Question 1

The statements of financial position of Pronto & Subito at 31 March 2015 are as follows:
Pronto Subito
RM’m RM’m
Non-Current Assets:
Freehold property 90 12
Plant & machinery 10 8
Investment in S 29

Current Assets:
Inventory 15 3
Receivables 35 3
Bank 1 1

Total Assets 180 27

Equity and Liabilities

Share capital 100 10
Retained Earnings 50 15
150 25
Current Liabilities:
Trade Payables 30 2

Total Equity and Liabilities 180 27

The statements of profit or loss for Pronto & Subito for the year ended 31 March 2015 are as
follows:
Pronto Subito
RM’m RM’m
Revenue 80 20
Cost of sales (45) (15)
Gross profit 35 5
Administration expenses (10) (2)
Profit before taxation 25 3
Taxation (8) (1)
Profit for the Period 17 2

The statement of changes in equity for the year ended 31 March 2015 is as follows:
Pronto Subito
RM’m RM’m
Balance at beginning of year 133 23
Net profit 17 2
Balance at end of year 150 25
The shares in Subito were acquired on 1 April 2012.

Required:

Prepare consolidated financial statements i.e.

(a) Statement of Profit or Loss

(b) Statement of Financial Position

(c) Statement of Change in Equity

...for Pronto using the information above and assuming each of the 3 scenarios below in turn.

1. Pronto acquired 100% of the shares in Subito when:

Retained Earnings Debit or Credit

balance
(a) RM12m Credit balance
(b) RM20m Credit balance
(c ) RM2m Debit balance

(d) Explain why consolidated financial statements (as opposed to just the parent
company’s separate financial statements) are useful to the users of financial
statements?
QUESTION 2

On 1 October 2014, Pancake acquired 90% of the equity share capital of Syrup in a share
exchange in which Pancake issued two new shares for every three shares it acquired in Syrup.

Additionally, on 30 September 2016, Pancake will pay the shareholders of Syrup RM1·56 per
share acquired. Pancake’s cost of capital is 10% per annum.

At the date of acquisition, shares in Pancake and Syrup had a stock market value of RM6·50
and RM2·50 each, respectively.

Statements of Profit or Loss for the year ended 30 September 2015

Pancake Syrup
RM’000 RM’000
Revenue 64,600 38,000
Cost of sales (51,200) (26,000)
––––––– –––––––
Gross profit 13,400 12,000
Distribution costs (1,600) (1,800)
Administrative expenses (3,800) (2,400)
Investment income 500 nil
Finance costs (420) nil
––––––– –––––––
Profit before tax 8,080 7,800
Tax expense (2,800) (1,600)
––––––– –––––––
Profit for the year 5,280 6,200
––––––– –––––––

Equity as at 1 October 2014

Equity shares of RM1 each 30,000 10,000

Retained earnings 54,000 35,000
The following information is relevant:

1) At the date of acquisition, the fair values of Syrup’s assets were equal to their carrying
amounts with the exception of one item: An item of plant had a fair value of RM1·8
million above its carrying amount. The remaining life of the plant at the date of
acquisition was three years. Depreciation is charged to cost of sales. Syrup has not
incorporated this fair value change into its financial statements.

2) Pancake’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose, Syrup’s share price at that date can be deemed to be
representative of the fair value of the shares held by the non-controlling interest.

3) Although Syrup has been profitable since its acquisition by Pancake, the market for
Syrup’s products has been badly hit in recent months and Pancake has calculated that
the goodwill has been impaired by RM2 million as at 30 September 2015.

Required:

(a) Calculate the consolidated goodwill at the date of acquisition of Syrup.

(b) Prepare the consolidated statement of profit or loss for the year ended 30 th
September 2015.

(c) How would you evaluate the company’s performance based on your answer in (b)?