cONSOLIDATION

CHAPTER-10 IFRS 3 & 10 CONSOLIDATION
CHAPTER-10
CONSOLIDATION
LO1: CONCEPT OF GROUP
Basics of Consolidation
1. PTCL bought 80% shares of Ufone.
2. PTCL is a Parent Company as it owns more than 50% shares
3. Ufone is a Subsidiary Company
Steps involved
Step-1 PTCL‟s accountant will prepare financial statements of PTCL. (Separate financial
statements)
Step-2 Ufone‟s accountant will prepare financial statements of Ufone. (Separate financial
statements)
Step-3 Now Ufone‟s accountant will dispatch Ufone‟s financial statements to PTCL.
Step-4 Now PTCL‟s accountant will prepare “consolidated financial statements” of Group
assuming Parent and Subsidiary is a single economic unit.
Payment for buying Subsidiary
New Owner PTCL will pay cash

Old Owner
to Saudi King to buy
PTCL bought 100% UFONE Shares
Saudi King
shares of Ufone
Ufone
1
The definition of a group

Under IFRS a group exists where one company (the parent) controls another company (the subsidiary).
Group: A parent and its subsidiaries
Parent: An entity that controls one or more entities.
Subsidiary: An entity that is controlled by another entity.
Consolidated financial statements: are the financial statements of a group in which the assets, liabilities,
equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a
single economic entity.
Illustration: Single economic entity

A Limited (a car manufacturer) buys 100% of B Limited (an automotive parts manufacturer).
The 100% ownership gives A Limited complete control over B Limited.
A Limited's business has changed as a result of buying B Limited.
It was a car manufacturer. Now it is a car manufacturer and a manufacturer of automotive parts.
The two parts of the business are operated by two separate legal entities (A Limited and B Limited).
However, the two parts of the business are controlled by the management of A Limited.
In substance, the two separate legal entities are a single economic entity.
The definition of control

Under IFRS 3 Business Combinations, control is defined as „the power to govern the financial and
operating policies of subsidiary‟. Control is assumed when one party (parent) owns more than 50% of the
voting rights of another party (subsidiary).
Non-controlling interests
A parent company does not need to purchase all the shares of another company to gain control. The
holders of the remaining shares are called as the non-controlling interest. They are part owners of the
subsidiary. In such a case, therefore, the parent does not own all the net assets of the acquired company
but does control them.
Requirement of Companies Act, 2017

Companies Act, 2017 requires that there shall be attached to the financial statements of a holding
company having a subsidiary or subsidiaries, at the end of the financial year at which the holding
company„s financial statements are made out, consolidated financial statements of the group presented as
those of a single enterprise and such consolidated financial statements shall comply with the disclosure
requirements of the relevant Schedule and financial reporting standards notified by the Commission.
LO2: PRE- AND POST-ACQUISITION PROFITS/LOSSES

Pre-acquisition profits
Any profits or losses of a subsidiary made before the date of acquisition are referred to as pre-
acquisition profits/losses in the consolidated financial statements.
Post-acquisition profits
Any profits or losses made after the date of acquisition are referred to as post-acquisition profits.
These p r of i t s arose when the subsidiary was under the control of the parent. These will be included
in the group consolidated financial statements.
2
LO 3: GOODWILL
There are two ways of measuring the NCI at the date of acquisition and both ways might result in a
different figure for NCI and resultantly goodwill.
NCI at acquisition is measured at either:
 fair value (sometimes called “full goodwill” method); or
 proportionate share in the recognized amounts of the acquiree‟s identifiable net assets
(sometimes called “partial goodwill” method).
3.1: POSITIVE GOODWILL
Goodwill is carried as non-current asset in consolidated statement of financial position. On acquisition, if
cost of investment is more than the parent share of net equity, it means that we are paying extra for
goodwill.
Question-1
Following are the balance sheets as at June 30, 2014:
P S
---------Rs---------
Non-current assets
Property, plant & equipment 78,000 60,000
Investments 40,000 10,000
Current assets 30,000 25,000

