141 Petre owns 100% of the share capital of the following companies.

The directors are unsure of

whether the investments should be consolidated into the group financial statements of not.
Identify whether the following companies should be consolidated or not.
Consolidated Not to be
consolidated
Beta is a bank and its activity is so different from
the engineering activities of the rest of the group yes
that it would be meaningless to consolidate it.

Delta is located in a country where local accounting

standards are compulsory and these are not yes
compatible with IFRS Standards used by the rest of
the group.

Gamma is located in a country where a military

coup has taken place and Petre has lost control of yes
the investment for the foreseeable future.

142
Tazer acquired Lowdown, an unincorporated entity, for $2.8 million. A fair value exercise
performed on Lowdown’s net assets at the date of purchase showed:
$000
Property, plant and equipment 3,000
Identifiable intangible asset 500
Inventory 300
Trade receivables less payables 200
––––––
4,000
––––––
How would the purchase be reflected in the consolidated statement of financial position?
A Record the net assets at their above values and credit profit or loss with $1.2 million
B Record the net assets at their above values and credit goodwill with $1.2 million
C Ignore the intangible asset ($500,000), recording the remaining net assets at their
values shown above and crediting profit or loss with $700,000
D Record the purchase as a financial asset investment at $2.8 million

143
Which of the following definitions is not included within the definition of control per IFRS
10 Consolidated Financial Statements?
A Having power over the investee
B Having exposure, or rights, to variable returns from its investment with the investee
C Having the majority of shares in the investee
D Having the ability to use its power over the investee to affect the amount of the
investor’s returns

144
Pamela acquired 80% of the share capital of Samantha on 1 January 20X1. Part of the
purchase consideration was $200,000 cash to be paid on 1 January 20X4 The applicable cost
of capital is 10%.
What will the deferred consideration liability be at 31 December 20X2?
A $150,262
B $165,288
C $200,000
D $181,818
Answer
200000*1.1=181818

145
Philip acquired 85% of the share capital of Stanley on 1 October 20X1. The profit for the year
ended 31 December 20X1 for Stanley was $36,000. Profits are deemed to accrue evenly over
the year. At 31 December 20X1 Stanley’s statement of financial position showed:
Equity share capital $200,000
Retained earnings $180,000
What were the net assets of Stanley on acquisition?
Answer
$________371 ,000

146
On 30 June 20X4 GHI acquired 800,000 of JKL’s 1 million shares.
GHI issued 3 shares for every 4 shares acquired in JKL. On 30 June 20X4 the market price of a
GHI share was $3.80 and the market price of a JKL share was $3.
GHI agreed to pay $550,000 in cash to the existing shareholders on 30 June 20X5. GHI’s
borrowing rate was 10% per annum.
GHI paid professional fees of $100,000 for advice on the acquisition.
What is the cost of investment that will be used in the goodwill calculation in the
consolidated financial statements of GHI?
$____________ ,000

$2,780,000

Answer
147
MNO has a 75% owned subsidiary PQR During the year MNO sold inventory to PQR for an
invoiced price of $800,000 PQR have since sold 75% of that inventory on to third parties. The
sale was at a mark‐up of 25% on cost to MNO PQR is the only subsidiary of MNO.
What is the adjustment to inventory that would be included in the consolidated statement
of financial position of MNO at the year‐end resulting from this sale?
A $120,000
B $40,000
C $160,000
D $50,000
148
West has a 75% subsidiary Life, and is preparing its consolidated statement of financial
position as at 31 December 20X6. The carrying amount of property, plant and equipment in
the two companies at that date is as follows:
West $300,000
Life $60,000
On 1 January 20X6 Life had transferred some property to West for $40,000. At the date of
transfer the property, which had cost $42,000, had a carrying amount of $30,000 and a
remaining useful life of five years.
What is the carrying amount of property, plant and equipment in the consolidated
statement of financial position of West as at 31 December 20X6?
$____________ ,000
Answer
$352,000.

149
Which TWO of the following situations are unlikely to represent control over an investee?
A Owning 55% and being able to elect 4 of the 7 directors
B Owning 51%, but the constitution requires that decisions need the unanimous consent
of shareholders
C Having currently exercisable options which would take the shareholding in the
investee to 55%
D Owning 40% of the shares but having majority of voting rights within the investee
E Owning 35% of the ordinary shares and 80% of the preference shares of the investee

150
Identify if the following will be recognised as part of the cost of an investment in a subsidiary.
Include in cost of Do not include in
the cost of
investment investment

An agreement to pay a further $30,000 if the

subsidiary achieves an operating profit of over YES
$100,000 in the first 3 years after acquisition

Professional fees of $10,000 in connection with YES

The following scenario relates to questions 346–350
On 1 April 20X4 Penfold acquired 80% of Superted’s equity shares in a share for share exchange.
Penfold issued 2 shares for every 5 acquired in Superted. Penfold’s share price on 1 April 20X4 was
$5.30. The share exchange has not yet been recorded.
Extracts from the individual financial statements of Penfold and Superted as at 30 September 20X4
are shown below.
Penfold Superted
$000 $000
Property, plant and equipment 345,000 141,000
Trade receivables 32,400 38,000
Equity shares of $1 each 170,000 15,000
Other components of equity (share premium) 6,000 2,000

(i) During the year, Penfold traded with Superted, and had a payable of $6 million at
30 September 20X4. Superted’s receivable balance differed from this due to a $2 million
payment from Penfold not being received until October 20X4.
(ii) Penfold measures the non‐controlling interest at fair value. At the date of acquisition this
was $7.2 million.
(iii) Superted made a profit of $24 million for the year ended 30 September 20X4.
(iv) Penfold sold an item of plant to Superted on 1 April 20X4 for $25 million when its carrying
amount was $20 million. It had a remaining useful life of 5 years at this date.
(v) Penfold also owns 30% of Arnold, an unrelated entity. Penfold are not able to appoint any
members of the board of Arnold as the other 70% is held by another investor who is able to
appoint all members of the board.

346
What will be reported as other components of equity on the consolidated statement of
financial position as at 30 September 20X4?
A $31,440,000
B $26,640,000
C $28,640,000
D $33,440,000
ANSWER
B $26,640,000

347
What will be reported as receivables on the consolidated statement of financial position as at 30
September 20X4?
$_____________,000
ANSWER
$62,400,000

348
What will be reported as non‐controlling interest on the consolidated statement of
financial position as at 30 September 20X4?
A $9,700,000
B $9,500,000
C $7,200,000
D $9,600,000
ANSWER

349
What will be reported as property, plant and equipment on the consolidated statement of
financial position as at 30 September 20X4?
$_____________,000
ANSWER
$481,500,000

350
How should the investment in Arnold be recorded in the consolidated statement of
financial position of Penfold?
A A subsidiary
B An associate
C A financial instrument
D A contingent asset

ANSWER