SUBJECT 1:; HOME AND AWAY

You are the consolidation accountant of Home. Home prepares its financial statements using
International Accounting Standards. Home has a subsidiary, Away. Away is incorporated in a
country that has the Tot as its unit of currency. The accepted abbreviation for the Tot is ‘T’.
The financial statements of Home and Away for the year ended 30 June 20X7 are given below:
Statements of financial position at 30 June 20X7
Home Away
$000 $000 T000 T000
Non-current assets:
Property, plant and equipment 30,000 50,000
Investment in Away 14,000
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44,000 50,000
Current assets:
Inventories 10,000 16,000
Receivables 12,000 18,000
Cash 60 80
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22,060 34,080
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66,060 84,080
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Equity and liabilities:
Equity capital ($1/T1 shares) 25,000 40,000
Retained earnings 29,060 24,080
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54,060 64,080
Current liabilities:
Trade payables 8,000 13,000
Tax 1,000 2,000
Bank overdraft 3,000 12,000 5,000 20,000
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66,060 84,080
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Statements of changes in equity for the year ended 30 June 20X7
Home Away
$000 T000
Balance at 30 June 20X6 53,060 62,880
Net profit for the period 2,000 3,200
Dividends (1,000) (2,000)
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Balance at 30 June 20X7 54,060 64,080
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Statements of profit or loss for the year ended 30 June 20X7
Home Away
$000 T000
Revenue 12,000 20,000
Cost of sales (6,000) (10,000)
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Gross profit 6,000 10,000
Other operating expenses (3,000) (5,000)
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Profit from operations 3,000 5,000
Finance cost (100) (200)
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Profit before tax 2,900 4,800
Income tax expense (900) (1,600)
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Net profit for the period 2,000 3,200
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There were no items of other comprehensive income in the individual statements of either
entity.
Statements of changes in equity for the year ended 30 June 20X7
Home Away
$000 T000
Balance at 30 June 20X6 53,060 62,880
Net profit for the period 2,000 3,200
Dividends (1,000) (2,000)
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Balance at 30 June 20X7 54,060 64,080
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Notes to the financial statements
(1) On 1 July 20X6, Home purchased 30 million shares in Away for 42 million Tots. The
balance on the retained earnings of Away on 1 July 20X6 was 22.880 million Tots.
(2) On 30 June 20X7, Home invoiced Away for a management charge of $250,000 for the
year ended 30 June 20X7. This amount was included in the revenue and receivables of
Home. Away received the invoice before closing its books for the year ended 30 June
20X7 and entered it using the closing rate of exchange to translate the sum into Tots.
The relevant amount was included in the other operating expenses and trade payables
of Away. There was no other trading between the two entities.
(3) Relevant rates of exchange are as follows:
Date Exchange rate (Tots to $1)
30 June 20X6 3.75
30 June 20X7 4
Average for the year ended 30 June 20X7 3.85
(4) Goodwill is accounted for using the full goodwill method. At the date of acquisition, the
fair value of the non-controlling interest was 17.38 million Tots.
(5) At the date of acquisition, the carrying amounts of the net assets of Away were
approximately equal to their carrying values.
Required:
(a) Prepare the consolidated statement of financial position of the Home group at 30
June 20X1, including separate disclosure of the group foreign exchange difference
arising on consolidation. (16 marks)
(b) Prepare the consolidated statement of profit or loss and other comprehensive income
of the Home group for the year ended 30 June 20X1. (6 marks)*
(c) Explain the accounting treatment of the exchange differences arising on consolidation
of a foreign subsidiary. (3 marks)
(Total: 25 marks)
*it is not compulsory;
SUBJECT 2: HARDEN AND SOLDER
Harden acquired 800,000 of Solder’s $1 equity shares on 1 October 20X0 for $2.5 million. One
year later, on 1 October 20X1, Harden acquired 200,000 $1 equity shares in Active for
$800,000. The statements of financial positions of the three entities at 30 September 20X2 are
shown below:
Harden Solder Active
$000 $000 $000 $000 $000 $000
Non-current assets
Property, plant and 3,980 2,300 1,340
equipment
Patents 250 420 −
Investments – in Solder 2,500
– in Active 800
Investment s – others FV 150 200 60
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3,450
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7,680 2,920 1,400
Current assets
Inventories 570 400 300
Trade receivables 420 380 400
Bank − 150 120
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990 930 820
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Total assets 8,670 3,850 2,220
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Equity and liabilities
Equity shares of $1 each 2,000 1,000 500
Reserves:
Share premium 1,000 500 100
Retained earnings 4,500 1,900 1,200
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7,500 3,400 1,800
Non-current liabilities
Deferred tax 200 − 80
Current liabilities
Trade payables 750 450 280
Taxation 140 − 60
Overdraft 80 − −
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970 450 340
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Total equity and liabilities 8,670 3,850 2,220
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The following information is relevant:
(i) The balances of the retained earnings of the three entities were:
Harden Solder Active
$000 $000 $000
At 1 October 20X0 2,000 1,200 500
At 1 October 20X1 3,000 1,500 800
(ii) At the date of its acquisition the fair values of Solder’s net assets were equal to their
book values with the exception of a plot of land that had a fair value of $200,000 in
excess of its book value.
(iii) Goodwill is accounted for using the full goodwill method. At the date of acquisition, the
fair value of the non-controlling interest in Solder was $600,000.
(iv) On 26 September 20X2, Harden processed an invoice for $50,000 in respect of an
agreed allocation of central overhead expenses to Solder. At 30 September 20X2, Solder
had not accounted for this transaction. Prior to this the current accounts between the
two entities had been agreed at Solder owing $70,000 to Harden (included in trade
payables and trade receivables respectively).
Required:
Prepare the consolidated statement of financial position of Harden as at 30 September
20X2.
(25 marks)