P co regularly sells goods to its one subsidiary company, S Co, which it has owned

since S Co's incorporation. The statement of financial position of the two companies
on 31 December 20x6 are given below

Statement of financial Position at 31 December 20x6

P Co S co
$ $

Assets
Non-Current Assets

Property, Plant and Equipment 35,000.00 45,000.00

Investment in 40,000$1 shares in

40,000.00
S Co at cost
75,000.00 45,000.00

Current Assets
Inventories 16,000.00 12,000.00
Receivables: S Co 2,000.00 -
other 6,000.00 9,000.00
Cash at Bank 1,000.00
Total Assets 100,000.00 66,000.00
Equity and liabilities
Equity
40000 $1 ordinary shares - 40,000.00
70000 $1 ordinary shares 70,000.00 -
Retained Earnings 16,000.00 19,000.00
86,000.00 59,000.00

Current Liabilities
Bank overdraft 3,000.00
Payables P co 2,000.00
others 14,000.00 2,000.00
Total Equity and liabilities 100,000.00 66,000.00

required:

Prepare the consolidated statement of financial position of P Co. at 31 Dec 20x6

The statements of financial position of P Co and of its subsidiary S Co have been made up to 30
June.

P Co has owned all of the ordinary shares and 40% of the loan stock of S Co since its
incorporation.
Statement of financial Position at 30
June
P Co S co
$ $

Assets
Non-Current Assets
Property, Plant and Equipment 120,000.00 100,000.00
Investment in S Co, at cost
80000 ordinary shares of $1 each 80,000.00
$20000 of 12% loan stock in S co. 20,000.00
220,000.00 100,000.00

Current Assets
Inventories 50,000.00 60,000.00
Receivables 40,000.00 30,000.00
current account with S co 18,000.00
Cash at Bank 4,000.00 6,000.00
112,000.00 96,000.00
Total Assets 332,000.00 196,000.00
Equity and liabilities
Equity
ordinary shares of $1 each, fully paid 100,000.00 80,000.00
Retained Earnings 95,000.00 28,000.00
195,000.00 108,000.00

Non-Current liabilities
10 % loan stock 75,000.00
12% loan stock 50,000.00
Current Liabilities
payables 47,000.00 16,000.00
taxation 15,000.00 10,000.00
current account with P. Co. 12,000.00
62,000.00 38,000.00
Total Equity and liabilities 332,000.00 196,000.00

the difference on current account arises because of goods in transit

required:
Prepare the consolidated statement of financial position of P Co.
P Co has owned 75% of the share capital of S Co since the date of S Co's incorporation.

Their latest statements of financial position are given below. The non-controlling interest is
valued at its proportional share of the fair value of the subsidiary's net assets.

Statement of financial Position

P Co S co
$ $

Assets
Non-Current Assets

Property, Plant and Equipment 50,000.00 35,000.00

30,000 $1 shares in S Co at cost 30,000.00

80,000.00

Current Assets 45,000.00 35,000.00

Total Assets 125,000.00 70,000.00

Equity and liabilities

Equity
$1 ordinary shares 80,000.00 40,000.00
Retained Earnings 25,000.00 10,000.00
105,000.00 50,000.00

Current Liabilities 20,000.00 20,000.00

Total Equity and liabilities 125,000.00 70,000.00

required:
Prepare the consolidated statement of financial position
Set out below are the draft statement of financial position of P Co and its subsidiary S Co. You
are required to prepare the consolidated statement of financial position. The non-controlling
interest is valued at its proportional share of the fair value of the subsidiary's net assets.

