Question

on 1st april2017 prentice acquired 60% of the equity share capital of sontic in a share exchange of two shares in prentice for three in sontic.the issue of shares has not yet been recorded by prentice at the date of acquisition,shares in prentice had a market value of $6 each. below are summerised draft financial statement of both companies.

statement of profit or loss for the year ended 30 September 2017

   prentice sontic

$000 $000

   revenue 85000    42000

   cost of sales    63000 32000

   gross profit    22000 10000

distribution costs    (2000)    (2000)

administration costs    (6000)    (3200)

finace costs    (300) (400)

   profit before tax 13700 4400

   income tax (4700)    (1400)

   profit after tax 9000 3000   

statement of financial position as at 30th September 2017

ASSETS

non current assets 40600 12600

property plant &equip 16000    6000

total current assets    56600    19200

   EQUITY AND LIABILITIES

   equity shares of $1    10000 4000

   returned earnings 35400 6500

   total    45400    6500

NON CURRENT LIABILITIES

   10% loan notes    3000    4000

   current liabilities 8200    4700

   total equity    56600 19200

the following information is relevant:

1. at the date of acquisition, the fair value of sontic's assets were equal to their carrying amounts with the exception of an item of plant which had a fair value of $2 million in excess of its carrying amount. it had a remaining life of five years at the date (straight line method depreciation is used) sontic has not adjusted the carrying amount of its plant as a result of the fair value exercise

2.sales from pretice in the post acquisition period were $8 million sontic made a mark up on cost of 40% on these sales. prentice had sold $5.2 million (at cost to prentice)of these goods by 30 September 2017. 3. sontic's trade receivables at 30 September 2008 include $600000 due from prentic which did not agree with prentic's corresponding trade payables. this was due to cash in transit of $200000 from prentice to sontic, both companies have positive bank balance

3.other than where indicated , statement of profit or loss items are deemed to accrue evenly on a time basis 5. prentice has a policy of accounting for any non controlling interest at fair value . the fair value of the non controlling interest at the acquisition date was $5.9 million

REQUIRED

(a) prepare the consolidated statement of profit or loss for prentice for the year ended 30 September 2017

(b)prepare the consolidated statement of financial position as at 30 sept 2017

Answer 1

A) Prentice

Consolidated Income Statement for the year Ended 30 September 2017    $,000

Revenue(85000+(42000*6/12)-8000 intra group sales	98000
Cost of sales	(72000)
Gross Profit	26000
Distribution Cost(2000+(2000*6/12))	(3000)
Admiistrative Expenses(6000+(3200*6/12)	(7600)
Finance Cost(300+(400*6/12))	(500)
Profit Before Tax	14900
Income Tax Expense(4700+(1400*6/12))	(5400)
Profit For The Year	9500
Attributable to :
Equityholders of the parent	9300
Non-Controling Interest((3000*6/12)-(800URP+200depreciation))*40%	200
	9500

B)Consolidated Statement of Financial Position as at 30sep2017    $,000

Assets
Non-Current Asset
Property,Plant & Equipment(40600+12600+2000-200depreciation)	55000
Goodwill	8900
	63900
Current Assets	20800
Total Assets	84700
Equity & Liabilities
Equity Attributables to owners of the parent
Equity Shares Of $1 Each(10000+1600)	11600
Share Premium	8000
Retained Earnings	35700
	55300
Non-Controling Interest	10500
Total Equity	65800
Non Current Liabilities
10%Loan Notes(4000+3000)	7000
Current Liabilities(8200+4700-400intra group balance)	12500

Total Equity & Liabilities

85300

Workings:-

Figures in $,000

Cost Of Sales   

Prentice 63000

Sontic(32000*6/12)16000

Intra Group Sales (8000)

URP in Inventory    800

Additional Depriciation(2000/5*6/12) 200

Cost Of Sales    $72000

   Note: URP in Inventory is calculated as ($8 million-$5.2Million)*40/140 = $800,000

2)Goodwill in Sontic

Investment at Cost

Shares (4000*60%*2/3*$6)    9600

Less:-Equity Shares of Sontic    (2400)

(4000*60%)

Pre-acquistion Reserve(5000*60%)(3000)
Fair Value Adjustment(2000*60%) (1200)

Parents Goodwill    3000

Non Controlling Interest Goodwill 5900

Total Goodwill 8900

The Pre acquistion reserves are :

at 30 september 2017    6500

Earned in the post acquistion period(3000*6/12) (1500)

5000

Fair value of non controlling interest(at acquistion)

Share of fair value of net assets (11000*40%) 4400

Attributale Goodwill Per Questions    5900

        10300

Note: 1.6M shares (4000*60%*2/3)Issued by prentice would be recorded as share capital of $1.6M & share premium of $ 8 M(1600*5)

3)Current Assets

Prentice    16000

Sontic 6000

URP IN iNVENTORY( 800)

Cash-in- transit    200

Intra group balance    (600)

   20800

4)Retained Earning

prentice per statement of financial position    35400

Sontic Post Acquistion Profit(((3000*6/12)-(800URP+200depreciation))*60%) 300

35700

5)Non Controling Interest(in statement of financial position)

Net Assets per statement of financial position 10500

URP in Inventory    (800)

Net Fair Value adjustment(2000-200) 1800

   11500*40% =4600

Share Of Goodwill =5900+4600 =10500