148,000 95,000
Equity
Share capital (Rs. 10 per share) 60,000 30,000
Share premium 5,000 3,000
Retained earnings 62,000 39,000
Current liabilities
Creditors 21,000 23,000
148,000 95,000
Following further information is available.
(i) P acquired 2,100 shares of S some years ago for Rs. 35,000 when retained earnings Rs.7,000.
Required:
Prepare consolidated balance sheet as at June 30, 2014.
Answer-1
P’s
Consolidated Statement of Financial Position
as on June 30, 2014
Assets Rs.
Non-current assets
Property, plant and equipment (78,000 + 60,000) 138,000
Goodwill (W-1) 7,000
Investments (40,000 + 10,000 – 35,000) 15,000
160,000
Current assets (30,000 + 25,000) 55,000
215,000
Equity and liabilities
3
Equity
Share capital 60,000
Share premium 5,000
Consolidated retained earnings (W-3) 84,400
149,400
Non-controlling interest (W-4) 21,600
171,000
Current liabilities
Creditors (21,000 + 23,000) 44,000
215,000
(W-1)
Dr. Cost of Investment (For calculating Goodwill) Cr.
Investment 35,000 Share capital 30,000
NCI (Prop. share) (40,000 x 30%) 12,000 Share Premium 3,000
Pre-Acquisition R.E. 7,000
40,000
Goodwill (bal.) 7,000
(W-2)
Dr. Subsidiary retained earnings a/c Cr.
Pre-Acquisition R.E. 7,000 b/d (Balance sheet closing) (Post) 39,000
CRE (32,000 x 70%) 22,400

NCI (32,000 x 30%) 9,600
Percentage holding in S = 2,100/3,000 = 70%
(W-3)
Dr. Consolidated retained earning a/c Cr.
Parent own R.E. 62,000
c/d (bal.) 84,400 Subsidiary retained earnings a/c 22,400
(W-4)
Dr. Non-controlling interest a/c Cr.
Cost of Investment a/c 12,000
3.2: NEGATIVE GOODWILL

If the net equity (fair value of assets) at the time of acquisition is less than its book value it means that in
the transaction of purchase there is a bargain purchase. The difference between net equity and cost of
investment is negative goodwill.
This gain should be recorded as “other income” immediately.
Example
Parent company acquired 60% shares of subsidiary company on January 1, 2015 when share capital and
retained earnings of subsidiary are Rs.600,000 and Rs.100,000. The shares are purchased for Rs.380,000.
Calculate goodwill.
4

NCI (Prop. share) (700,000 x 40%) 280,000 Pre-Acquisition R.E. 100,000
700,000
Negative Goodwill (bal.) 40,000
3.3: IMPAIRMENT OF POSITIVE GOODWILL (WHEN NCI ON PROPTIONATE BASIS)

Goodwill is not depreciated or amortized because generally it has an indefinite useful life.
However we test it annually for impairment.
Following is the calculation of impairment:
Book value Xxx
Less: Recoverable amount (amount expected to be recovered from it in future) (xxx)
Impairment loss Xxx
Example-1
Consolidated balance sheet shows the goodwill at book value of Rs. 30 million and its estimated
recoverable amount is calculated at Rs. 26 million.
Calculate impairment loss and Show effect on balance sheet items?
Answer-1
Impairment loss
Book value 30
Less: Recoverable amount (26)
Impairment loss 4
1. Reduced Consolidated retained earnings by Rs. 4.

2. Reduced Goodwill by Rs. 4.
Example-2
Consolidated balance sheet shows the goodwill at book value of Rs. 14 million and impairment test
revealed that goodwill should be written down by Rs. 5 million.
Show impact on balance sheet items?
Answer-2
1.Reduced Consolidated retained earnings by Rs. 5

2.Reduced Goodwill by Rs. 5
3.4: IMPAIRMENT OF POSITIVE GOODWILL (WHEN NCI ON FAIR VALUE)

If the NCI is recorded at fair value then the impairment loss on goodwill is apportioned between parent
and NCI in proportion to their respective holdings.
Example-1
P acquired 90% of S some years back. Consolidated balance sheet shows the goodwill at book value of
Rs. 30 million and its estimated recoverable amount is calculated at Rs. 20 million. NCI is at fair value.
Calculate impairment loss and impact on balance sheet item?
5
Answer-1
Book value 30
Less: Recoverable amount (20)
Impairment loss 10
1. Reduce Subsidiary retained earnings by Rs. 10