P Co S Co
$ $ $ $

Assets
Non-Current Assets
Property, Plant and Equipment 31,000.00 34,000.00
Investment in S Co, at cost
12,000 $1 ordinary shares at cost 12,000.00
$8000 10% loan stock at cost. 8,000.00
20,000.00
51,000.00
Current Assets 21,000.00 32,000.00
Total Assets 72,000.00 66,000.00
Equity and liabilities
Equity
ordinary shares of $1 each 40,000.00 20,000.00
Revaluation Surplus - 6,000.00
Retained Earnings 22,000.00 4,000.00
62,000.00 30,000.00
Non-Current liabilities
10 % loan stock - 26,000.00
Current Liabilities 10,000.00 10,000.00
Total Equity and liabilities 72,000.00 66,000.00

required:
Prepare the consolidated statement of financial position of P Co.
Sing Co acquired the ordinary shares of Wing Co on 31 March when the draft stateents of financial
position of each compny were as follows:

Sing Co. Statement of Wing Co. Statement of

financial Position at 31 Mar financial Position at 31 Mar

$ $
Assets
Non-Current Assets

Investment in 50,000 shares of

80,000.00
Wing Co at cost

Current Assets 40,000.00 60,000.00

Total Assets 120,000.00 60,000.00

Equity and liabilities

Equity

ordinary shares 75,000.00 -

50000 ordinary shares of $1 each 50,000.00

Retained Earnings 45,000.00 10,000.00

120,000.00 60,000.00

Total Equity and liabilities 120,000.00 60,000.00

required:

Prepare the consolidated statement of financial position as at 31 March

P acquired 75% of the shares in S on 1 January 2007 when S had retained earnings of
$15,000. The market price of S's Shares just before the date of acquisition was $1.60. P
values non-controlling interest at fair value. Goodwill is not impaired.

Statement of financial Position at 31 December 20x7

P Co S co
$ $

Assets
Non-Current Assets

Property, Plant and Equipment 60,000 50,000

shares in S 68,000

128,000 50,000

Current Assets 52,000 35,000

Total Assets 180,000 85,000

Equity and liabilities
Equity

share capital - $1shares 100,000 50,000

Retained Earnings 70,000 25,000

170,000 75,000

Current Liabilities 10,000 10,000

Total Equity and liabilities 180,000 85,000

required:

Prepare the consolidated statement of financial position of P Co.

4.10 Example: Impairment loss and goodwill: partial goodwill
The Acetone Company is testing for impairment two subsidiaries which have been identified as separate cash-generating units.

Some years ago Acetone acquired 80% of The Dushanbe Company for $600,000 when the fair value of Dushanbe's identifiable assets was $400,000. As Dushanbe's policy is to
distribute all profits by way of dividend, the fair value of its identifiable net assets remained at $400,000 on 31 December 20X7. The Impairment review indicated Dushanbe's
recoverable amount at 31 December 20X7 to be $520,000.

Some years ago Acetone acquired 85% of The Maclulich Company for $800,000 when the fair value of Maclulich's identifiable net assets was $700,000. Goodwill of $205,000
($800,000— ($700,000 x 85%)) was recognised. As Maclulich's policy is to distribute all profits by way of dividend, the fair value of its Identifiable net assets remained at
$700,000 on 31 December 20X7. The impairment review Indicated Maclulich's recoverable amount at 31 December 20X7 to be $660,000.

It is Acetone group policy to value the NCI using the proportion of net assets method.

Required

Determine the following amounts In respect of Acetone's consolidated financial statements at 31 December 20X7 according to IAS 36 Impairment of Assets.
a. The carrying amount of Dushanbe's assets to be compared with its recoverable amount for impairment testing purposes
b. The carrying amount of goodwill in respect of Dushanbe after the recognition of any impairment loss
c. The carrying amount of the NCI in Maclulich after recognition of any impairment loss

Solution
$750,000
(a)

$96,000
(b)

$99,000
(c)

Workings
(a)

