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Question 2: Porter, a public limited company, is the parent of a listed group of companies...

Question 2: Porter, a public limited company, is the parent of a listed group of companies which have a year end of 30 April 2020. Porter’s functional currency is the pound (£) and presents its individual and consolidated financial statements in £. The statements of financial position for two entities as at 30 April 2020 are presented below:

Porter

Belobe

£000

C'000

Non-current assets

Property, plant and equipment

15,025

7,234

Investment in Belobe at cost

9,150

24,175

7,234

Current assets

4,000

4,266

Total assets

28,175

11,500

Equity and liabilities

Share capital

4,500

2,150

Retained reserves

19,175

6,730

23,675

8,880

Current liabilities

4,500

2,620

Total equity and liabilities

28,175

11,500

Additional information

1. Porter acquired 75% of Belobe on 1 May 2019 for £9,150,000 when the retained reserves of Belobe were 3,155,000 Crowns. The functional currency of Belobe is Crowns.

2. The group policy is to value non-controlling interest at the proportionate share of the fair value of the net assets at acquisition.

3. Belobe made a profit of 3,575,000 Crowns for the year ended 30 April 2020.

4. The exchange rates between the £ and Crowns are as follows:

1 May 2019 £1: 0.69 Crowns

30 April 2020 £1: 0.62 Crowns

Average rate for the year ended 30 April 2020: £1: 0.64 Crowns

YOU ARE REQUIRED TO:

(a) Prepare the consolidated statement of financial position for the Porter group as at 30 April 2020.

(b) Prepare a reconciliation of the consolidated retained reserves figure showing the exchange gains and losses.

(c) Explain your calculation of goodwill and the treatment of exchange differences on goodwill for the year ended 30 April 2020. Your answer should refer to the relevant International Financial Reporting Standards (IAS/IFRS).(maximum word count 200 words) TOTAL 50 MARKS

Solutions

Expert Solution

Computation of Goodwill-

Computation of goodwill on 01 May- Crown 000 Fx rate Euro 000
Consideration given           9,150.00
Less:
Share capital acquired (75%) of Belobe      1,612.50 0.69           1,112.63
Reserves of Belobe      2,366.25 0.69           1,632.71
Total net assets acquired      3,978.75           2,745.34
Goodwill on acquisition           6,404.66
Folllowing JV's shall be posted in Consolidation-
Share capital of Belobe A/c---Dr      1,112.63
Retained earnings A/c--- Dr      1,632.71
Goodwill A/c---Dr.      6,404.66
To Investments A/c 9,150.00
(Being goodwill accounted)
Share capital of Belobe A/c---Dr         370.88
Retained earnings A/c--- Dr         544.24
To Non Controlling Interest A/c      915.11
(Being NCI accounted on 01 May)

Computation of Non Controlling Interest for profit made by Belobe post acquisition-

Computation of NCI for profit made post 01 May to 31 March 2020-
Profit made- Crown    34,75,000
Fx rate             0.62
Profit made- Euro    21,54,500
NCI share 25%
NCI- Euro      5,38,625

Consolidated Balance Sheet as on 30 April 2020-

Fx rate
01-May 0.69
30-Apr 0.62
Belobe Belobe Porter
Assets/liabilities C'000 E'000 Euro 000 Goodwill acquisition accounting (E000) NCI allocation for profit made post acquisition (E000) Consolidated figure (E000)
Non current assets
Property, plant and equipment        7,234 4,485.08      15,025                                -                       -   19,510.08
Investment in Belobe at cost              -          9,150                      -9,150.0                     -                 -  
Goodwill                       6,404.7                     -      6,404.66
Total non-current assets        7,234        4,485      24,175                      -2,745.3                     -   25,914.74
Current assets        4,266 2,644.92        4,000                                -                       -      6,644.92
Total assets      11,500        7,130      28,175                      -2,745.3                     -   32,559.66
Share capital        2,150 1,483.50        4,500                      -1,483.5                     -      4,500.00
Retained earnings        6,730 4,393.45      19,175                      -2,177.0            -538.63 20,852.88
Foreign currency translation reserve              -            -371              -                                  -                       -        -371.00
Total shareholder's fund        8,880        5,506      23,675                         -3,660                 -539       24,982
Non-controlling interest              -                -                            915.1             538.63    1,453.74
Total equity        8,880        5,506      23,675                      -2,745.3                     -      26,435.6
Current liabilities        2,620 1,624.40        4,500                                -                       -      6,124.40
Total equity and liabilities      11,500        7,130      28,175                      -2,745.3                     -      32,560.0

Note-

1. Share capital of Belobe has been converted at historical rate i.e. 01 May

2. Reserve as on 01 May has been converted at May 01 Rate

3. Profit and assets/liabilities have been converted at closing rate of 30 April, 2020

Note on effect of fx on goodwill-

As per IAS 21, Effects of Changes in Foreign Exchange Rates, goodwill is treated as anasset of a foreign operation and is re-translated at each reporting date. Accordingly, foreign exchange gain/loss is accounted on translation of goodwill at each reporting date.


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