2. Reduce Goodwill by Rs.10
Example-2
Alpha acquired 60% shares of S some years back. Consolidated balance sheet shows the goodwill at book
value of Rs. 14 million and its recoverable value is less then book value by Rs 3 million. NCI is at fair
value.
Impact on balance sheet item?
Answer-2
2. Reduce Goodwill by Rs.3
LO 4: SALE OF STOCK BY SUBSIDIARY TO PARENT

Stock is normally sold within group at prices above the original cost. Assume goods costing Rs. 12 are
sold by subsidiary to parent for Rs. 15 and these goods are in parent books at year end. Lets analyse this
transaction:
What has happened? What to do now? Accounts to be effected

Subsidiary has recorded in its The “unrealized gain” recorded by Reduce subsidiary
individual books a profit of Rs. 3. subsidiary of Rs. 3 should be reversed. retained earnings
The balance sheet of parent shows The stock appearing in current assets in Decrease Stock
the stock at a price higher than its parent balance sheet should be reduced
cost. by Rs. 3 to bring it to cost.
Note:
The problem of unrealized profit will not arise if whole of stock is sold to outside parties. This problem
arises only where some of the stock is still in statement of financial position of parent.
It can be illustrated through following example:

Illustration-1
Subsidiary purchased goods costing Rs. 10 and sold to parent for Rs. 12. Parent sold the goods in same
year for Rs. 15. Prepare profit and loss extracts.
Total
Subsidiary Parent Profit
Sale 12 15
Cost of sale
Opening stock 0 0
Purchase 10 12
Closing stock (0) (0)
(10) (12)
Gross profit 2 3 5
6
Illustration-2
Subsidiary purchased goods costing Rs. 10 and sold to parent for Rs. 12. Parent did not sold the goods till
year end.
Total
Sub Parent Profit
Sale 12 -
Cost of sale
Opening 0 0
Purchase 10 12
Closing (0) (12)
(10) (0)
Gross profit 2 0 2
Conclusion
In illustration#1 subsidiary purchased goods for Rs. 10 and parent sold goods for Rs. 15. Overall group
earned a profit of Rs. 5 which can be cross checked though adding GP of both. So in illustration #1 the
group has correctly recorded a profit of Rs. 5, so no adjustment required.
In illustration#2 subsidiary purchased goods for Rs. 10 and parent did not sold the goods. The subsidiary
made a profit of Rs. 2 which is an unrealized profit and need to be reversed.
Example-1
P acquired 80% of shares of S. In 2015 S sold goods to P for Rs. 90,000 at a profit of 10% on cost. P still
held 20% of these goods at the year end.
Show impact on balance sheet items in consolidated books for elimination of unrealized profit on stock?
Answer-1
1. Reduce Subsidiary retained earnings by Rs. 1,636
2. Reduce Inventory by Rs.1,636
Sold stock 90,000

Unsold stock (90,000 x 20%) 18,000
Profit on unsold stock (18,000/110x10) 1,636
Example-2
P owned 80% of shares of S. P inventory contain stock purchased from S for Rs 20,000. S aims to earn
profit mark-up of 30%.
Answer-2

Sold stock Not known

Unsold stock 20,000
Profit on sale of stock(20,000/130 x 30) 4,615
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Example-3
P owned 80% of S shares. P inventory contain stock purchased from S of Rs 20,000 .S aims to earn a
profit margin of 30%.
Answer-3

2. Reduce Inventory by Rs. 6,000

Unsold stock 20,000
Profit on unsold stock (20,000/100 x 30) 6,000
Example-4
Harry owned 75 % shares of Sally. Sally sold some goods to Harry of Rs. 100,000 during the year. At
year end SOFP of Harry included inventory purchased from Sally amounting to Rs. 25,000. Sally had
recorded a profit of Rs 3,000 on this unsold inventory.
Answer-4
Example-5
Harry owned 75 % shares of Sally. Sally sold some goods to harry of Rs. 5,000 during the year at a profit
margin of 15%. At year end SOFP of Harry does not include any inventory purchased from Sally.
Answer-5
No adjustment is required as all stock purchased from Sally is sold.
LO 5: SALE OF STOCK BY PARENT TO SUBSIDIARY

Stock is normally sold within group at prices above the original cost. Assume goods costing Rs. 10 are
sold by parent to subsidiary for Rs. 12 and these goods are appearing as stock in subsidiary balance sheet
at year end.
What has happened? What to do now? Accounts to be effected