Carrying amount of Dushanbe's net assets 400,000

Goodwill recognised on acquisition
$600,000 — (80%. $400,000) 280,000
Notional goodwill ($280,000 . 20/80) 70,000
750,000
The impairment loss is the total $750,000 less the recoverable amount of $520,000 = $230,000. Under IAS 36 this is firstly allocated against the $350,000 goodwill. (As the
(b)

impairment loss is less than the goodwill, none is allocated against identifiable net assets.) As only the goodwill relating to Acetone is recognised, only its 80% share of the
impairment loss is recognised:
Carrying amount of goodwill 280,000
Impairment (80% . 230,000) -184,000
Revised carrying amount of goodwill 96,000
(o)
Carrying amount of Maclulich's net assets 700,000
Recognised goodwill 205,000
Notional goodwill (15/85 .$205,000) 36,176
941,176
Recoverable amount -660,000
Impairment loss 281,176
Allocated to:
Recognised and notional goodwill 241,176
Other net assets 40,000
Therefore the NCI is ($700,000 —$40,000) x 15% = $99,000.00
As the NCI does not include goodwill, only the impairment allocated to other net assets is included here.
4.11 Example: Impairment loss and goodwill: full goodwill

Assume that the facts relating to the acquisition of Dushanbe are the same as above, except that it is
Acetone group's policy to value the NCI on the acquisition of Dushanbe at fair value. The fair value of
the NCI in Dushanbe at acquisition was $100,000.

Determine the following amounts In respect of Acetone's consolidated financial statements at 31 December 20X7 according to IA
a. The carrying amount of Dushanbe's assets to be compared with its recoverable amount for Impairment testing purposes
b. The carrying amount of goodwill in respect of Dushanbe after the recognition of any impairment loss
Solution
$700,000
(a)

$120,000
(b)

Workings
(a)

Consideration transferred Fair value of NCI

Fair value of net assets acquired Goodwill

Carrying amount of Dushanbe's net assets

Goodwill recognised on acquisition
700,000
The impairment loss is the total $700,000 less the recoverable amount of $520,000 = $180,000. Under
(b)

IAS 36 this is first allocated against the $300,000 goodwill. (As the impairment loss is less than the
goodwill, none is allocated against identifiable net assets.)
Carrying amount of goodwill
Impairment
Revised carrying amount of goodwill
In the equity of the group statement of financial position, the retained eamings will be reduced by the
parent's share of the impairment loss on the full goodwill, ie $144,000 (80% x $180,000) and the NCI
reduced by the NCI's share, le $36,000 (20% x $180,000).
In the statement of profit or loss and other comprehensive income, the impairment loss of $180,000 will be charged as an extra
The draft statements of financial position of Ping Co and Pong Co on 30 June 20x8 were as follows:

Statement of financial Position as at 30 June

20x8
ping Co pong co
$ $

Assets
Non-Current Assets
Property, Plant and Equipment 50,000.00 40,000.00
20,000 ordinary shares in pong co
30,000.00
at cost
80,000.00 40,000.00

Current Assets
Inventories 3,000.00 8,000.00
owed by ping co 10,000.00
Receivables 16,000.00 7,000.00
Cash 2,000.00 -
Total Assets 101,000.00 65,000.00
Equity and liabilities
Equity
ordinary shares of $1 each 45,000.00 25,000.00
revaluation surplus 12,000.00 5,000.00
Retained Earnings 26,000.00 28,000.00
83,000.00 58,000.00

Current Liabilities
owed to pong co. 8,000.00 -
trade payables 10,000.00 7,000.00
18,000.00 7,000.00
Total Equity and liabilities 101,000.00 65,000.00

Ping Co acquired its investment in Pong Co on 1 July 20X7 when the retained earnings of Pong Co
stood at $6,000. The agreed consideration was $30,000 cash and a further $10.000 on 1 July 20X9.
Ping Co 's cost of capital is 7%. Pong Co has an internally-developed brand name — 'Pongo' —
which was valued at $5,000 at the date of acquisition. There have been no changes in the share
capital or revaluation surplus of Pong Co since that date. At 30 June 2008 Pong Co had invoiced
Ping Co for goods to the value of $2,000 and Ping Co had sent payment in full but this had not been
received by Pong Co. There is no impairment of goodwill. It is group policy to value non-controlling
interest at full fair value. At the acquisition date the non-controlling interest was valued at $9,000.

