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AL2011IQ2 – Suggested Solution

VERSION 1 - Based on ORIGINAL HKAS: If pre-acquisition dividend income must be deducted from the cost

of investment at company level i.e. in holding’s company account (in addition to the consolidated Accounts.)

(a) (1)

Cost of control

$ $

Sunny Ltd Windy Ltd (80% pre-acq equity)

Investment in Windy Ltd 1 218 000 Ordinary shares 800 000

Share premium 64 000

Retained profit (269 000 - 20 000) x 80% 199 200

Revaluation reserve (W1) 46 720

Goodwill (on consolidation) 108 080

1 218 000 1 218 000

W1: (350000-400000*90%^3)*80%

Goodwill

$ $

Cosf of Control 108 080 Income statement: impairment loss 30 000

Balance c/d 78 080

108 080 108 080

$

Investment in Windy Ltd 1 218 000

Add: Dividend Recevied 16 000

Cash paid 1 234 000

(2)

Sunny Ltd

Statement of comprehensive income

for the year ended 31 December 2010

$

Turnover (1994000-840000+180000) 1 334 000

Cost of sales (897000-425000+180000-15000) (637 000)

Gross Profit 697 000

Other income (180000-60000) 120 000

Selling and Administration (165000-72000) (93 000)

Administrative expenses (375840-110000-5840-30000) (230 000)

Profit before tax 494 000

Taxation (81000-35000) (46 000)

Profit after tax 448 000

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Sunny Ltd

Statement of financial position

as at 31 December 2010

Non-current assets $

Property, plant and equipment, net (3293560-1421000-58400+5840) 1 820 000

Investment in Windy Ltd (w) 1 218 000

3 038 000

Current Assets

Inventories (216500-110000+15000) 121 500

Trade receivables (178500-123000+24000) 79 500

Cash at bank (303000-101000-6000) 196 000

397 000

TOTAL ASSETS 3 435 000

Current Liabilities

Trade payables (342000-170000+18000) 190 000

Tax payable (77000-30000) 47 000

237 000

Equity

Ordinary shares of $2 each 2 100 000

Share Premium 300 000

Retained Profit (w) 798 000

3 198 000

TOTAL LIABILITIES AND EQUITY 3 435 000

 

Retained Profit

$ $

Balance c/d 929 128 Sunny Ltd (balancing figure) 798 000

Impairment loss on goodwill 30 000 Windy Ltd (80% post-acq retained profit) 180 800Depreciation-undercharged 4 672 (475000-(269000-20000))

Unrealised profit on inventories 15 000  978 800 978 800

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VERSION 2- Based on LATEST HKAS: If pre-acquisition dividend income may not be deducted from the cost

of investment at company level i.e. in holding’s company account (but must be elminated in the the

consolidated Accounts.)

(a)

(1)

Cost of control

$ $

Sunny Ltd Windy Ltd (80% pre-acq equity)

Investment in Windy Ltd 1 234 000 Ordinary shares 800 000

Share premium 64 000

Retained profit 269 000 x 80% 215 200

Revaluation reserve (W1) 46 720

Goodwill (on consolidation) 108 080

1 234 000 1 234 000

W1: (350000-400000*90%^3)*80%

Goodwill

$ $

Cosf of Control 108 080 Income statement: impairment loss 30 000

Balance c/d 78 080

108 080 108 080

(2)

Sunny Ltd

Statement of comprehensive income

for the year ended 31 December 2010

$

Turnover (1994000-840000+180000) 1 334 000

Cost of sales (897000-425000+180000-15000) (637 000)

Gross Profit 697 000

Other income (180000-60000) 120 000

Selling and Administration (165000-72000) (93 000)

Administrative expenses (375840-110000-5840-30000) (230 000)

Profit before tax 494 000

Taxation (81000-35000) (46 000)

Profit after tax 448 000

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