Parent has recorded in its The “unrealized gain” recorded Reduce CRE
individual books a profit of Rs. 2. by parent of Rs. 2 should be
reversed.
The balance sheet of subsidiary The stock appearing in current Reduce Stock
shows the stock at a price higher assets in subsidiary books should
than its cost. be reduced by Rs. 2 to bring it to
cost.
Note:
The problem of unrealized profit will not arise if whole of stock is sold to outside parties. This problem
arises only where some of the stock is still in statement of financial position of subsidiary.
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Example-1
P acquired 80% of shares of S. In 2015 P sold goods to S for Rs. 90,000 at a profit of 10% on cost. S still
held 20% of these goods at the year end.
Answer-1
1.Reduce Consolidated retained earnings by Rs.1,636

2.Reduce Inventory by Rs.1,636
Sold stock 90,000

Unsold stock (90,000 x 20%) 18,000
Example-2
P owned 80% of S shares. S inventory contain stock purchased from P of Rs 20,000. P aims to earn profit
mark-up 30%.
Answer-2


Unsold stock 20,000
Profit on unsold stock(20,000/130 x 30) 4,615
Example-3
P owned 80% of S shares. S inventory contain stock purchased from P of Rs 20,000 .P aims to earn profit
margin of 30%.
Answer-3
1.Reduce Consolidated retained earnings by Rs. 6,000


Unsold stock 20,000
Profit on unsold stock(20,000 /100 x 30 ) 6,000
Example-4
Harry owned 75 % shares of Sally. Harry made sale of stock to Sally of Rs. 100,000 during the year. At
the year end SOFP of sally included inventory purchased from Harry of Rs. 35,000. Harry had recorded a
profit of Rs 3,000 on this unsold inventory.
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Answer-4
LO 6: SALE OF FIXED ASSET BY SUBSIDIARY TO PARENT

Fixed asset is normally sold within group at a price above or below the book value. Assume furniture
having book value of Rs. 80 is sold by subsidiary to parent for Rs. 100 (at a profit of Rs. 20).
Remove profit
What has happened? What to do now?
Subsidiary has recorded in its individual books a The “unrealized gain” recorded by subsidiary of
profit of Rs. 20. Rs. 20 should be reversed by reducing subsidiary
retained earnings. (The adjustment will be made net
of depreciation)
The balance sheet shows the furniture at a price We will reduce the asset by Rs. 20 by reducing the
higher than its book value. asset account. (The adjustment will be made net of
depreciation)
Note: Adjustments will be reversed in case there is a loss on sale of fixed asset. (The
adjustment will be made net of depreciation)
Example-1
P acquired 60% of shares of S some years back. On 1.1.13 S sold fixed assets to P having book value of
Rs. 60,000 for Rs. 90,000. Remaining life of asset on 1.1.13 is 5 years.
Show impact on balance sheet items in consolidated books to be passed on 31.12.15?
Answer-1
Reversal of Profit
1. Reduce Subsidiary Retained earnings by Rs. 12,000
2. Reduce Property, Plant and Equipment by Rs. 12,000
Gain net of Depreciation

Gain (90,000 - 60,000) 30,000
Less: Accumulated Dep. (30,000/5 x 3) (18,000)
12,000
Example-2
P acquired 70% of shares of S some years back. On 1.1.14 S sold fixed assets having book value of Rs.
100,000 to P. The profit recorded by S on it Rs. 10,000. Remaining life of asset on 1.1.14 is 10 years.
Answer-2
Reversal of profit
1. Reduce Subsidiary Retained earnings by Rs. 8,000
2.Reduce Property, Plant and Equipment by Rs. 8,000

Gain (Given) 10,000
8,000
Example-3
10
P acquired 80% of shares of S some years back. On 1.7.14 S sold fixed assets having book value of
Rs. 100,000 to P for Rs. 80,000. Remaining life of asset on 1.7.14 is 10 years.
Answer-3
Reversal of loss
1.Increase Asset by Rs. 13,000
2. Increase Subsidiary Retained earnings by Rs. 13,000
Loss net of Depreciation

