ACC3014 CORPORATE REPORTING- APRIL 2023
Tutorial Week 3 Questions - Consolidation Subsequent to the Acquisition Date
Additional Practice Question 2
On 1 June 2017, Penang Berhad acquired 80% of the equity share capital of
Bangkok Berhad. The consideration consisted of two elements: a share exchange
of three shares in Penang for every five acquired shares in Bangkok and the
issue of a RM100 6% loan note for every 500 shares acquired in Bangkok. The
share issue and loan notes have not yet been recorded by Penang. At the date of
acquisition shares in Penang had a market value or RM5.00 each and the shares of
Bangkok had a stock market price of RM3.50 each. Below are the summarized draft
financial statements of both companies.
Statements of Comprehensive Income for the year ended 30 September 2017
Penang Bangkok
Berhad Berhad
RM’000 RM’000
Revenue 92,500 45,000
Cost of sales (70,500) (36,000)
Gross profit 22,000 9,000
Distribution costs (2,500) (1,200)
Administrative expenses (5,500) (2,400)
Finance costs (100) nil
Profit before tax 13,900 5,400
Income tax expense (3,900) (1,500)
Profit for the year 10,000 3,900
Other comprehensive income:
Gain on revaluation of land 500 nil
Total comprehensive income 10,500 3,900
Statements of Financial Position as at 30 September 2017
Penang Bangkok
Berhad Berhad
Assets RM’000 RM’000
Non-current assets
Property, plant and equipment 25,500 13,900
Investments 1,800 nil
27,300 13,900
Current assets 12,500 2,400
Total assets 39,800 16,300
Equity
Equity shares of RM1 each 12,000 5,000
Land revaluation reserve- 30
Sept 2017 2,000 nil
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ACC3014 CORPORATE REPORTING- APRIL 2023
Other equity reserve- 30
Sept 2016 500 nil
Retained earnings 12,300 4,500
26,800 9,500
Liabilities
Non-current liabilities
6% loan notes 3,000 nil
Current liabilities 10,000 6,800
Total equity and liabilities 39,800 16,300
The following information is relevant:
• At the date of acquisition, the fair value of Bangkok’s assets was equal to their
carrying amounts with the exception of its property. This had a fair value of RM1.2
million below its carrying amount. This would lead to a reduction of the
depreciation charge (in cost of sales) of RM50,000 in the post-acquisition period.
Bangkok has not incorporated this value change into its entity financial
statements. Penang’s group policy is to revalue all properties to current value at
each year end. On 30 September 2017, the value of Bangkok property was
unchanged from its value at acquisition, but the land element of Penang’s
property had increased in value by RM500,000 as shown in other comprehensive
income.
• Sales from Bangkok to Penang throughout the year ended 30 September 2017
had consistently been RM1 million per month. Bangkok made a mark-up on cost
of 25% on these sales. Penang had RM2 million (at cost to Penang) of inventory
that had been supplied in the post-acquisition period by Bangkok as at 30
September 2017.
• Penang had a trade payable balance owing to Bangkok of RM350,000 as at 30
September 2017. This agreed with the corresponding receivable in Bangkok’s
books.
• Penang’s investments include some investments have increased in value by
RM300,000 during the year. The other equity reserve relates to these
investments and is based on their value as at 30 September 2016. There were no
acquisitions or disposals of any of these investments during the year ended 30
September 2017.
• Penang’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose, Bangkok’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.
• There has been no impairment of consolidated goodwill.
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ACC3014 CORPORATE REPORTING- APRIL 2023
Required:
In accordance with IFRS 10/ MFRS 10 (Round your answers to the nearest ringgit):
(i) Prepare the consolidated statement of comprehensive income for Penang Berhad
for the year ended 30 September 2017.
(ii) Prepare the consolidated statement of financial position for Penang Berhad as at
30 September 2017.
Consolidated Statement of Comprehensive Income for Penang Berhad for the year
ended 30 September 2017
Penang Bangkok Dr Cr CSCI
Berhad Berhad
(Parent) (Subsidiary)
RM’000 RM’000 RM’000 RM’000 RM’000
Revenue 92,500 15,000
Cost of sales 70,500 12,000
Gross profit
Distribution costs (2,500) 400
Administrative expenses (5,500) 800
Finance costs (100) nil
Profit before tax
Income tax expense (3,900) 500
Profit for the year
Other comprehensive
income:
Gain on revaluation of 500 Nil
land
Gain on revaluation of
investments
Total comprehensive
income
Profit for year
attributable to:
Owner of the parent
(balance)
NCI
Total comprehensive
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ACC3014 CORPORATE REPORTING- APRIL 2023
income attributable to:
Owner of the parent
NCI
Consolidated Statement of Financial Position for Penang Berhad ended 30 September
2017
Penang Bangkok Dr Cr CSOFP
Berhad Berhad
(Parent) (Subsidiary)
RM’000 RM’000
RM’000 RM’000 RM’000
Assets
Non-current assets
Investment in
Bangkok
Property, plant and 25,500 13,900
equipment
Investments 1,800
Goodwill (W2)
Current assets 2,400
12,500
Total assets
Equity and
liabilities
Equity shares of 12,000 5,000
RM1 each
Land revaluation 2,000 nil
reserve
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ACC3014 CORPORATE REPORTING- APRIL 2023
Other equity 500 nil
reserve
Retained earnings 12,300 4,500
(W3)
Non-controlling
interest (W4)
Total equity
Non-current
liabilities
6% loan notes 3,000 nil
Current liabilities 10,000 6,800
Total equity and
liabilities
Workings:
W1: Group Structure
W2: Goodwill in Bangkok
Consideration RM’000
Shares 1,200
6% loan notes 800
NCI @ DOA 3,500
16,300
Less: Net assets Bangkok 1 June 2017
Equity shares 5,000
Pre-acquisition retained earnings (W4) 1,300
FV adjustment property (1,200)
Goodwill 9,300
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ACC3014 CORPORATE REPORTING- APRIL 2023
Consolidated Journal Entries Adjustments
Parent’s account RM’000 RM’000
Dr investment in Bangkok 12,800
Cr Share capital (penang) 12,000
Cr 6% Loan notes 800
Dr Goodwill 9,300
Dr equity shares 5,000
Dr Pre-acquisition RE 3,200
Cr Property 1,200
Cr investment in Bangkok 12,800
Cr NCI 3,500
Dr PPE (Reduction in dep of property) 50
Cr COS (Reduction in dep of property) 50
Dr Sales 4,000
Cr Purchases (COS) 4,000
Dr COS (unrealized profit) 400
Cr Closing inventory 400
Dr Trade payable 350
Cr Trade receivable 350
Dr Investment 300
Cr Other equity reserves 300
W3: Retained earnings
Penang Bangkok
Berhad Berhad
RM’000 RM’000
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ACC3014 CORPORATE REPORTING- APRIL 2023
W4: Non-controlling interest in statement of financial position
RM’000
Other workings:
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ACC3014 CORPORATE REPORTING- APRIL 2023
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ACC3014 CORPORATE REPORTING- APRIL 2023
