 Q1

Background
Lucize and Mirog are limited liability companies. On 1 June 20X8 Luczie
purchased 60% of the equity shares in Mirog for $20m. On 1 June 20X8
the retained earnings of Mirog were $7m and the fair value of the non-
controlling interests in Mirog was $11m. The goodwill arising on the
acquisition was $9m.
The following are the summarized statements of financial position of
the two companies at 31 March 20X9.
Statements of financial position as at 31 March 20X9
Assets Luczie Mirog
Non – current assets: $m $m
Intangible assets 11 3
Tangible assets 49 20
Investments 20
80 23

Current assets:
Inventories 25 11
Trade receivables 33 15
Other current assets 12 4
70 30

Total assets 150 53

Equity and liabilities

Equity
Ordinary SC ($1 shares) 60 15
Retained earnings 50 17
110 32
Current liabilities 24 14
Trade Payables 16 7
Other current liabilities 40 21

Total equity and liabilities 150 53

During the year ended 31 March 20X9, Luczie sold inventory costing
$20m to Mirog for $24m. Mirog had resold all these items by 31 March
20X9 but still owes $9m to Luczie in respect of these purchases.
-Task 1 (11 marks)
Complete the consolidated statement of financial position for Luczie.
Luczie
Consolidated statements of financial position as at 31 March 20X9

Assets
Non- current assets $m
Intangible assets
Tangible assets

Current assets
Inventories
Trade receivables
Other current assets

Total assets

Equity and liabilities

Equity attributable to owners of the parent company
NCI
Total equity
Current Liabilities:
Trade Payables
Other current liabilities

Task – 2
On 30 April 20x9 Luczie purchased 25% of the voting shares in Gremble.
One of Lucize's directors will sit on the board of Gremble.
What is the relationship between Luczie and Gremble?
a) Gremble is a subsidiary of Luczie
b) Gremble is a trade investment of Lucize
c) Gremble is an associate of Lucize
d) There is no relationship between Luczie and Gremble

Task- 3
The basic principle of equity accounting is that the investment in an
associate is initially recognized at …………………… and afterwards the
carrying amount is increased is include …………………….

 Q2
Prite Co acquired 90% of Sero Co on 1 October 20X3 when Setro Co had
retained earnings of $395,000. Consideration paid by Prite Co was
mixture of cash and share as follows:
*$200,000 cash
* 100,000 ordinary 50c shares with a fair value of $3.50 per share
The fair value of the non- controlling interest at the date was $50,000.
The draft statements of financial position for Prite Co and Sero Co as at
30 September 20X4 are:
Prite Co Sero Co
$'000 $'000
Non- current assets
Property , Plant and Equipment (PPE) 1,400 400
Investment in Sero Co 200

Current assets 1,250 270

Total assets 2,850 670

Equity
Equity shares of 50 c each 500 120
Other components of equity (share premium) 760
Retained earnings 950 465
2,210 585
Non – current liabilities 300
Current liabilities 340 85
Total equity and liabilities 2,850 670

There has been no impairment to goodwill. During the year ended 30

September 20X4, Prite Co Sold to Sero Co at a value of $120,000. Prite
Co makes a margin of 30% on all goods sold. At 30 September 20X4,
one third of the goods sold were still in inventory and 50% of the goods
had not yet been paid for by Sero Co.
Prite Co intends to purchase 40% of the shares of Pixie Co during the
next financial year ending 30 September 20X5.
Task 1
Complete the following to determine the goodwill arising on the
acquisition of Sero Co.
$'000
Value of investment at acquisition:
Cash paid by Prite Co 200
Shares issued by Prite Co
Fair value of consideration paid

Total value of investment at acquisition (A)

Fair value of the net assets of Sero Co at acquisition:

Equity share capital

Total fair value of the assets of Sero Co at acquisition (B)

Goodwill at acquisition expressed as a formula

Task 2
Prepare the Prite group consolidated statements of financial position
30 September 20X4.

Prite group
$'000
Non-current assets
Goodwill
Current assets
Total assets

Equity
Share capital
Other components of equity (Share premium)
Group retained earnings

Non- current liabilities

Current liabilities
Total equity and liabilities

Task 3
Which of the following statements about the proposed acquisition of
Pixie Co are TRUE or FALSE?
 Pixie Co would be consolidated on a line by line basis
 Prite Co would recognize Pixie Co as a subsidiary in the financial
statements
 Prite Co would not have to make a consolidation adjustment for
dividends received from Pixie Co
 Pritie Co would recognize Pixie Co as an associate in the
consolidated financial statements.

 Q3 (Figures missing, so do not provide for full Q&A practice)

Background
On January 20x2 Glaza acquired 75% of the share capital of
Vestan for $1,370,000. Pre-acquisition retained earnings were
 $500,000 and the fair value of the non-controlling interest was $
$400,000. Capital has remained unchanged since acquisition.

The following financial statements have been prepared for the

two companies for the year ended 31 December 20X9.
Statements of financial position as at 31 December 20X9
Glaza Vestan
$'000 $'000
Investment in Vestan 1,370
Current assets 3,950 2,420
5,320 2,420

Share capital 2,000 1,000

Retained earnings 1,980 580
3,980 1,580
Current liabilities 1,340 840
5,320 2,420

Statements of profit or loss for the year ended 31 December 20X9

Glaza Vestan
$'000 $'000
Administrative expenses 130 42
Profit before tax 370 85
Taxation 104 17
Profit for the year 266 68

Additional information:
During the year Glaza sold goods costing $100,000 to Vestan for
$120,000. None of these Vestan's inventory, but $20,000 is still an
outstanding inter-company balance at the year end.
Task 1
Complete the consolidated statements of the financial position and
the consolidated statements loss for the year ended 31 December
20X8.
$'000
Assets
Goodwill
Current assets

Equity and Liabilities

Share capital
Retained earnings
Non – controlling interest

Current liabilities

Revenue
Less: cost of sales
Gross Profit
Less: Distribution costs
Administrative expenses
Profit before tax
Taxation
Profit for the year
Attributable to:
Non-controlling interest
Equity holders of the parent

Task 2
What is the principal concept behind the presentation of consolidated
financial statements?
a) Substance over from
b) Going concern
c) Accruals concept
d) Consistency