In: Accounting
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
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.