Consolidated statement of financial position

Therefore retained earnings at acquisition will be $12,000 ($15,000 less

$3,000 post-acquisition) and the post-acquisition profits to go to
consolidated retained earnings are $3,000.

Test your understanding 7

Consolidated statement of financial position

On 1 May 20X7 Karl bought 60% of Susan paying $76,000 cash. The
summarised statements of financial position for the two entities as at
30 November 20X7 are:
Karl Susan
$ $
Non-current assets
Property, plant & equipment 138,000 115,000
Investments 98,000 –

Current assets
Inventory 15,000 17,000
Receivables 19,000 20,000
Cash 2,000 –
––––––– –––––––
272,000 152,000
––––––– –––––––
Share capital 50,000 40,000
Retained earnings 189,000 69,000
––––––– –––––––
239,000 109,000

Non-current liabilities: 8% Loan notes – 20,000

Current liabilities 33,000 23,000

––––––– –––––––
272,000 152,000
––––––– –––––––
The following information is relevant:
(i) The inventory of Karl includes $8,000 of goods purchased for
cash from Susan at cost plus 25%.
(ii) On 1 June 20X7 Karl transferred an item of plant to Susan for
$15,000. Its carrying amount at that date was $10,000, and its
remaining useful life was 5 years.

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(iii) Karl values the non-controlling interest using the fair value
method. At the date of acquisition the fair value of the 40% non-
controlling interest was $50,000.
(iv) An impairment loss of $1,000 is to be charged against goodwill at
the year-end.
(v) Susan earned a profit of $9,000 in the year ended 30 November
20X7.
(vii) The loan note in Susan’s books represents monies borrowed from
Karl on 30 November 20X7.
(vii) Included in Karl’s receivables is $4,000 relating to inventory sold
to Susan during the year. Susan raised a cheque for $2,500 and
sent it to Karl on 29 November 20X7. Karl did not receive this
cheque until 4 December 20X7.

Required:
Prepare the consolidated statement of financial position as at
30 November 20X7.

Test your understanding 8

The following scenario relates to five questions.
Bintou Co purchased its 80% shareholding in Malak Co five years ago
when Malak Co’s retained earnings were $20,000 and had a balance
on its revaluation surplus of $10,000. At the date of acquisition the fair
value of Malak Co’s net assets was equal to their carrying amount.
Nada Co had retained earnings of $16,000 when Bintou Co acquired its
75% shareholding for cash on 1 January 20X9. At the date of
acquisition the fair value of Malak Co’s net assets was equal to their
carrying amount, with the exception of some plant whose fair value was
$10,000 greater than its carrying amount. At this date the plant had a
remaining life of five years.
The following are the summarised statements of financial position of
the companies as at 31 December 20X9.

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Consolidated statement of financial position

Bintou Malak Nada

Co Co Co
$ $ $
Non-current assets:
Property, plant and equipment 180,000 120,000 100,000
Investments:
Malak Co 100,000 – –
Nada Co 110,000 – –
Current assets 406,000 140,000 60,000
––––––– ––––––– ––––––
796,000 260,000 160,000
––––––– ––––––– ––––––

Ordinary $1 share capital 380,000 100,000 80,000

Revaluation surplus – 20,000 –
Retained earnings 116,000 60,000 32,000
––––––– ––––––– ––––––
496,000 180,000 112,000
Current liabilities 300,000 80,000 48,000
––––––– ––––––– ––––––
796,000 260,000 160,000
––––––– ––––––– ––––––
At the end of 20X9, the goodwill impairment review revealed a loss of
$1,000 in relation to the business combination with Malak Co.
During November 20X9, Malak Co had sold goods to Bintou Co for
$12,000 at a mark-up on cost of 20%. Half of these goods were still
held by Bintou Co at 31 December 20X9, and the balance payable was
still outstanding.
Bintou Co measures goodwill and the non-controlling interest using the
proportionate method for Malak Co, and the fair value method for Nada
Co. The fair value of the non-controlling interest of Nada Co at the date
of acquisition was $24,000.
1 What is the value of consolidated property, plant and
equipment on the consolidated statement of financial
position at 31 December 20X9?
$________________
2 What is the value of current assets on the consolidated
statement of financial position at 31 December 20X9?
A $563,000
B $605,000
C $606,000
D $593,000

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3 What is the value of the non-controlling interest in Malak Co

to be included on the consolidated statement of financial
position at 31 December 20X9?
A $35,800
B $31,800
C $36,000
D $44,750
4 What is the value of goodwill arising on the acquisition of
Nada Co?
$________________
5 What is the value of group retained earnings to be included
on the consolidated statement of financial position at 31
December 20X9?
A $156,900
B $156,100
C $157,600
D $157,700
Please note that the work required to answer some of the above
questions is beyond that expected for two marks in the exam.

Analysis of a company within a group

The FR examination may contain a question involving the analysis of a

company which is part of a group. Whilst intra-group transactions will be
removed from the consolidated financial statements, these will not be removed
from the individual financial statements. Therefore extra attention must be paid
to transactions which may not be at market value, or may be lost if the company
is removed from the group. This can include:
 Intra-group loans – these may be at low interest, which may change if the
company is removed from the group
 Intra-group receivables/payables – these can be done to manipulate an
entity's cash position prior to a sale.
 Inventory/Non-current assets – Assets could have been sold at inflated
prices between the group. The unrealised profits will be removed from the
consolidated financial statements, but the item will remain at the inflated
cost in the individual statements of financial position.
 Shared costs/assets – The company may share assets with others in the
group, which would be lost if the company were removed from the group.
Any additional assets (such as office space) that would be required if the
company became a standalone entity should be taken into consideration.

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