) Penfold measures the non‐controlling interest at fair value. At the date of acquisition this
was $7.2 million.
(iii) Superted made a profit of $24 million for the year ended 30 September 20X4.
(iv) Penfold sold an item of plant to Superted on 1 April 20X4 for $25 million when its carrying
amount was $20 million. It had a remaining useful life of 5 years at this date.
(v) Penfold also owns 30% of Arnold, an unrelated entity. Penfold are not able to appoint any
members of the board of Arnold as the other 70% is held by another investor who is able to
appoint all members of the board.

346 What will be reported as other components of equity on the

consolidated statement of financial position as at 30 September 20X4?
A $31,440,000
B $26,640,000
C $28,640,000
D $33,440,000

347 What will be reported as receivables on the consolidated statement

of financial position as at 30 September 20X4?
$_____________,000

348 What will be reported as non‐controlling interest on the

consolidated statement of
financial position as at 30 September 20X4?
A $9,700,000
B $9,500,000
C $7,200,000
D $9,600,000

349 What will be reported as property, plant and equipment on the

consolidated statement of financial position as at 30 September 20X4?
$_____________,000

350 How should the investment in Arnold be recorded in the

consolidated statement of financial position of Penfold?
A A subsidiary
B An associate
C A financial instrument
D A contingent asset

The following scenario relates to questions 351–355

On 1 October 20X4, Popper purchased 70% of the share capital of Stopper. Popper agreed to pay
$6 million on 30 September 20X6. Popper has a cost of capital of 8%.
Extracts from the statements of profit or loss for the year ended 31 March 20X5 for both Popper
and Stopper are shown below.
Popper Stopper
$000 $000
Cost of sales (319,200) (176,400)
Operating expenses (50,610) (33,120)

The following notes are relevant:

(i) Since acquisition, Popper sold goods to Stopper totalling $1 million per month, making a
margin of 20%. At the year end, Stopper held 30% of these goods.
(ii) On acquisition, Stopper’s net assets were equal to their carrying amount, with the exception
of Stopper’s head office, which had a fair value of $4 million in excess of its carrying amount
and a remaining life at acquisition of 20 years. All depreciation is charged to operating
expenses.
(iii) At 31 March 20X5, goodwill is impaired by $600,000. Goodwill impairment is included within
operating expenses. Popper measures the non‐controlling interest using the fair value
method.

351 What liability (to the nearest thousand) should be recorded in

respect of the deferred consideration in Popper’s consolidated
statement of financial position as at 31 March
20X5?
$___________ ,000

352 What is the cost of sales figure to be included in the consolidated

statement of profit or loss for the year ended 31 March 20X5?
A $402,600,000
B $401,760,000
C $395,760,000
D $396,400,000

353 What is the operating expenses figure to be included in the

consolidated statement of profit or loss for the year ended 31 March
20X5?
A $67,970,000
B $67,670,000
C $67,570,000
D $67,870,000

354 Which of the items in the scenario would affect the profit
attributable to the noncontrolling interest?
A Notes (i) and (ii) only
B Notes (i) and (iii) only
C Notes (ii) and (iii) only
D Notes (i), (ii) and (iii)
355 Which, if any, of the following statements about fair values is/are
correct?
Statement 1: Popper must include all of Stopper’s assets, liabilities and contingent liabilities
at fair value in the consolidated financial statements.
Statement 2: Professional fees associated with the acquisition of Stopper can be included
within the goodwill because the non‐controlling interest is measured at fair value.
Correct Incorrect
Statement 1
Statement 2
The following scenario relates to questions 356–360
On 1 January 20X5, Prunier acquired 80% of Sheringham’s two million $1 ordinary shares. At this
date, Sheringham had retained earnings of $4 million and a revaluation surplus of $2 million.
Prunier had retained earnings of $10 million and a revaluation surplus of $5 million.
The fair value of Sheringham’s net assets at acquisition were equal to their carrying amounts with
the exception of Sheringham’s property which had a fair value of $800,000 in excess of its carrying
amount and a remaining life of 20 years.
At 31 December 20X5, Prunier and Sheringham both revalued their assets. Prunier’s assets
increased by a further $2 million while Sheringham’s increased by $500,000. At this date, Prunier’s
retained earnings were $11 million and Sheringham’s were $3.5 million.
356 What will the consolidated retained earnings be at 31 December
20X5?
A $11,432,000
B $10,560,000
C $11,368,000
D $10,568,000
357 What will be the other comprehensive income attributable to the
parent for the year ended
31 December 20X5?
$___________ ,000
358 Identify whether or not the following items should be recognised as
assets in the consolidated financial statements of Prunier.
Recognised
Not to be

recognised
Prunier’s brand name, which was internally generated so
not shown in Prunier’s financial statements but has a fair
value of $3 million

A research project in progress, which was one of the

main reasons Prunier purchased Sheringham and has a
fair value of $2 million

An intangible asset related to an encryption process

which has now been deemed illegal. This is included
within intangibles at $1.5 million

359 Prunier has also owned 30% of Anderson for many years, and uses equity accounting to
account for the investment. During the year Prunier sold $3 million of goods to Anderson at
a mark‐up of 20%. Anderson has a quarter of the goods left in inventory at the year end.
What is the value of the unrealised profit adjustment as at 31 December
20X5?
A $150,000
B $37,500
C $125,000
D $45,000

360 On 31 December 20X9, Prunier disposed of its entire holding of Sheringham for $9 million. At
this date, the remaining goodwill was $1 million. The fair value of the non ‐controlling interest
was $2.5 million and the fair value of the net assets (including the fair value adjustment) was
$10.6 million.

