CSOCF Acquisition of Sub, both methods

The following consolidated financial statements relate to Malim Nawar Bhd:

Consolidated Statement of Profit or Loss for the year ended 31 December 2017

RM million
Revenue 5,000
Cost of sales (1,250)
Gross profit 3,750
Administrative expenses (990)
Selling and distribution expenses (320)
Share of profits of associate companies 100
Gain on disposal of machine 80
Finance Cost (75)
Profit before tax 2545
Taxation (615)
Profit for the year 1930

Profit attributable to:

Owners of the parent 1560
Non-controlling interest 370
1930

Consolidated Statements of Financial Position as at 31 December 2017

2017 2016
RM million RM million
Non-current assets
Property, plant and equipment 21,500 14,200
Investments in associate 1,200 1,310
Goodwill 880 860
Current assets
Inventories 810 730
Trade receivables 720 800
Short-Term Investments 230 200
Bank 50 240
TOTAL 25,390 18,340
Equity
Ordinary share capital of RM1.00 each 18,500 10,820
Retained Earnings 2,070 2,220
Non-controlling interest 2,600 2,590
Non-current liabilities
5% Debenture 600 800
Current liabilities
Trade Payables 1,260 1,410
Bank Overdraft 60 -
Tax Payables 300 500
TOTAL 25,390 18,340
Additional information:

1. Malim Nawar Bhd, a well-respected specialist in traditional food industry, acquired 80%
interest in Tualang Sekah Bhd, an upcoming star in the industry, on 1 January 2017.
Goodwill on the acquisition was RM25 million. The consideration was settled through an
issue of 500 million shares of Malim Nawar Bhd at RM2.00 each and the balance was
paid in cash. The fair value of the net assets of Tualang Sekah Bhd on the acquisition
date were as follows:

RM million
Property, plant and equipment 1,200
Inventories 300
Trade receivables 350
Bank Overdraft 40
Trade payables 550

2. During the year, upon suggestion from directors of Tualang Sekah Bhd, Malim Nawar Bhd
acquired 20% interest in Sg Tiram Bhd, a well-connected player in the downstream supply
chain, for cash of RM15 million.

3. A used machine was sold for RM500 million, securing gain on disposal at the same time.
This was the only disposal for 2017.

4. Administrative expenses are derived after including, among others, depreciation of RM400
million and impairment of goodwill.

5. Selling and distribution expenses include bad debts of RM10 million.

6. Short-term investment is highly liquid and can be easily disposed.

7. The group valued the non-controlling interest at its proportionate share of the fair value of
the net assets of the subsidiaries at acquisition date.

Required:

Prepare the consolidated statement of cash flows of Malim Nawar Bhd for the year ended 31
December 2017 using the direct method.
(25 marks)
SOLUTION Direct Method

Trade Receivables
RMmillion RMmillion
Bal b/d 800 Bank 5420
Sub 350 Bad Debt 10
Revenue 5000 Bal c/d 720

Inventory
RMmillion RMmillion
Bal b/d 730
Sub 300 COS 1250
Purchase 1030 Bal c/d 810

Trade Payable
RMmillion RMmillion
Bal b/d 1410
Bank 1730 Sub 550
Bal c/d 1260 Purchase 1030

Consolidated statement of cash flows of Malim Nawar Bhd

for the year ended 31 December 2017√
Cash flows from operating activities
Cash received from customers 5420 √
Cash paid to suppliers (1730)
Cash paid for operation √
(990 +320)- dep 400 - impairment 5 -bad debt 10 (895) √
Cash generated from operation 2795
Tax paid [815] √√
Interest paid [75] √
Net Cash flows from operating activities 1905

Cash flows from investing activities

Acquire PPE [6920] √√√√
Dispose PPE 500 √
Acquire Sub [73] √
Acquire AC [15] √
Dividend from AC 225 √√√
Net Cash flows from investing activities [6283]

Cash flows from financing activities

Proceeds from issue of share capital 6680 √√√
Redeem of 5% debenture [200] √
Dividend paid to non controlling interest (612) √√
Dividend paid (1710) √√
Net Cash flows from financing activities 4158

Net changes in cash and cash equivalent √ [220]

 Cash and cash equivalent b/f 240√+200√ 440
Cash and cash equivalent c/f 50√+ 230√-60√ 220

