TEST 5 – Consolidation
CAF 05 – Financial Accounting & Reporting-II Online Recorded Lectures
Max. Marks: 50 (Pass Marks: 25) Time: 1.5 Hours
Q1. Golden Limited (GL) is a listed company and has held shares in two companies, Yellow Limited (YL)
and Black Limited (BL), since July 1, 2014. The details of acquisition of shares in these companies are
as follows:
(a) GL acquired 18 million shares in YL at par, when YL’s reserves were Rs. 24 million. The acquisition
was made by issuing four shares in GL for every five shares in YL. The market price of GL’s shares
at July 1, 2014 was Rs. 20 per share. A fair value exercise was carried out for YL’s assets and
liabilities at the time of its acquisition with the following results:
Book Value Fair Value
Rupees in million
Land 170 192
Machines 25 45
Investments 3 6
The remaining life of machine on acquisition was 5 years. The fair values of the assets have not been
accounted for in YL’s financial statements.
(b) 6 million shares in BL were acquired for Rs. 12 per share in cash. At the date of acquisition, the
reserves of BL stood at Rs. 40 million. The summarized statements of profit or loss of the three
companies for the year ended June 30, 2016 are as follows:
GL YL BL
Rupees in million
Sales 875 350 200
Cost of sales (567) (206) (244)
Gross profit / (loss) 308 144 (44)
Selling expenses (33) (11) (15)
Administrative expenses (63) (40) (16)
Interest expenses (30) (22) (15)
Other income 65 - -
Profit/(loss) before tax 247 71 (90)
Income tax (73) (15) 8
Profit/(loss) for the period 174 (56) (82)
The following relevant information is available:
1. The share capital and reserves as at July 1, 2015 were as follows:
GL YL BL
Rupees in million
Ordinary share capital of Rs. 10 each 600 200 150
Reserves 652 213 108
The share capitals of all companies have remained unchanged since their incorporation.
2. During the year, GL sold goods amounting to Rs. 40 million to YL. The sales were made at a
mark-up of 25% on cost. 30% of these goods were still in the inventories of YL at June 30,
2016.
3. GL manufactures a component used by BL. During the year, GL sold these components
amounting to Rs. 20 million to BL. Transfers are made at cost plus 15%. BL held Rs.11.5
million of these components in inventories at June 30, 2016.
4. All assets are depreciated on straight line method.
5. Other income includes dividend received from YL on April 15, 2016.
6. During the year, YL paid 20% cash dividend to its ordinary shareholders.
7. An impairment test was carried out on June 30, 2016 for the goodwill of YL and investments
in BL, appearing in the consolidated financial statements. The test indicated that:
⁻ goodwill of YL was impaired by 20%;
⁻ due to recent losses, the fair value of investment in BL has been reduced to Rs. 40
million.
No such impairment was required in previous years.
Required: Prepare, in a format suitable for inclusion in the annual report, a consolidated
statement of profit or loss for the year ended June 30, 2016. (25)
Q2. At 1 July 2018 Anima Limited had investments in two companies: Orient Limited and Oxendale
Ltd. On 1 April 2019 Anima Limited purchased 85% of the ordinary share capital of Carnforth Limited
for Rs. 3 million. Extracts from the draft individual financial statements of the four companies for the
year ended 30 June 2019 are shown below:
Statements of profit or loss
Anima Ltd Orient Ltd Carnforth Ltd Oxendale Ltd
Amount in Rs.
Revenue 1,410,500 870,300 640,000 760,090
Cost of sales (850,000) (470,300) (219,500) (345,000)
Gross profit 560,500 400,000 420,500 415,090
Operating expenses (103,200) (136,000) (95,120) (124,080)
Profit before taxation 457,300 264,000 325,380 291,010
Income tax expense (137,100) (79,200) (97,540) (86,400)
Profit for the year 320,200 184,800 227,840 204,610
Statements of financial position (extracts) at year end
Anima Ltd Orient Ltd Carnforth Ltd Oxendale Ltd
Amount in Rs.
Equity
Ordinary share capital 4,000,000 3,500,000 2,000,000 3,000,000
(Rs. 1 shares)
Retained earnings 1,560,000 580,000 605,000 340,000
5,560,000 4,080,000 2,605,000 3,340,000
Additional information:
(a) A number of years ago Anima Ltd acquired 2.1 million of Orient Ltd's ordinary shares and
900,000 of Oxendale Ltd's ordinary shares. Balances on retained earnings at the date of
acquisition were Rs. 195,000 for Orient Ltd and Rs. 130,000 for Oxendale Ltd. The non-
controlling interest and goodwill arising on the acquisition of Orient Ltd were both calculated
using the fair value method; the fair value of the non-controlling interest at acquisition was
Rs. 1,520,000.
(b) At the date of acquisition the fair values of Carnforth Ltd's assets and liabilities were the same
as their carrying amounts except for its head office (land and buildings) which had a fair value
of Rs. 320,000 in excess of its carrying amount. The split of the value of land to buildings is
50:50 and the buildings had a remaining life of 40 years at 1 April 2019. Carnforth Ltd's profits
accrued evenly over the current year. The non-controlling interest and goodwill arising on
the acquisition of Carnforth Ltd were both calculated using the proportionate method.
(c) During the year Anima Ltd sold goods to Orient Ltd and Oxendale Ltd at a mark-up of 15%.
Anima Ltd recorded sales of Rs. 149,500 and Rs. 207,000 to Orient Ltd and Oxendale Ltd
respectively during the year. At the year-end inventory count Orient Ltd was found still to be
holding half these goods and Oxendale Ltd still held one-third.
(d) Anima Ltd has undertaken annual impairment reviews in respect of all its investments and at
30 June 2019 an impairment loss of Rs. 10,000 had been identified in respect of Oxendale
Ltd.
Requirement
Prepare the consolidated statement of profit or loss of Anima plc for the year ended 30 June
2019 and an extract from the consolidated statement of financial position as at the same date
showing all figures that would appear as part of equity. (25)
