Exercise On Csofp

EXERCISE ON CSOFP
Accounting for Joint Arrangement and Associates
Besta Bhd, a company listed on Bursa Malaysia is the industry leader in supplying wheat flour in
the country. Besta Bhd had made some strategic investments in Wangi Bhd and MH Bhd to gain
economies of scale and to establish trade barriers in the industry.
The summarised statements of financial position of the three companies as at 30 June 2017 are
as follows:
Besta Wangi MH
Bhd Bhd Bhd
RM million RM million RM million
Equity and Liabilities
Ordinary shares of RM1 600 300 200
6% Preference shares of RM1 320 - 60
Other reserves - 30 -
Retained profits 92 62 45
10% Debentures - 100 -
Accounts payable 54 22 10
1,066 514 315
Assets
Property, plant and equipment 724 153 182
Intangible assets 172 - -
Investment in MH Bhd - 292 -
Investment in RD Bhd 60 - -
Other investments - - 74
Inventories 60 25 19
Accounts receivable 26 22 21.5
Bank 24 22 18.5
1,066 514 315
Additional information:
1. Besta Bhd acquired 240 million ordinary shares of Wangi Bhd on 1 July 2015 when the
other reserves and retained profits of Wangi Bhd stood at RM21.5 million and RM48.2
million respectively. The consideration transferred for the acquisition was settled by a share
exchange of one share in Besta Bhd for every one share acquired in Wangi Bhd. On that
date, market prices of the shares of Besta Bhd and Wangi Bhd were RM1.40 and RM1.20
respectively. The transaction was not recorded in the books of Besta Bhd. On the acquisition
date, a freehold land of Wangi Bhd had a fair value of RM12 million more than its carrying
amount. In addition, a building with remaining useful life of 20 years was also had an excess
of RM4 millions of its fair value. Wangi Bhd had not recorded the increase in fair value of
the freehold land and the building in its books.
2. On 1 January 2017, Wangi Bhd acquired 130 million ordinary shares of MH Bhd at a market
price of RM2.20 per share and 6 million 6% preference shares of MH Bhd at par. Both
1
acquisitions were settled by cash. For the year ended 30 June 2017, the profit after tax of
MH Bhd was RM28 million. The fair values of the net assets of MH Bhd on that date were
equal to the carrying amount.
3. On 1 July 2016, Besta Bhd acquired 40 million out of 100 million ordinary shares of RD
Bhd at RM60 million and able to exert significant influence over RD Bhd when the retained
profits of RD Bhd were RM25.5 million. During the year, Besta Bhd sold RM18 million worth
of goods to RD Bhd at cost plus 20%. Half of these goods remained in the inventory of RD
Bhd at 30 June 2017. As at 30 June 2017, the retained profits of RD Bhd were RM31.3
million.
4. During the year, Wangi Bhd purchased inventories on credit from Besta Bhd worth RM78
million at a profit margin of 20%. By the year end, 90% of these inventories had been sold
to third parties. In the current year, MH Bhd sold a plant with a carrying value of RM38
million to Wangi Bhd for RM40 million. The remaining useful life of the plant was 5 years.
The group policy is to depreciate all its assets using straight line method on yearly basis,
giving full year’s depreciation in the year of purchase and none in the year of disposal.
5. Wangi Bhd’s accounts payable balance with Besta Bhd at 30 June 2017 was RM8.5 million,
which did not agree with Besta Bhd’s equivalent receivables balance due to a payment of
RM2.5 million made by Wangi Bhd on 28 June 2017 which was not received by Besta Bhd
until 3 July 2017.
6. At the end of the year, the directors of Wangi Bhd and MH Bhd both declared an ordinary
dividend of 2%. MH Bhd also declared a full year’s preference dividend. However, these
dividends have not been accounted for in their respective books of accounts.
7. Impairment tests were carried out on 30 June 2017 which concluded that goodwill on
consolidation for investment in Wangi Bhd was impaired by 10%.
8. The policy of the group is to value the non-controlling interest at its proportionate share of
the fair value of the identifiable net assets of the subsidiaries on the date of acquisition.
Required:
Prepare the consolidated statement of financial position of Besta Bhd Group as at 30 June 2017.

Exercise On Csofp - Associates Besta - Vertical

Uploaded by

Copyright:

Available Formats

Exercise On Csofp - Associates Besta - Vertical

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Exercise On Csofp - Associates Besta - Vertical

Uploaded by

Copyright:

Available Formats

Accounting for Joint Arrangement and Associates

You might also like