Goodwill on acquisition of Tualang Sekah Bhd:

RM million
CT 1033
+) NCI (20%x1260) 252√
1285
FVNA 1200+300+350√-40√-550√ 1260
Goodwill (given) 25√

CT in cash: 1033m√-(500mxRM2.00√) =RM33mill + OD in sub RM40mill√=RM73mill

Goodwill
RMmillion RMmillion
Bal b/d 860 Impairment 5
Acquisition 25 Bal c/d 880

Tax Payable
RMmillion RMmillion
Bank 815 Bal b/d 500
Bal c/d 300 P&L 615

PPE
RMmillion RMmillion
Bal b/d 14200 Disposal/bank 420
Sub 1200 Depreciation 400
Acquire/Bank 6920
Bal c/d 21500

Inv in AC
RMmillion RMmillion
Bal b/d 1310 Dividend 225
Share of profits 100
Sg Tiram Bhd 15 Bal c/d 1200

OSC
RMmillion RMmillion
Bal b/d 10820
Acq of sub 1000
Bal c/d 18500 New issue 6680
NCI
RMmillion RMmillion
Dividend 612 Bal b/d 2590
 Acq of sub 252
Bal c/d 2600 Profit attributable 370

RP
RMmillion RMmillion
Dividend 1710 Bal b/d 2220
Bal c/d 2070 Profit attributable 1560

SOLUTION Indirect Method

Consolidated statement of cash flows of Malim Nawar Bhd

for the year ended 31 December 2017
Cash flows from operating activities
Net profit before tax 2545
Adjustments for:
Depreciation 400
Impairment of goodwill 5
Bad debt 10
Interest paid income 75
Gain on disposal of machine [80]
Share of profit of associate company [100]
Operating profit before working capital changes 2855
Changes in working capital
Inventories 220
Trade receivables 420
Trade Payables [700] [60]
Tax paid [815]
Interest paid [75]
Net Cash flows from operating activities 1905

Cash flows from investing activities

Acquire PPE [6920]
Dispose PPE 500
Acquire Sub [73]
Acquire AC [15]
Dividend from AC 225
Net Cash flows from investing activities [6283]

Cash flows from financing activities

Proceeds from issue of share capital 6680
Redeem of 5% debenture [200]
Dividend paid to non controlling interest (612)
Dividend paid (1710)
Net Cash flows from financing activities 4158
 Net changes in cash and cash equivalent [220]
Cash and cash equivalent b/f 240+200 440
Cash and cash equivalent c/f 50+ 230-60 220

Goodwill on acquisition of Tualang Sekah Bhd:

RM million
CT Bal figure 1033
+) NCI (20%x1260) 252
1285
FVNA 1200+300+350-40-550 1260
Goodwill (given) 25

CT in cash: 1033m-(500mxRM2.00) =RM33mill + OD in sub RM40mill=RM73mill

Goodwill
RMmillion RMmillion
Bal b/d 860 Impairment 5
Acquisition 25 Bal c/d 880

Inventories
RMmillion RMmillion
Bal b/d 730 Bank 220
Sub 300 Bal c/d 810

Trade Receivables
RMmillion RMmillion
Bal b/d 800 Bank 420
Sub 350 Bad Debt 10
Bal c/d 720

Trade Payables
RMmillion RMmillion
Bank 700 Bal b/d 1410
Bal c/d 1260 Sub 550

Tax Payable
RMmillion RMmillion
Bank 815 Bal b/d 500
Bal c/d 300 P&L 615

PPE
 RMmillion RMmillion
Bal b/d 14200 Disposal/bank 420
Sub 1200 Depreciation 400
Acquire/Bank 6920
Bal c/d 21500
Inv in AC
RMmillion RMmillion
Bal b/d 1310 Dividend 225
Share of profits 100
Sg Tiram Bhd 15 Bal c/d 1200

OSC
RMmillion RMmillion
Bal b/d 10820
Acq of sub 1000
Bal c/d 18500 New issue 6680

NCI
RMmillion RMmillion
Dividend 612 Bal b/d 2590
Acq of sub 252
Bal c/d 2600 Profit attributable 370

RP
RMmillion RMmillion
Dividend 1710 Bal b/d 2220
Bal c/d 2070 Profit attributable 1560