Basic Consolidation Tutorial Questions

Question 1

Prem plc is the holding company of Talia Ltd. The two companies do not trade with each
other. Prem plc purchased its interest in the share capital and debentures of Talia Ltd on the
incorporation of that company.

The holding company’s investments in the subsidiary consist of the following:

80,000 $1 ordinary shares, at cost $80,000
10,000 $1 12% debentures 2028, at cost $10,000 10x12%=1.2
Total investment $90,000

The statements of financial position of the two companies at 31 January 2021 are as follows:
Prem plc Talia Ltd
$000 $000 $000 $000
Non current Assets
Freehold land 250 90
Plant 110 80
Investment in Talia Ltd 90 cancel these figure because-it become zero
450 170
Current Assets
Inventory 190 70
Receivables Dividends and Interest 98 37 minus 13.6-1.2=22.2
Cash at bank 102 -
390 107
840 277
Equity
Ordinary shares of $1 250 100
Retained earnings 260 50
510 150
Non-current liabilities
8% debentures 100
12% debentures subsidiary - 25 minus 10 debts

Current liabilities
Overdraft at Y bank - 10
Trade payables 107 57
Interest payable 8 3 minus 1.2=1.8
Proposed dividends 40 17 minus 13.6=3.4
Corporation tax 75 15
230 102
840 277

Prem plc has recorded its share of the proposed dividends and interest due from Talia in
receivables. There is no goodwill for this question.

Required
Prepare the Consolidated statement of financial position as at 31 January 2021

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 Basic Consolidation Tutorial Questions

Question 2

The draft statements of financial position of Frank Ltd and Ben Ltd as at 31 December 2020
were as follows:

Frank plc Ben Ltd

$000 $000 $000 $000
Non current assets
Property, plant and equipment 66,000 30,000
Investment in Ben Ltd, at cost 33,000 -
99,000 30,000
Current Assets
Inventory 26,000 8,000
Trade and other receivables 14,000 5,900
Dividend receivable 1,400 -
Bank and cash 1,300 700
42,700 14,600
Total assets 141,700 44,600

Equity and liabilities

Ordinary shares of 50 cents each 42,000 14,000
Share premium 14,000 3,000
Retained earnings 16,500 8,000
72,500 25,000
Non-current liabilities
6% Debentures 2030 40,000 10,000

Current Liabilities
Trade and other payables 23,200 7,600
Dividend payable 6,000 29,200 2,000 9,600
141,700 44,600

1. Frank plc acquired its investment in Ben Ltd of 19,600,000 ordinary shares for
$33 million on 1 January 2018. The balance on Ben Ltd’s retained earnings at the
date of acquisition was $5,100,000.

2. The fair value of the property, plant & equipment of Ben Ltd at 1 January 2018 was
$32,000,000. The book value of the property, plant & equipment of Ben Ltd at 1
January 2018 was $28,000,000. The revaluation has not been recorded in the books of
Ben Ltd. The property, plant and equipment are depreciated over 10 years

3. Frank plc purchased goods from Ben Ltd for $20,000,000 during the year ended 31
December 2020. 40% of these remained in inventory at the year end. Ben Ltd had
sold these at its normal margin of 25%.

4. Frank plc is of the opinion that the goodwill is impaired and has fallen by 10% of its
value at the acquisition date.

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Basic Consolidation Tutorial Questions

5. Frank’s payables shows an amount due to Ben of $1,000,000. Ben’s receivables

shows an amount due from Frank of $3,000,000. The difference is due to cash in
transit. Current accounts are included in trade and other receivables, and trade and
other payables as appropriate.

Required:
Prepare the consolidated statement of Financial Position for the Frank Group as at 31st
December 2020

Question 3

On 1 October 2019 Purple Plc bought 45,000 ordinary shares in Scarlett Ltd paying $140,000
cash, when the retained earnings of Scarlett were $56,000.The summarised statements of
financial position for the two companies as at 30 September 2021 are:

Purple Ltd Scarlett Ltd

Non-current assets
Property, plant and equipment 138,000 115,000
Investments 162,000

Current assets
Inventory 15,000 17,000
Receivables 19,000 20,000
Bank and cash 2,000
336,000 152,000

Equity
Ordinary $0.50 shares 114,000 30,000
Share premium 40,000 10,000
Retained earnings 149,000 72,000
303,000 112,000
Non-current liabilities
8% Debentures 20,000

Current liabilities
Payables 33,000 20,000
336,000 152,000

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Basic Consolidation Tutorial Questions

Income statement for the year ended 30 September 2021

Purple Ltd Scarlett Ltd

600,000 230,000
Cost of sales (320,000) (120,000)
Gross Profit 280,000 110,000
Distribution Costs (30,000) (34,000)
Administrative Expenses (38,000) (40,000)
Operating Profit 212,000 36,000
Investment income 1,600
Finance Costs (1,600)
213,600 34,400
Tax (20,000) (10,000)
Profit for the year 193,600 24,400

The following information is relevant:

1. The inventory of Scarlett includes $8,000 of goods purchased from Purple at cost plus
25%.

2. Purple sold goods with a total value of $24,000 during the year to Scarlett

3. At the date of acquisition the fair values of the net assets of Scarlett were not materially
different from their book values apart from buildings, which had a fair value of $24,000
more than their carrying value. These buildings had a remaining useful life of six years
at the date of acquisition. The group policy is to depreciate non-current assets on a
straight line basis over their remaining useful economic life.

