Paper F7 guide

Question 1: Consolidated Financial Statements

Consolidated Statement of Income Statement Step1 Step 2

Parent$'000

Subsidy$'000

Add/(minus)$'000

Total$'000

Revenue step 3Cost of Sales step 3 and 6Gross ProfitDistribution CostsAdministrative ExpenseFinance Costs step 4Finance income step 4Profit Before TaxTax ExpenseIncome for the Year

22,80013,600

2,9001,80020050

1,300

4,300(6/12)2,600(6/12)

500(6/12)300(6/12)70(6/12)X(6/12)

220(6/12)

(640)(640)+10,000, Add profit step6, less depr step 6

Add: expense on goodwill impairment(20)(20)

24,630(14,595)10,035(3,150)(1,950)(215)

304,750

(1,410)3,340

Income Attributable to:OwnersNon Controlling Interest Step 8

3,340+(116) 3,224116

Other Comprehensive incomeGain on RevaluationLoss on FV EquityIncrease in equity investmentsTotal Comprehensive Income

1,600XX

180(6/12)X(6/12)

1,690

X

5,030TCI Attributable to:OwnersNon Controlling Interest step 8

5,030+(152) 4,878152

Changes in Retained Earnings Statement $'000Opening Balance (Parent only) 12,750Dividend Paid (900)Income for the Year (Total Income attributable to Owners 4,878Closing Balance of Retained Earnings 16,728

Note: Associate not included for consolidated income statement

Step 1: Parent amounts -Put in the full amounts of all income and expenses for parent

Step 2: Subsidy amountsCalculate number of months subsidy is owned by parentDate Subsidy Acquire e.g 1 July 20X4Statement to be made e.g. 31 Dec 20X4Number of months 6 monthsTake amounts of Subsidy and times it by (number of months/12) e.g. (6/12). If a full amount is made after acquisition put in full amount.

Step 3: Intragroup SalesRemove the sale by sale price not cost of goods. E.g. 640,000 from Revenue and Cost of Sales

P to S and S to P

Increased Cost of Sales by Unrealised Profit 10,000Decrease NCI by NCI's share of unrealized profit

P to S and S to PS to P

Unrealised profit = ($ amount left in inventory) X (markup%/100% + markup%) = 60,000X (20%/120%) Or = ($ amount left in inventory) X (profit from goods sold/ cost of total goods) Or = ($ profit from goods sold) X (fraction left in inventory)

Step 4: Intra Group Finance – cancel interest from both Finance income and finance cost. 800,000 X 6/12 X 5%

Step 5: Fair Value Increase in Assets – If subsidy's assets get an FV adjustment (upwards), any additional depreciation must be charged add to cost of sales and (less) to NCI. If sold add to NCI. E.g. 200,000/20 years = 10,000

Step 6: Transfer of Non-current Asset (not in example)Expenses must be increased by any profit on transfer. Sometimes in Cost of Sales.Decrease any additional depreciation from carrying value. Decrease expense by additional depreciation. Sometimes Cost of Sales.

Step 7: Dividends from subsidy to parentCalculate parent's share and subsidy's share. Increase NCI by subsidy's share.If dividends from parent to subsidy, dividends are cancelled and dividends paid to NCI are replaced by allocation to NCI by their share of %.

Step 8: Calculating Non Controlling InterestPFtY TCI

Subsidy Profit for the year (taken from subsidy's profit statement) X 6/12Less: Unrealised Profit (step 3)Less: Disposal Profit of non-current Asset by subsidyAdd: Additional Depreciation following disposal of asset by subsidy (step 5)Less: Additional Depreciation from FV increase (step 5)Add: subsidy's share of dividends (step 7)Multiply by parent's share in subsidy e.g. 40%Profit Attributable to Non Controlling Interest

305(10)(X)X(5)X

290116

395(10)(X)X(5)X

380152

Consolidated Statement of Financial Position

Parent$'000

Subsidy$'000

Associate$'000

Add/(minus)$'000

Total$'000

AssetsNon-current AssetsP,P, and EBrand NameGoodwill Step 5Investment in subsidyInvestment in Associate

Current AssetsInventoryOwed to Parent Step 1ReceivablesCash in Transit Step 1Cash and equivalents

Total Assets

50,000--

30,000-

3,000

16,000

2,000

40,0005,000

---

8,00010,0007,000

0 (as per eg)

X

(X)

Add: parent's and FV of sub.

