ACT B407F Advanced Financial Reporting and Analysis I 2022 Autumn - Assignment
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ACT B407F Advanced Financial Reporting and Analysis I
2022 Autumn - Assignment
Question Case
P Group is formed by P Ltd, S1 Ltd, and S2 Ltd. The current separate financial statements of P Ltd, S1
Ltd, and S2 Ltd are shown below. All figures are in $ unless otherwise indicated.
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Abridged Income Statement and Statement of Changes in Equity for the year ended 31 December 20x2 |
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Profit before tax Tax |
P Ltd 1,230,000 (246,000) |
S1 Ltd 780,000 (156,000) |
S2 Ltd 520,000 (104,000) |
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Profit after tax Dividends declared |
984,000 (150,000) |
624,000 (70,000) |
416,000 (80,000) |
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Profit retained Retained earnings, 1 January 20x2 |
834,000 3,216,000 |
554,000 1,400,000 |
336,000 620,000 |
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Retained earnings, 31 December 20x2 4,050,000 1,954,000 956,000 |
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Statement of Financial Position as at 31 December 20x2 |
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Fixed assets, net book value Investment in S1 Ltd Investment in S2 Ltd Inventory Other net assets Cash |
P Ltd 1,875,000 1,900,000
320,000 1,990,000 125,000 |
S1 Ltd 993,000
560,000 225,000 1,232,000 50,000 |
S2 Ltd 400,000
289,000 755,000 66,000 |
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Total Assets |
6,210,000 3,060,000 1,510,000 |
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Current and long-term liabilities Share capital Retained earnings |
960,000 1,200,000 4,050,000 |
306,000 800,000 1,954,000 |
304,000 250,000 956,000 |
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Equity and Liabilities |
6,210,000 3,060,000 1,510,000 |
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Information regarding the acquisition of S1 Ltd and S2 Ltd are as follows:
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S1 Ltd |
S2 Ltd |
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Date of acquisition by immediate parent Percentage acquired by P Ltd Percentage acquired by S1 Ltd |
1 Jan 20x1 90% |
1 Jan 20x0
60%
250,000 500,000 |
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Shareholders' equity at date of acquisition by immediate parent Share capital 800,000 Retained earnings 1,015,000 |
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1,815,000
Retained earnings of S2 Ltd at 1 January 20x1 |
750,000
550,000 |
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Fair value of NCI at 1 January 20x1 Fair value of NCI at 1 January 20x0 |
200,000 |
450,000 350,000 |
The fair value of identifiable net assets of S1 Ltd and S2 Ltd were close to book value at both date of acquisition, except for a fixed asset of S2 Ltd. The book value and fair value of the fixed asset were $600,000 and $700,000, respectively, as at 1 January 20x0, and were $500,000 and $800,000, respectively, as at 1 January 20x1. The estimated useful life of the fixed asset was 5 years at 1 January 20x1 with no residual value.
Additional information:
1. P Ltd recognizes non-controlling interests (NCI) at full fair value. Fair value of NCI of S1 Ltd includes both direct NCI of S1 Ltd and indirect NCI share of S2 Ltd. Fair value of NCI of S2 Ltd is direct NCI
of S2 Ltd.
2. Assets and liabilities whose classification are not shown in the Statement of Financial Position should be included in “Other net assets” .
3. Assume a tax rate of 20% and that dividends income are tax-exempt.
Required:
1. Analyze the group structure of the companies involved at the year ended 20x2, comment on whether P Ltd has “control” or “significant influence” over S1 Ltd and S2 Ltd, and discuss the non-controlling interests (NCI) involved. (25 marks)
2. Describe the available approaches to consolidate the subsidiaries of P Ltd and how they can be applied for the current situation. Comment on the differences between the approaches and the conditions that they are applicable. (25 marks)
3. Prepare the consolidation entries for the year ended 31 December 20x2. (20 marks)
4. Prepare the consolidated statement of profit or loss for the year ended 31 December 20x2 and the consolidated statement of financial position as at 31 December 20x2 for P Group. (30 marks)
(Please also refer to the marking rubric.)
2022-11-10