5.1 HAIL
The following are the draft statements of financial position of Hail and its subsidiary Snow as at 31 December 2015.
Hash Stash
Rs. 000 Rs. 000 Assets
Non-current assets
Property, plant and equipment 161,000 85,000
Investments 68,000
Current assets
Cash 7,700 25,200
Trade receivables 92,500 45,800
Snow current account 15,000 -
Inventory 56,200 36,200
———– ——–—
400,400 192,200
———– ——–—
Equity and liabilities Shareholders’ equity
Share capital 100,000 50,000
Retained earnings 185,400 41,200
Share premium - 5,000
Capital reserve - 20,000
———– ——–—
285,400 116,200
Current liabilities 115,000 68,000
Hail current account - 8,000
———– ——–—
400,400 192,200
———– ——–—
Notes
(1) Snow has 50,000 shares in issues. Hail acquired 45,000 of these on 1 January 2012 for a cost of Rs. 65,000,000 when the balances on Snow’s reserves were
Rs. 000
Share premium account 5,000
Capital reserve –
Retained earnings 10,000
(2) Hail declared a dividend of Rs. 3,000,000 before the year end and Snow declared one of Rs. 2,000,000. These transactions have not been accounted for.
(3) The current account difference is due to cash in transit.
Required
Prepare the consolidated statement of financial position as at 31 December 2015 of
Hail. (12)
5.2 HAIRY
The summarised statements of financial position of Hairy and Spider as at 31 December 2015 were as follows.
Hairy Spider Rs. 000 Rs. 000 Assets
Non-current assets
Property, plant and equipment 120,000 60,000
Investments 55,000 –
Current assets
Cash 11,000 4,000
Investments – 3,000
Trade receivables 72,600 19,100
Current account – Hairy – 3,200
Inventory 17,000 11,000
———– ———–
275,600 100,300
———– ———–
Equity and liabilities
Share capital 100,000 60,000
Share premium 20,000 –
Capital reserve 23,000 16,000
Retained earnings 91,900 7,300
Trade payables 38,000 17,000
Current account – Spider 2,700 –
———– ———–
275,600 100,300
———– ———–
The following information is relevant.
(1) On 31 December 2012, Hairy acquired 48,000 shares in Spider for Rs.
55,000,000 cash. Spider has 60,000 shares in total.
(2) The inventory of Hairy includes Rs. 4,000,000 goods from Spider invoiced to Hairy at cost plus 25%.
(3) The difference on the current account balances is due to cash in transit.
(4) The balance on Spider’s retained earnings was Rs. 2,300,000 at the date of acquisition. There has been no movement in the balance on Spider’s capital reserve since the date of acquisition.
Required
Prepare the consolidated statement of financial position of Hairy and its subsidiary
Spider as at 31 December 2015. (12)
5.3 HARD
On 31 December 2011, Hard acquired 60% of the ordinary share capital of Soft for Rs. 110 million. At that date Soft had a retained earnings balance of Rs. 50 million and a share premium account balance of Rs. 10 million.
The following statements of financial position have been prepared as at 31 December 2015.
Hard Soft
Rs. 000 Rs. 000 Assets
Non-current assets
Property, plant and equipment 225,000 175,000
Investments in Soft 110,000
Current assets 271,000 157,000
———– ———–
606,000 332,000
———– ———–
Equity and liabilities Capital and reserves
Share capital 100,000 100,000
Share premium 15,000 10,000
Retained earnings 260,000 80,000
———– ———–
375,000 190,000
Current liabilities 231,000 142,000
———– ———–
606,000 332,000
———– ———–
During the year to 31 December 2015 Hard sold a tangible asset to Soft for Rs. 50 million. The asset was originally purchased in the year to 31 December 2012 at a cost of Rs. 100 million and had a useful economic life of five years.
Soft’s depreciation policy is 25% per annum based on cost. Both companies charge a full year’s depreciation in the year of acquisition and none in the year of disposal.
Required
Prepare the consolidated statement of financial position of Hard and its subsidiary
as at 31 December 2015. (12)
5.4 HALE
On 1 July 2012 Hale acquired 128,000 of Sowen’s 160,000 shares. The following statements of financial position have been prepared as at 31 December 2015.
Hale Sowen Rs. 000 Rs. 000
Property, plant and equipment 152,000 129,600
Investment in Sowen 203,000 –
Inventory at cost 112,000 74,400
Receivables 104,000 84,000
Bank balance 41,000 8,000
———– ———–
612,000 296,000
═════ ═════
Hale Sowen Rs. 000 Rs. 000
Share capital 100,000 160,000
Retained earnings 460,000 112,000
Payables 52,000 24,000
———– ———–
612,000 296,000
═════ ═════
The following information is available.
(1) At 1 July 2012 Sowen had a debit balance of Rs. 11 million on retained earnings.
