Question

QUESTION 1                                                                                                                                                       30 MARKS

The following information represents the abridged financial statements of Mega Ltd and its subsidiary Ultra Ltd:

Statement of financial position as at 31 December 2018
					Mega Ltd	Ultra Ltd
ASSETS
Property, plant and equipment					270 000	340 000
Investment in Ultra Ltd: 48 000 shares at fair value					350 000	-
(cost: N$ 330 000)
Trade receivables					80 000	23 500
Inventories					350 000	218 000
Bank					65 000	-
Total assets					1 115 000	581 500
EQUITY AND LIABILITIES
Share capital					400 000	240 000
Mark-to-market reserve					20 000	10 000
Retained earnings					375 000	240 000
Long-term borrowings					43 000	21 000
Trade and other payables					277 000	23 500
Bank overdraft					-	47 000
Total equity and liabilities					1 115 000	581 500

Statement of profit or loss and other comprehensive income for the year ended
31 December 2018
					Mega Ltd	Ultra Ltd
Revenue					927 000	1 628 000
Cost of sales					-472 000	-725 000
Gross profit					455 000	903 000
Other expenses					-287 100	-472 000
Dividend received from Ultra Ltd					94 000	-
Profit before tax					261 900	431 000
Income tax expense					-198 000	-128 000
Profit for the year					63 900	303 000
Other comprehensive income
Items that will not be reclassified to profit or loss
Mark-to-market reserve					4 000	1 000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR					67 900	304 000

Extract from the Statement of changes in equity for the year ended 31 December 2018
	Mark-to-market reserve		Retained earnings
	Mega Ltd	Ultra Ltd	Mega Ltd	Ultra Ltd
Balance at 1 Jan 2018	15 000	8 000	215 000	170 000
Changes in equity for 2018
Total comprehensive income for the year:
Profit for the year			63 900	303 000
Other comprehensive income for the year	4 000	1 000
Dividends			-108 000	-120 000
Balance at 31 December 2018	19 000	9 000	170 900	353 000

Additional information:

On 1 January 2018, the date on which Ultra Ltd acquired the interest in Mega Ltd, the equity of Mega Ltd consisted of:

Share capital                                      N$ 260 000

Mark-to-market reserve                              N$ 3 000

Revaluation reserve                       N$ 7 000

Retained earnings                           N$ 135 000

Ultra Ltd elected to measure non-controlling interests at fair value at the acquisition date. On 1 January 2018, the fair value of each non-controlling interest’s share was N$8,50 per share, based on market prices.

Ultra Ltd classified the investment in Ultra Ltd under IFRS 9 in its separate financial statements and recognised fair value adjustments in a mark-to-market reserve (other comprehensive income). Ignore tax implications.

REQUIRED

Prepare consolidated financial statements for the Mega Ltd Group for the reporting period ended 31 December 2018.                                                                                                                                    (30 marks

Answer 1

Hey there !!

In Consolidation, A parent company which presents its consolidated financial statements must consolidate all of its subsidiaries, foreign as well as domestic. Where a company doesn’t have any subsidiary, however, has associates and/or joint ventures such company also needs to prepare consolidated financial statements.

Now, as required by the question, please find below the Consolidated Financial Statements which includes Consolidated balance sheet as well...

	Mega Ltd	Ultra Ltd	Consolidated
ASSETS
Property, plant and equipment	2,70,000	3,40,000	6,10,000
Investment in Ultra Ltd: 48 000 shares at fair value	3,50,000	-	3,50,000
(cost: N$ 330 000)
Trade receivables	80,000	23,500	1,03,500
Inventories	3,50,000	2,18,000	5,68,000
Bank	65,000	-	65,000
Total assets	11,15,000	5,81,500
EQUITY AND LIABILITIES
Share capital	4,00,000	2,40,000	6,40,000
Mark-to-market reserve	20,000	10,000	30,000
Retained earnings	3,75,000	2,40,000	6,15,000
Long-term borrowings	43,000	21,000	64,000
Trade and other payables	2,77,000	23,500	3,00,500
Bank overdraft	-	47,000	47,000
Total equity and liabilities	11,15,000	5,81,500

I hope the solution is clear to you now. Do let me know if you have any issues. Refer the attached image for details .

All the best :)