4. An impairment review conducted on 30 September 2021 showed goodwill being

impaired by 10%.

5. The debenture in Scarlett’s books represents monies borrowed from Purple on 1

October 2019.All of the debenture interest has been accounted.

6. Included in Purple’s receivables is $4,000 relating to inventory sold to Scarlett since

acquisition. Scarlett raised a cheque for $2,500 and sent it to Purple on 29 September
2021. Purple did not receive this cheque until 4 October 2021.

Required:

a.) Prepare the consolidated statement of financial position of the Purple group as at 30
September 2021.
b) Prepare the consolidated income statement for the P group for the year ending 30th
September 2021.

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Basic Consolidation Tutorial Questions

Question 4

The draft statements of financial position of two companies as at 31 December 2021 were as
follows:

Marina plc Sohail Ltd

$000 $000 $000 $000
Non-current assets
Property, plant and equipment 130,000 48,000
Investment in Sohail Ltd, at cost 65,000 -
195,000 48,000
Current Assets
Inventory 51,025 12,700
Trade receivables 27,500 8,880
Interest receivable 100 -
Bank and cash 2,500 500
81,125 22,080
Total assets 276,125 70,080

Equity
Equity shares of 50 cents each 87,500 12,000
Share premium 27,500 10,800
Retained earnings 39,125 28,400
154,125 51,200
Non-current liabilities
4% Debentures 2030 75,000 10,000

Current Liabilities
Trade and other payables 45,750 8,480
Interest payable - 400
Dividend payable 1,250 47,000 - 8,880
276,125 70,080

Their draft statements of comprehensive income for the year ended 31 December 2021 were:

Marina plc Sohail Ltd

$000 $000
Revenue 306,250 65,280
Less: Cost of sales 202,250 37,680
Gross profit 104,000 27,600
Less: Administration and distribution costs 61,250 15,600
42,750 12,000
Income from investments 100 -
Interest expense 3,000 400
Profit on ordinary activities before tax 39,850 11,600
Less: Taxation 12,500 3,600
Profit on ordinary activities 27,350 8,000

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Basic Consolidation Tutorial Questions

1. Marina plc acquired its investment in Sohail Ltd on 1 January 2016. The investment
comprises:
19,200,000 ordinary shares for $62.5 million
2,500,000 debentures for $2.5 million

2. The balance on Sohail Ltd’s retained earnings at the date of acquisition was
$22,680,000.

3. Marina plc purchased goods from Sohail Ltd for $8,000,000 during the year ended 31
December 2021. All of these remained in inventory at the year end. Sohail Ltd had sold
these at its normal margin of 20%.

4. Marina plc is of the opinion that the goodwill should be impaired by 25%.

Required:

Prepare the consolidated statement of financial position and statement of comprehensive

income for the Marina Group as at 31st December 2021.

Question 5
The statements of financial position of two companies as at 31 December 2021 were as follows:

Zinga plc Gandhi Ltd

$000 $000 $000 $000
Non-current assets
Property, plant and equipment 147,000 38,000
Investment in Gandhi Ltd, at cost 53,000 Nil
200,000 38,000
Current Assets
Inventory 50,080 22,500
Trade receivables 25,500 8,000
Interest receivable 120 Nil
Bank and cash 3,500 500
79,200 31,000
Total assets 279,200 69,000

Equity
Equity shares of 20 cents each 90,000 14,000
Share premium 30,000 7,000
Retained earnings 45,200 30,400
165,200 51,400
Non-current liabilities
4% Debentures 2029 60,000 10,000

Current Liabilities
Trade and other payables 51,600 7,200
Interest payable 2,400 400
54,000 7,600
Total equity and liabilities 279,200 69,000

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Basic Consolidation Tutorial Questions

The statements of comprehensive income for the year ended 31 December 2021 were:

Zinga plc Gandhi Ltd

$000 $000
Revenue 300,000 60,000
Less: Cost of sales (200,000) (40,000)
Gross profit 100,000 20,000
Less: Administration and distribution costs (60,000) (8,000)
40,000 12,000
Income from investments 120 -
Interest expense (2,400) (400)
Profit on ordinary activities before tax 37,720 11,600
Less: Taxation (9,600) (2,500)
Profit on ordinary activities 28,120 9,100

1. Zinga plc acquired its investment in Gandhi Ltd on 1 January 2015. The investment
comprises:
42,000,000 20 cents ordinary shares for $50,000,000
3,000,000 $1 debentures for $3,000,000

2. The balance on Gandhi Ltd’s retained earnings at the date of acquisition was $20,600,000.

3. Zinga plc purchased goods from Gandhi Ltd for $10,000,000 during the year ended 31
December 2021. One half of these remained in inventory at the year end. Gandhi Ltd had sold
these to Zinga plc at its normal gross profit margin of 20%.

