Sara had the following assets and liabilities on 1 august 2012:
$
Non current asset. 44000
Non current liabilities. 10000
Inventory. 1500
Trade payables. 3300
Trade receivables. 2600
What was Sara's capital?
A.$34800. B.$36200. C.$44800. D.$46200.
Answers
Explanation:
Fundamentals Level – Skills Module, Paper F7 (HKG)
Financial Reporting (Hong Kong) June 2010 Answers
1 (a) Consolidated statement of fi nancial position of Picant as at 31 March 2010
$’000 $’000
Assets
Non-current assets:
Property, plant and equipment (37,500 + 24,500 + 2,000 – 100) 63,900
Goodwill (16,000 – 3,800 (w (i))) 12,200
Investment in associate (w (ii)) 13,200
–––––––– 89,300
Current assets
Inventory (10,000 + 9,000 + 1,800 GIT – 600 URP (w (iii))) 20,200
Trade receivables (6,500 + 1,500 – 3,400 intra-group (w (iii))) 4,600 24,800
––––––– ––––––––
Total assets 114,100 ––––––––
Equity and liabilities
Equity attributable to owners of the parent
Equity shares of $1 each 25,000
Share premium 19,800
Retained earnings (w (iv)) 27,500 47,300
––––––– ––––––––
72,300
Non-controlling interest (w (v)) 8,400
–––––––– Total equity 80,700
Non-current liabilities
7% loan notes (14,500 + 2,000) 16,500
Current liabilities
Contingent consideration 2,700
Other current liabilities (8,300 + 7,500 – 1,600 intra-group (w (iii))) 14,200 16,900
––––––– ––––––––
Total equity and liabilities 114,100
––––––––
Workings (fi gures in brackets are in $’000)
(i) Goodwill in Sander
$’000 $’000
Controlling interest
Share exchange (8,000 x 75% x 3/2 x $3·20) 28,800
Contingent consideration 4,200
Non-controlling interest (8,000 x 25% x $4·50) 9,000
–––––––
42,000
Equity shares 8,000
Pre-acquisition reserves:
At 1 April 2009 16,500
Fair value adjustments – factory 2,000
– software (see below) (500) (26,000)
––––––– –––––––
Goodwill arising on acquisition 16,000
–––––––
Goodwill is impaired by $3·8 million and therefore has a carrying amount at 31 March 2010 of $12·2 million. The
goodwill impairment is charged against Sander’s retained earnings (see working (iv)), thus ensuring it is allocated between
the controlling and non-controlling interests in proportion to their share ownership in Sander.
The effect of the software having no recoverable amount is that its write-off in the post-acquisition period should be
treated as a fair value adjustment at the date of acquisition for consolidation purposes. The consequent effect is that this
will increase the post-acquisition profi t for consolidation purposes by $500,000.
(ii) Carrying amount of Adler at 31 March 2010
$’000
Cash consideration (5,000 x 40% x $4) 8,000
7% loan notes (5,000 x 40% x $100/50) 4,000
Share of post-acquisition profi ts (6,000 x 6/12 x 40%) 1,200
–––––––
13,200
–––––––
(ii) Goodwill in Sophistic
Investment at cost RM’000 RM’000
Shares (4,000 x 60% x 2/3 x RM6) 9,600
Less – Equity shares of Sophistic (4,000 x 60%) (2,400)
– pre-acquisition reserves (5,000 x 60% see below) (3,000)
– fair value adjustment (2,000 x 60%) (1,200) (6,600) –––––– ––––––
Goodwill 3,000 ––––––
The pre-acquisition reserves are:
At 30 September 2008 6,500
Earned in the post acquisition period (3,000 x 6/12) (1,500) ––––––
5,000
––––––
The 1·6 million shares (4,000 x 60% x 2/3) issued by Pedantic would be recorded as share capital of RM1·6 million
and share premium of RM8 million (1,600 x RM5).
(iii) Current assets
Pedantic 16,000
Sophistic 6,600
URP in inventory (800)
Cash in transit 200
Intra-group balance (600) –––––––
21,400
–––––––
(iv) Retained earnings
Pedantic per balance sheet 35,400
Sophistic’s post acquisition profit
(((3,000 x 6/12) – (800 URP + 200 depreciation)) x 60%) 300 –––––––
35,700
–––––––
(v) Minority interest in balance sheet
Net assets per balance sheet 10,500
URP in inventory (800)
Net fair value adjustment (2,000 – 200) 1,800 –––––––
11,500 x 40% = 4,600
–––––––
2 (a) Candel – Income Statement for the year ended 30 September 2008
RM’000
Revenue (300,000 – 2,500) 297,500
Cost of sales (w (i)) (225,400) –––––––––
Gross profit 72,100
Distribution costs (14,500)
Administrative expenses (22,200 – 400 + 100 see note below) (21,900)
Finance costs (200 + 1,200 (w (ii))) (1,400) –––––––––
Profit before tax 34,300
Income tax expense (11,400 + (6,000 – 5,800 deferred tax) (11,600) –––––––––
Profit for the year 22,700 –––––––––
Note: as it is considered that the outcome of the litigation against Candel is unlikely to succeed (only a 20% chance) it is
inappropriate to provide for any damages. The potential damages are an example of a contingent liability which should be
disclosed (at RM2 million) as a note to the financial statements. The unrecoverable legal costs are a liability (the start of the
legal action is a past event) and should be prov(b) Candel – Statement of changes in equity for the year ended 30 September 2008
Equity Revaluation Retained total
shares reserve earnings equity
RM’000 RM’000 RM’000 RM’000
Balance at 1 October 2007 50,000 10,000 24,500 84,500
Dividends (6,000) (6,000)
Income statement 22,700 22,700
- Revaluation