Required
Prepare the consolidated statement of financial position of Ping Co as at 30 June 20X8.
P Co has owned 75% of the shares of S Co since the incorporation of that company.

During the year to 31 December 20X2. S Co sold goods costing $16,000 to P Co at a price of
$20,000 and these goods were still unsold by P Co at the end of the year.
Draft statements of financial position of each company at 31 December 20x2 were as follows.
P Co S Co
$ $ $ $

Assets
Non-Current Assets
Property, Plant and Equipment 125,000.00 120,000.00

Investment 75,000 shares in S

75,000.00 -
co at cost
200,000.00 120,000.00
Current Assets
Inventories 50,000.00 48,000.00
Trade Receivables 20,000.00 16,000.00
70,000.00 64,000.00
Total Assets 270,000.00 184,000.00
Equity and liabilities
Equity
ordinary shares of $1 each
80,000.00 100,000.00
fully paid
Retained Earnings 150,000.00 60,000.00
230,000.00 160,000.00
Current Liabilities 40,000.00 24,000.00
Total Equity and liabilities 270,000.00 184,000.00

required:
Prepare the consolidated statement of financial position of P Co at 31 December 20X2. The fair
value of the non-controlling interest at acquisition was $25,000
P Co acquired80% of the shares in S Co one yar ago when the reserves of S Co stood at $10,000.

Draft statements of financial position for each company are as follows:

P Co S Co
$ $ $ $

Assets
Non-Current Assets
Property, Plant and
80,000.00
Equipment 40,000.00
Investment in S co at cost 46,000.00 -
126,000.00 40,000.00
Current Assets 40,000.00 30,000.00
-
Total Assets 166,000.00 70,000.00
Equity and liabilities
Equity
ordinary shares of $1 each 100,000.00 30,000.00
Retained Earnings 45,000.00 22,000.00
145,000.00 52,000.00
Current Liabilities 21,000.00 18,000.00
Total Equity and
166,000.00 70,000.00
liabilities

During the year S Co sold goods to P Co for $50,000, the profit to S Co being 20% of selling price. At the end of
the reporting period, $15,000 of these goods remained unsold in the inventories of P Co. At the same date, P Co
owed S Co $12,000 for goods bought and this debt is included in the trade payables of P Co and the receivables of
S Co.
Non-controlling interest is valued at full fair value. It was valued at $9,000 at the date of acquisition.

Required
Prepare a draft consolidated statement of financial position for P Co.
Hinge Co acquired 80% of the ordinary shares of Singe Co on 1 April 20X5. On
31 December 20x4 Singe Co's accounts showed a share premium account of
$4,000 and retained earnings of $15,000.
The statements of financial position of the two companies at 31 December 20X5
are set out below. Neither company has paid any dividends during the year. Non-
controlling Interest should be valued at full fair value. The market price of the
subsidiary's shares was $2.50 prior to acquisition by the parent.

Required

Prepare the consolidated statement of financial position of Hinge Co at 31

December 2005. There has been no impairment of goodwill.

Statement of financial Position as at 31 December 20x5

Hinge Co. Singe Co.
$ $
Assets
Non-Current Assets

Property, Plant and Equipment 32,000.00 30,000.00

Investment in 40,000 $1 shares

50,000.00
in S Co at cost
82,000.00 30,000.00

Current Assets 85,000.00 43,000.00

Total Assets 167,000.00 73,000.00
Equity and liabilities
Equity
ordinary shares of $1 each 100,000.00 -
ordinary shares of 50 c each 10,000.00
share premium account 7,000.00 4,000.00
Retained Earnings 40,000.00 39,000.00
147,000.00 53,000.00