4. Zinga plc is of the opinion that the goodwill has been impaired by 10%.

Required:

Prepare the consolidated statement of financial position and statement of comprehensive income for
the Zinga Group as at 31st December 2021.

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Basic Consolidation Tutorial Questions

Question 6

The statement of Financial position of Hip-Hip Bhd and Hooray Bhd as at 31 December 2021
is as follows

Hip Hip Bhd Hooray Bhd

RM000 RM000
Non current assets
Land and Building 300 100
Plant and Machinery 120 130
Current Assets
Inventories 80 90
Trade receivables 20 60
Bank 30 20
550 400
Equity and Liabilities
Ordinary Shares of RM1 each 200 150
Share premium 40 8
General Reserves 60 32
Retained Profit 200 150

Current Liabilities
Trade payable 40 45
Tax payable 10 15
550 400

The following information is relevant

1. On 31 December 2019, Hip HipBhd acquired 80% of the ordinary shares of Hoory
Bhd. The cost of investment were settled by exchange of shares of 5 shares in Hip Hip
for every 3 shares in Hoory. The share price of Hip Hip were valued at RM1.50 on 31
December 2019. These transaction is not shown in Hip Hip Bhd accounts.
2. At the date of acquisition, Hoory had RM 8000 in general reserves and RM 10000 in
retained earnings. The share premium in Hoory account arose prior to 31 December
2019.
3. The building of Hoory Bhd, has a fair value of RM100,000 in excess of their book
value at 31 December 2019. No adjustment has been made in the accounts of Hoory
Bhd for this fair value. The buildings are subject to depreciation using straight line
method with 20 years remaining.
4. Included in the trade receivables of Hip Hip is RM20000 due from Hoory. Hip Hip
had factored RM8000 of the amount receivables owed by Hoory.
5. Goodwill was impaired by 20%.
6. The directors of Hoory declared RM4000 dividends in December 2021.

Required:
Prepare the consolidated statement of Financial Position of Hip Hip Bhd as at 31 December
2021.

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Basic Consolidation Tutorial Questions

Question 7

The summarised financial statements for two companies at 31 March 2022 are:

Statement of financial position as at 31 March 2022

Moon Beam
RM’000 RM’000
Assets
Non-current assets
Property, plant and equipment 294,000 227,300
Investments 264,000 -
Current assets
Inventories 51,700 55,650
Current account- Beam 31,000 -
Dividend receivable 17,280
Trade receivables 34,200 37,000
Bank 25,900 31,150
----------- -----------
718,080 351,100
====== ======
Equities and liabilities
Equity
Ordinary shares of RM 1 each 330,000 180,000
Revaluation reserve 83,600 -
Retained earnings 123,500 72,000
Non-current liabilities
10% Loan notes 100,500 -
Current liabilities
Trade payables 35,780 38,750
Current account-Moon 30,000
Proposed dividends 26,400 21,600
Taxation payable 18,300 8,750
----------- -----------
718,080 351,100
====== ======
Statements of comprehensive income for the year ended 31 March 2022
Moon Beam
RM’000 RM’000
Revenue 420,000 140,500
Cost of sales 300,200 66,700
----------- -----------
Gross profit 119,800 73,800
Operating expenses 60,000 35,900
Finance cost 10,050 1,000
Dividend income from Beam 17,280 -
---------- -----------
Profit before tax 67,030 36,900
Income tax expense 7,200 3,100
--------- ---------

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Profit for the period 59,830 33,800

===== =====
The following information is relevant to the preparation of the group financial statements of
the Moon Group:
(1) On 1 April 2020, Moon acquired 144,000,000 ordinary shares in Beam for RM 264,000,000
when the retained earnings of Beam amounted to RM 8,400,000. There have been no
changes in Beam’s ordinary shares since 1 April 2020.
(2) The fair value exercise carried out on 1 April 2020 showed that the fair value of Beam’s
property, plant and equipment were RM 16,000,000 greater than book value. However, this
revaluation was not reflected in Beam’s financial statements. On 1 April 2020, the property,
plant and equipment had an estimated useful life of 20 years.
(3) On 28 March 2022, Beam remitted and recorded in its books, a cheque in the sum of RM
1,000,000 to Moon. The cheque was not received by Moon until 3 April 2022 when it was
recorded in Moon’s books.
(4) In November 2021, Moon purchased goods from Beam for RM 27,000,000 with 20% mark
up on cost. Moon held 1/3 of these goods in inventory at 31 March 2022.
(5) Goodwill of RM 800,000 arising on the acquisition of Beam was written off during the
year ended 31 March 2022 following an impairment review. There has been no impairment
of goodwill on consolidation in respect of the previous years.

Required:
Prepare for the Moon group
(a) the consolidate statement of comprehensive income for the year
to 31 March 2022 and
(10 marks)
(b) a consolidated statement of financial position as at 31 March 2022
(15 marks)

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