What is the profit/loss on the disposal of Sheringham to be shown in the

consolidated
financial statements of Prunier?
A $100,000 loss on disposal
B $1,900,000 gain on disposal
C $5,100,000 loss on disposal
D $2,020,000 gain on disposal

SECTION C
 (iv) Prodigal’s policy is to value the non‐controlling interest of Sentinel at the date of
acquisition at its fair value which the directors determined to be $100 million.
(v) The goodwill of Sentinel has not suffered any impairment.

(vi) All items in the above statements of comprehensive income are deemed to accrue
evenly over the year unless otherwise indicated.
Required:
(a) Prepare the consolidated statement of profit or loss and other
comprehensive
income of Prodigal for the year ended 31 March 20X1. (15 marks)
(b) Prepare extracts of the equity section (including the non‐controlling
interest) of the consolidated statement of financial position of Prodigal
as at 31 March 20X1.
(5 marks)
Note: You are NOT required to calculate consolidated goodwill or produce the statement of
changes in equity.
(Total: 20 marks) 

BYCOMB
On 1 July 20X4 Bycomb acquired 80% of Cyclip’s equity shares on the following terms:
 a share exchange of two shares in Bycomb for every three shares acquired in Cyclip
 a cash payment due on 30 June 20X5 of $1.54 per share acquired (Bycomb’s cost of
capital is 10% per annum).
At the date of acquisition, shares in Bycomb and Cyclip had a stock market value of $3.00 and
$2.50 each respectively.
Statements of profit or loss for the year ended 31 March 20X5:
Bycomb Cyclip
$000 $000
Revenue 24,200 10,800
Cost of sales (17,800) (6,800)
––––––– –––––––
Gross profit 6,400 4,000
Distribution costs (500) (340)
Administrative expenses (800) (360)
Finance costs (400) (300)
––––––– –––––––
Profit before tax 4,700 3,000
Income tax expense (1,700) (600)
––––––– –––––––
Profit for the year 3,000 2,400
––––––– –––––––

Equity in the separate financial statements of Cyclip as at 1 April 20X4:

$000
Equity
Equity shares of $1 each 12,000
Retained earnings 13,500
The following information is also relevant:
(i) At the date of acquisition, the fair values of Cyclip’s assets were equal to their carrying
amounts with the exception of an item of plant which had a fair value of $720,000
above its carrying amount. The remaining life of the plant at the date of acquisition
was 18 months. Depreciation is charged to cost of sales.

(ii) On 1 April 20X4, Cyclip commenced the construction of a new production facility,
financing this by a bank loan. Cyclip has followed the local GAAP in the country where
it operates which prohibits the capitalisation of interest Bycomb has calculated that,
in accordance with IAS 23 Borrowing Costs, interest of $100,000 (which accrued evenly
throughout the year) would have been capitalised at 31 March 20X5. The production
facility is still under construction as at 31 March 20X5.

(iii) Sales from Bycomb to Cyclip in the post‐acquisition period were $3 million at a mark ‐up
on cost of 20%. Cyclip had $420,000 of these goods in inventory as at 31 March 20X5.

(iv) Bycomb’s policy is to value the non‐controlling interest at fair value at the date of
acquisition. For this purpose Cyclip’s share price at that date can be deemed to be
representative of the fair value of the shares held by the non‐controlling interest.

(v) On 31 March 20X5, Bycomb carried out an impairment review which identified that
the goodwill on the acquisition of Cyclip was impaired by $500,000. Impaired goodwill
is charged to cost of sales.
Required:
(a) Calculate the consolidated goodwill at the date of acquisition of
Cyclip. (6 marks)
(b) Prepare extracts from Bycomb’s consolidated statement of profit or
loss for the year ended 31 March 20X5, for:
(i) revenue (1 mark)
(ii) cost of sales (3 marks)
(iii) finance costs (2½ marks)
(iv) profit or loss attributable to the non‐controlling interest (2½ marks)
(Total for (b) 9 marks)
(c) IFRS 3 Business Combinations permits a non‐controlling interest at the date of
acquisition to be valued by one of two methods:
(i) at its proportionate share of the subsidiary’s identifiable net assets, or
(ii) at its fair value (usually determined by the directors of the parent).
Required:
Explain the difference that the accounting treatment of these
alternative methods
could have on the consolidated financial statements, including where
consolidated
goodwill may be impaired. (5 marks)
(Total: 20 marks) 