Current Liabilities 20,000.00 20,000.00

Total Equity and liabilities 167,000.00 73,000.00
P Co acquired 75% of the ordinary shares of S Co on 1 September 20x5, At that date the fair value of S Co's non-current
assets was $23,000 greater than their carrying amount, and the balance of retained earnings was $21,000. The fair value of
the non-current assets does not affect the tax base of the assets. The relevant tax rate is 20%. The statements of financial
position of both companies at 31 August 20x6 are given below. S Co has not incorporated any revaluation in its books of
account. Non-controlling interest is valued at full fair value which was deemed to be $18,000 at the acquisition date.

P Co S Co
$ $ $ $

Assets
Non-Current Assets
Property, Plant and
63,000.00 28,000.00
Equipment
Investment in S co at cost 51,000.00 -
114,000.00 28,000.00
Current Assets 82,000.00 43,000.00
-
Total Assets 196,000.00 71,000.00
Equity and liabilities
Equity
ordinary shares of $1 each 80,000.00 20,000.00
Retained Earnings 96,000.00 41,000.00
176,000.00 61,000.00
Current Liabilities 20,000.00 10,000.00
Total Equity and
196,000.00 71,000.00
liabilities

If S Co had revalued its non-current assets at 1 September 20x5, an addition of $3,000 would have been made to the
depreciation charged for 20x5/x6
required:
Prepare P Co's consolidated statement of financial position as at 31 Aug 20x6.
Tyzo Co prepares accounts to 31 December. On 1 September 20x7
Tyzo Co acquired six million $1 shares in Kono Co at $2.00 per share.
At that date Kono Co produced the following interim financial
statements

$,000
Non-current assets
Property, plant and equipment (Note 1) 16.0
Current assets
Inventories (Note 2) 4.0
Receivables 2.9
Cash and cash equivalents 1.2
8.1
Total assets 24.1
Equity and liabilities
Equity
Share capital ($1 shares) 8.0
Reserves 4.4
12.4
Non-current liabilities
Long-term loans 4.0
Current liabilities
Trade payables 3.2
Provision for taxation 0.6
Bank overdraft 3.9
7.7
Total equity and liabilities 24.1

Notes

1.The following information relates to the property, plant and

equipment of Kono Co at 1 September 20X7.

$m
Gross replacement cost 28.4
Net replacement cost 16.6
Economic value 18
Net reaalisable value 8

The property, plant and equipment of Kono Co at 1 September 20X7 had a total
purchase cost to Kono Co of $27.0 million. They were all being depreciated at
25% per annum pro rata on that cost. This policy is also appropriate for the
consolidated financial statements of Tyzo Co. No non-current assets of Kono Co
which were included in the Interim financial statements drawn up as at 1
September 2007 were disposed of by Kono Co prior to 31 December 20X7. No
non-current asset was fully depreciated by 31 December 20X7
2. The inventories of Kono Co which were shown in the interim financial
statements are raw materials at cost to Kono Co of $4 million. They would have
cost $4.2 million to replace at 1 September 20X7. Of the inventory of Kono Co
in hand at 1 September 20X7, goods costing Kono Co $3.0 million were sold for
$3.6 million between 1 September 20X7 and 31 December 20X7.

3. On 1 September 2007 Tyzo Co took a decision to rationalise the group so as

to integrate Kono Co. The costs of the rationalisation were estimated to total
$3.0 million and the process was due to start on 1 March 20X8. No provision for
these costs has been made in any of the financial statements given above.

4. It is the group's policy to value the non-controlling interests at Its

proportionate share of the lair value of the subsidiary's net assets.
Required

Compute the goodwill on consolidation of Kono Co that will be included in the

consolidated financial statements of the Tyzo Co group for the year ended 31
December 2007, explaining your treatment of the items mentioned above. You
should refer to the provisions of relevant accounting standards.