Loss (80,000 - 100,000) 20,000
Less: Accumulated Dep. (20,000/10 x 3.5) (7,000)
13,000
Example-4
P acquired 70% of shares of S some years back. On 1.1.14 S sold fixed assets having book value of Rs.
100,000 at a loss of 10,000 to P. Remaining life of asset on 1.1.14 is 8 years.
Answer-4
Reversal of loss on sale of Asset by subsidiary
1. Increase Asset by Rs. 6,250
2. Increase Subsidiary Retained Earnings by Rs. 6,250

Loss (Given) 10,000
6,250
LO 7: SALE OF FIXED ASSET BY PARENT TO SUBSIDIARY

Fixed asset is normally sold within group at a price above or below the book value. Assume furniture
having book value of Rs. 80 is sold by parent to subsidiary for Rs. 100 (at a profit of Rs. 20).
Remove profit
What has happened? What to do now?
Parent has recorded in its individual books a profit The “unrealized gain” recorded by parent of Rs.
of Rs. 20. 20 should be reversed by reducing CRE. (The
The balance sheet shows the furniture at a price We will reduce the asset by Rs. 20 by reducing the
higher than its book value. asset account. (The adjustment will be made net of
depreciation)
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Note: Adjustment will be reversed in case there is a loss on sale of fixed asset. (The
Example-1
P acquired 55% of shares of S some years back. On 1.1.12 P sold fixed assets having book value of
Rs. 80,000 for Rs. 100,000. Remaining life of asset on 1.1.12 is 10 years.
Answer-1
Reversal of profit on Sale of Asset by Parent
1.Reduce Consolidated Retained earnings by Rs. 10,000
2.Reduce Asset by Rs. 10,000

Gain (100,000 - 80,000) 20,000
10,000
Example-2
Rs. 100,000 to S at a profit of Rs. 10,000. Remaining life of asset on 1.1.14 is 10 years.
Answer-2
Reversal of profit on Sale of Asset by Parent
1.Reduce Consolidated Retained earnings by Rs. 7,000
2.Reduce Asset by Rs. 7,000

Gain (As given) 10,000
7,000
Example-3
Rs. 100,000 to S for 90,000. Remaining life of asset on 1.1.14 is 10 years.
Answer-3
Reversal of loss on Sale of Asset by Parent
1. Increase Asset by. Rs. 7,000
2. Increase Consolidated Retained earnings by Rs. 7,000

Loss (90,000 - 100,000) 10,000
7,000
12
Example-4
Rs. 100,000 to S at a loss of Rs. 12,000. Remaining life of asset on 1.1.14 is 10 years.
Answer-4
Reversal of loss on Sale of Asset by Parent
1.Increase Asset by Rs. 9,600
2.Increase Consolidated Retained earnings by Rs. 9,600

Loss (Given) 12,000
9,600
LO 8: FAIR VALUE ADJUSTMENT

In examples so far we have assumed that the book value of the net assets in the subsidiary are equal to
their fair value. In practice, book value in the parent company and in the subsidiary rarely equals fair
value and it is necessary to revalue the assets of the subsidiary prior to consolidation. Following
adjustment is required:
Record surplus
1.Increase asset with surplus figure
2. Record revaluation surplus on credit side of Cost of capital/Calculation of Goodwill a/c. (W-1)
Record depreciation on surplus figure
1.Reduce Subsidiary Retained earnings in (W-2)
2.Reduce asset
Note: Both of the above adjustments will be reversed in case there is a loss on
revaluation of fixed asset.
Example-1
P acquired 90% shares of S 2 years back. S‟s land cost was 2 million and its fair value at the time of
acquisition was 3 million.
Show impact on balance sheet items in consolidated books?
Answer-1
1.Increase Land by Rs. 1 million

2. Record revaluation surplus by Rs. 1 million on credit side of Cost of capital/Calculation of Goodwill
a/c (W-1).
Examle-2
P acquired 90% shares of S 2 years back. S‟s land cost was 3 million and its fair value at the time of
acquisition was 2 million.
Show impact on balance sheet items required in consolidated books?
Answer-2
1. Record revaluation loss by Rs. 1 million on credit side with Negative Sign in Cost of
capital/Calculation of Goodwill a/c. (W-1)
2. Reduce Land by Rs. 1 mill.
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Example-3
P acquired 80% shares of S on July 1, 2013. At acquisition date, fair value of plant and machinery was
Rs. 4,000 higher than the carrying amount. Remaining life of plant and machinery at that date was 5
years.
Show impact on balance sheet items in consolidated books prepared on June 30, 2014.
Answer-3
1.Increase PPE by Rs. 4,000