(2) Property, plant and equipment of Sowen included land at a cost of Rs. 72 million. This land had a fair value of Rs. 100,000 at the date of acquisition.
(3) The inventory of Sowen includes goods purchased from Hale for Rs. 16 million. Hale invoiced those goods at cost plus 25%.
Required
Prepare the consolidated statement of financial position of Hale as at 31 December
2015. (12)
5.5 HELLO
On 1 January 2012, Hello acquired 60% of the ordinary share capital of Solong for Rs. 110,000. At that date Solong had a retained earnings balance of Rs. 60,000.
The following statements of financial position have been prepared as at 31 December 2015.
Hello Solong
Rs. Rs.
Assets
Non-current assets
Property, plant and equipment 225,000 175,000
Investments in Solong 110,000
Current assets 271,000 157,000
———– ———–
606,000 332,000
———– ———–
Equity and liabilities Capital and reserves
Share capital 100,000 100,000
Retained earnings 275,000 90,000
———– ———–
375,000 190,000
Current liabilities 231,000 142,000
———– ———–
606,000 332,000
———– ———–
The fair value of Solong’s net assets at the date of acquisition was determined to be Rs. 170,000.
The difference between the book value and the fair value of the new assets at the date of acquisition was due to an item of plant which had a useful life of 10 years from the date of acquisition.
Required
Prepare the consolidated statement of financial position of Hello and its subsidiary
as at 31 December 2015. (12)
5.6 HASAN LIMITED
On 1 April 2014, Hasan Limited acquired 90% of the equity shares in Shakeel Limited. On the same day Hasan Limited accepted a 10% loan note from Shakeel Limited for Rs. 200,000 which was repayable at Rs. 40,000 per annum (on 31 March each year) over the next five years. Shakeel Limited’s retained earnings at the date of acquisition were Rs. 2,200,000.
Statements of financial position as at 31 March 2015 Hasan Limited
Shakeel Limited Rs. 000 Rs. 000 Non-current assets
Property, plant and equipment 2,120 1,990
Intangible – software – 1,800
Investments – equity in Shakeel Limited 4,110 –
Investments – 10% loan note Shakeel Limited
200 –
Investments – others 65 210
6,495 4,000
Current assets
Inventories 719 560
Trade receivables 524 328
Shakeel Limited current account 75 –
Cash 20
1,338 888
Total assets 7,833 4,888
Equity and liabilities:
Capital and reserves
Equity shares of Rs. 1 each 2,000 1,500
Share premium 2,000 500
Retained earnings 2,900 1,955
6,900 3,955
Non-current liabilities
10% Loan note from Hasan Limited – 160
Government grant 230 40
230 200
Current liabilities
Trade payables 475 472
Hasan Limited current account – 60
Income taxes payable 228 174
Operating overdraft – 27
703 733
Total equity and liabilities 7,833 4,888
The following information is relevant:
(i) Included in Shakeel Limited’s property at the date of acquisition was a leasehold property recorded at its depreciated historical cost of Rs. 400,000.
The leasehold had been sub-let for its remaining life of only four years at an annual rental of Rs. 80,000 payable in advance on 1 April each year. The directors of Hasan Limited are of the opinion that the fair value of this leasehold is best reflected by the present value of its future cash flows. An appropriate cost of capital for the group is 10% per annum.
The present value of a Rs. 1 annuity received at the end of each year where interest rates are 10% can be taken as:
3 year annuity Rs. 2.50 4 year annuity Rs. 3.20
(ii) The software of Shakeel Limited represents the depreciated cost of the development of an integrated business accounting package. It was completed at a capitalised cost of Rs. 2,400,000 and went on sale on 1 April 2013.
Shakeel Limited’s directors are depreciating the software on a straight-line basis over an eight-year life (i.e. Rs. 300,000 per annum). However, the directors of Hasan Limited are of the opinion that a five-year life would be more appropriate as sales of business software rarely exceed this period.
(iii) The inventory of Hasan Limited on 31 March 2015 contains goods at a transfer price of Rs. 25,000 that were supplied by Shakeel Limited who had marked them up with a profit of 25% on cost. Unrealised profits are adjusted for against the profit of the company that made them.
(iv) On 31 March 2015 Shakeel Limited remitted to Hasan Limited a cash payment of Rs. 55,000. This was not received by Hasan Limited until early April. It was made up of an annual repayment of the 10% loan note of Rs. 40,000 (the interest had already been paid) and Rs. 15,000 of the current account balance.
(v) The accounting policy of Hasan Limited for non-controlling interests (NCI) in a subsidiary is to value NCI at a proportionate share of the net assets.
(v) An impairment test at 31 March 2015 on the consolidated goodwill concluded that it should be written down by Rs. 120,000. No other assets were impaired.
Required:
Prepare the consolidated statement of financial position of Hasan Limited as at 31 March 2015.
(Total: 25 marks)