S56.734 S1(30,000) less intra group loan note

S12,000 +S8(X)S1(10,000)

Add: both P and SX

Add: both P and S

90,0005,0006,734

0

13,0000

23,000X

2,000

139,734

Equity and LiabilitiesEquityOrdinary SharesRevaluation SurplusRetained Earnings

Non-controlling Interest

Total Equity

Current LiabilitiesTrade PayablesOwed to subsidy Step 1Contingent consideration

Non- current Liabilities

Total Equity & Liabilities

45,00012,00026,000

10,0008,000

X

Only P's

7,000

X

Unless it's

X/(X)

share exchange eg S's X 2/3 X 80%

S617,600+ S9(612) S8(X)

S713,400

Add: both P and SS1(8,000)S99,346

Add: both P and S less: intragroup loan note

45,00012,00042,988

13,400

113,388

17,0000

9,346

139,734

Step 1: Addition, Cancellation and part CancellationAdd all parent's and subsidiary's Assets and liabilitiesCancel out items which appear as an asset in one company and liability in another. Owed to parent and subsidy.Cancel Shares in subsidy companies which appear in parent company accounts. Investment in subsidyGoods and cash in transit. Add: Good in transit to inventory e.g. 10,000-8,000= 2,000

Step 2: Calculate Subsidy Equity – Add up closing balances of subsidy equity. 25,000+5,000+28,000= 58,000

Step 3: Consideration (Investment in subsidy)Regular Share ExchangeCash paid 30,000Add: Contingent Consideration 8,734PV of future consideration= 10,000 (1/1+r^n)

(# of shares) times (# of shares exchange)/(# of shares exchanged)times Market Value X acquired % add: loan notes

Step4: Pre Acquisition Equity Step: 6 Post Acquisition share to P and NCIS's PreAc Share Capital 25,000S's Pre Ac Revaluation Reserve 5,000S's Pre Ac Retained Earnings 6,000 36,000Add: FV Revaluation 5,000Add: Asset over stated XLess: Asset under stated (X) 41,000

Revaluation ReserveRetained EarningsLess: Depreciation after FV of asset revalueLess: Asset overstatedAdd: Asset understated

Closing

5,00028,000

(Opening)

(5,000)(6,000)

Total

022,000

(X)

(X)

X22,000

80% Majority shareStep 5: Good WillConsideration S3 38,734Less: (41,000X80%) (32,800) 5,934Add: If NCI FV 800Goodwill 6,734Less: goodwill impairment (X)Goodwill X

20% NCI share

(41,000X20%) 8,200Balancing 800NCI FV 9,000

80% Majority to RE(22,000X80%) 17,600Less: Impairment 80% (X)Add: dividends to P XTo Retained earnings 17,600

20% NCI(22,000X20%) 4,400Less: imp X 20% (X)Less: prov of UP (X)Add: dividents to S XTo NCI 4,400

Step 7: Non-controlling InterestFV of NCI (given in question) 9,000NCI share of post acquisition profit S6 4,400Total Non-controlling Interest 13,400

Step 8: Intra group salesLess: Unrealised profit to inventory and Retained earnings. Check Consolidated Income statement guide for calculation.

Step 9: Finance Cost of Deferred Contingent ConsiderationPV of date of statement 9,346Less PV for nex year (8,734)Fiance Cost 612

Associate Note: if acquired during the year # of months / 12 for profitStep 1: investment in AssociateCost of investment XAdd: Share of Profit (Close – begi) X % X (not including dividend) (add this to RE)

(if loss then show as zero) X (add to investment in associate)Less: Unrealised profit P to A (X) reduce from RELess: Impairment Losses (X) reduce from RE(if loss then show as zero) X (add to investment in associate)Parent sells to Associate Associate Sells to ParentEliminate profit/loss to parent's share of % (COS)And Reduce from Investment of Associate

Eliminate profit/loss to parent's share of % (COS)And Reduce from inventory