2. Record revaluation surplus by Rs. 4,000 on credit side of Cost of capital/Calculation of Goodwill a/c
(W-1).
Accumulated depreciation on revaluation surplus on PPE

2. Reduce PPE by Rs. 800 (4,000/5 years x 1 years)
Example-4
Q acquired 70% shares of P limited at 1 January 2010 included in P property was a software with
remaining life of 7 years at its book value of 700,000 the fair value of software at 1 January 2010 was
770,000.
Show impact on balance sheet items in consolidated books prepared on December 31, 2014.
Answer-4
1.Increase Intangible Assets by Rs.70,000

2. Record revaluation surplus by Rs. 70,000 on credit side of Cost of capital/Calculation of Goodwill a/c
(W-1).
Accumulated amortization on revaluation surplus of intangible

2. Reduce Intangible Assets by Rs. 50,000 (70,000/7 years x 5 years)
Example-5
P acquired 80% shares of S on July 1, 2013. At acquisition date, fair value of plant and machinery was
Rs. 4,000 lower than the carrying amount. Remaining life of plant and machinery at that date was 5 years.
Show impact on balance sheet items in Consolidated books prepared on June 30, 2014.
Answer-5
1. Record revaluation loss by Rs. 4,000 on credit side with Negative Sign in Cost of capital/Calculation
of Goodwill a/c. (W-1)
2.Reduce PPE by Rs. 4,000
Accumulated depreciation on revaluation loss of PPE

1.Increase PPE by Rs. 800 (4,000/5)
2. Increase Subsidiary retained earnings by Rs. 800
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Example-6
Q acquired 70% shares of P limited at 1 January 2010 included in P property was a software with
remaining life of 7 years at its book value of 700,000 the fair value of software at 1 January 2010 was
630,000.
Show impact on balance sheet items in consolidated books prepared on December 31, 2014.
Answer-6
1. Record revaluation loss by Rs. 70,000 on credit side with Negative Sign in Cost of capital/Calculation
of Goodwill a/c. (W-1)
2.Reduce Intangible Assets Rs. 70,000
Accumulated dep. on revaluation surplus of PPE

1. Increase Intangible Asset by Rs. 50,000(70,000/7 x 5)
2. Increase Subsidiary retained earnings by Rs.50, 000
LO 9: INTER-COMPANY BALANCES
We have seen above that we set off the parent‟s investment in a subsidiary against the parent‟s share of
the subsidiary‟s share capital and reserves (retained earnings plus/minus revaluation changes) as at the
date of acquisition.
However, there are likely to be other balances in the statements of financial position of both the
parent and the subsidiary company arising from inter-company (also referred to as intra-group)
transactions. These will require adjustment in order that the group accounts do not double count
assets and/or liabilities. These are normally referred to as Consolidation Adjustments. The following
are examples of intra-group or inter-company transactions which we will now consider:
 Debtors/creditors in respect of stock sold and purchased
 loan transactions
 Inter-company dividends payable/receivable.
These are discussed below in relation to preparation of the consolidated statement of financial
position.
Eliminating inter-company balances

If entries in the parent‟s records and the subsidiary‟s records are up to date, the same figure will appear
as a balance in the current assets of one company and in the current liabilities of the other. For
example, if the parent company has supplied goods invoiced at Rs. 1,500 to its subsidiary, there will
be a receivable for Rs. 1,500 in the parent statement of financial position and a payable for Rs. 1,500
in the subsidiary‟s statement of financial position. These need to be cancelled, i.e. eliminated, before
preparing the consolidated accounts. In accounting terminology, this would be described as offsetting.
Reconciling inter-company balances

