QUIZ 1 – CONSOLIDATED ACCOUNT WITH INTRAGROUP TRANSACTIONS

On I January 2007, Putra Bhd (Putra) acquired an 80% interest in the equity capital of Siman Bhd

(Siman) for a cash consideration of RM11 million. On this date, the net assets of Siman were stated in its

accounts at fair value and the balance of the retained profits were RM3 million.

The draft accounts of the two companies for the year ended 31 December 2010 were as follows:

Draft Income Statements and Retained Profits.

Putra SimanRM’000 RM’000

Sales 26,000 19,000Opening inventories (3,400) (2,800)Purchases (17,000) (11,000)Closing inventories 4,400 3,600Gross profit 10,000 8,800Operating and administrative expenses (including depreciation) (5,200) (4,100)Operating profit 4,800 4,700Dividend income (net) 960 -Profit before taxation 5,760 4,700Taxation (1,400) (1,200)Profit after taxation 4,360 3,500Retained profits brought forward 6,500 4,700Dividends paid (1,800) (1,200)Retained profits carried forward 9,060 7,000

Draft Balance SheetsPutra Siman

RM’000 RM’000 RM’000 RM’000Share capital of RM1 each 23,000 10,000Retained profits 9,060 7,000

32,060 17,000Current liabilities Trade and other payables 5,150 7,270 Taxation 1,580 1,420

38,790 25,690

Property, plant and equipment, at net book value 18,980 16,530Investment in Siman, at cost 11,000Current assets:Inventories 4,200 3,100Trade and other receivables 3,410 3,600Bank 1,200 2,460

8,810 9,16038,790 25,690

Additional information:

1. During the year ended 31 December 2010, Siman sold inventories to Putra for invoices totaling

RM1.5 million. Of this amount RM400,000 remained in the closing inventories of Putra. The

corresponding intragroup sales and closing inventories in the prior year were RM2 million and the

RM600,000 respectively. The profit margin to Siman was 20% on selling price.

2. In the prior year 2009, Putra completed the construction of a warehouse at a cost of RM1.2 million

for the use of Siman. The transfer price was RM2.2 million and this amount was recorded as a

property, plant and equipment by Siman. The warehouse was depreciated at 10% per annum on the

straight-line basis in accordance with the group’s policy, charging a full year’s depreciation in the

year of purchase.

3. Putra carries purchased goodwill at cost less accumulated impairment losses. There is no necessity to

provide any impairment loss to date.

4. Assume an income tax rate of 26%. Ignore tax effects for unrealized profits on intragroup

transactions.

Required:

Prepare the Consolidated Statement of Financial Position and Income Statement for the year ended 31

December 2010 of Putra Bhd.

Your answers must include the following workings:

(i) The amount of goodwill on acquisition

(ii) Consolidated retained profit

(iii) Non-controlling interest,

Solution Quiz 1

Putra Bhd and its SubsidairyConsolidated Income Statement for the year ended 31 December 2010

RM’000Sales (26,000 + 19,000 -1500) 43,500Opening inventories (3,400 + 2,800) (6,200)Unrealised profit b/f 120Purchases (17,000 + 11,000 - 1,500) (26,500)Closing inventories (4,400 + 3,600) 8,000Unrealised profit c/f (80)Gross profit 18,840Operating and administrative expenses (5,200 + 4,100 - 100) (9,200)Profit before taxation 9,640Taxation (1,400 + 1,200) (2,600)Profit after taxation 7,040

Attributable to:Minority interest (3,500 + 120 – 80 + 100) x 0.2 728Equity holders of the Parent company 6,312

7,040

Consolidated Balance Sheet as at 31 December 2010RM’000

Property, plant and equipment(18,980 + 16,530 – 1,000 + 200) 34,710Goodwill arising on consolidation - Working (i) 600

35,310Current assets Inventories (4,200 + 3,100 – 80) 7,220 Trade and other receivables (3,410 + 3,600) 7,010 Bank balances (1,200 + 2,460) 3,660

53,200Financed by:Share capital of RM1 each 23,000Retained profits 11,376 Minority interest -Working (i) 3,404 Current liabilities: Trade and other payables (5,150 + 7,270) 12,420 Taxation (1,580 + 1,420) 3,000

53,200

W (i) Analysis of equity of Siman

Parent (80%)MinorityInterest

Total Pre-acq Post-acq (20%)RM’000 RM’000 RM’000 RM’000

Share capital 10,000 8,000 2,000Retained profits: Pre-acquisition 3,000 2,400 600 Post-acquisition 4,000Less: unrealized profit (80)Add: overprovided depn 100

4,020 3,216 80410,400 3,136 3,404

Cost of shares 11,000Goodwill on acquisition 600

W (ii) Retained profits brought forward and carried forward

RM’000Balance brought forward 6,500 + 0.8 (4,700 – 3,000) 7,860Unrealized profits brought forward 120 x 0.8 (96)Unrealised profit carried on PPE (1,000)Profit realized on depreciation adjustment 100Profit for the year 6,312Dividends paid (1,800)Retained profits carried forward 11,376