In practice, temporary differences may arise for such items as cash in transit that are recorded in one
company‟s books but of which the other company is not yet aware.
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Example-1
Following are the balance sheets of parent and subsidiary as at December 31, 2016.
Parent Subsidiary
Non-current assets --------Rs.-------
Current assets
P current account - 5,000
Equity
Current liabilities
S current account 5,000
Answer-1
Nothing will be shown in balance sheet as balance in both of the books will be cancelled out.
Example-2
Parent Subsidiary
Current assets
P current account - 8,000
Equity
Current liabilities
S current account 5,000
Answer-2
Assets
Non-current assets
Current assets
Cash in transit 3,000
Example-3
Parent Subsidiary
Current assets
Debtors - 10,000
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Equity
Current liabilities
Creditors 26,000
Debtors of subsidiary include Rs. 4,000 in respect of goods sold to P.
Answer-3
Assets
0Non-current assets
Current assets
Debtors (10,000 – 4,000) 6,000

Current liabilities
Creditors (26,000 – 4,000) 22,000
In this case we assume that same amount appears in creditors figure as payable.
Example-4
Parent Subsidiary
Current assets
Debtors - 16,000
Equity
Current liabilities
Creditors 14,000
Debtors of subsidiary include Rs. 5,000 in respect of goods sold to P. The creditors of P show only
Rs. 4,000 in this respect.
Answer-4
Assets
Non-current assets
Current assets
Debtors (16,000 – 5,000) 11,000

Current liabilities
Creditors (14,000 – 4,000) 10,000
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Example-5
Parent Subsidiary
Loan receivable from S 5,000
Current assets
Equity
Non-current liability
Loan payable to P 5,000
Current liabilities
Answer-5
Nothing will be shown in balance sheet as balance in both of the books will be cancelled out.
Example-6
Parent Subsidiary
Loan receivable from S 6,000
Current assets
Equity
Non-current liability
Loan payable to P 5,000
Current liabilities
Answer-6
Assets
Non-current assets
Current assets
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LO 10: FORMATS
(W-1)
Investment Xx Share capital of S Xx
NCI (at F.V) or (Prop. share) Xx Share premium of S Xx
Pre-Acquisition R.E. of S Xx/(Xx)
Capital reserves (pre) Xx/(Xx)
Revaluation loss (on assets) (XX)
Revaluation surplus (on assets) Xx
Contingent liability (Which is not recorded (Xx)
in S books as per IAS-37)
Negative Goodwill (bal.) Goodwill (bal.) XX

Note: Contingent asset will not be recorded while calculating Goodwill.
(W-2) (From date of Acquisition till balance sheet date Adjustments)

Dr. Subsidiary retained earning a/c Cr.
Pre-Acquisition R.E. Xx/(Xx) b/d (Balance sheet closing) Xx
Stock - URP (S to P) Xx PPE (Dep. on Rev. loss) Xx
PPE (Dep. on Rev. Surplus.) Xx PPE (Reversal of loss on disposal) (S to P)- Xx
net of Dep.
Goodwill (Impairment) (NCI- at F.V) Xx
PPE (Reversal of gain on disposal) Xx
(S to P) - net of Dep.
CRE Xx
NCI Xx
(W-2.1)
Dr. Subsidiary Capital Reserves a/c Cr.
Pre-Acquisition C.R. Xx b/d (Balance sheet closing) Xx
Consolidated Capital reserve Xx

NCI Xx
(W-3)
Dr. Consolidated retained earnings a/c Cr.
Stock - URP (P to S) Xx Parent own R.E (closing) Xx
Goodwill (Impairment) (NCI- Prop.) Xx Subsidiary retained earning a/c (W-2) Xx
Negative goodwill (W-1) Xx
P.P.E (Reversal of gain on disposal) Xx P.P.E (Reversal of loss on disposal) (P to S) Xx
(P to S) - net of Dep. (W-6) - net of Dep. (W-6)
c/d (bal.) Xx
(W-3.1)
Dr. Consolidated Capital Reserves a/c Cr.
Parent own capital reserve Xx
c/d (bal.) Xx Subsidiary capital reserves a/c (W-2.1) Xx
19
(W-4)
Adjustment a/c (W-1) XX
Subsidiary retained earning a/c (W-2) XX
c/d (bal.) XX Subsidiary Capital reserves a/c (W-2.1) XX
(W-5) Calculation of NCI figure in CSOCI:

NOTE:
[Only Current year relevant Adjustments will be accounted for]
Dr. S profit for the year Cr.
Stock - URP (S to P) Xx S profit 60
PPE (Dep. on Rev. Surplus.) Xx PPE (Dep. on Rev. loss) Xx
Goodwill (Impairment) (NCI- at F.V) Xx PPE (Reversal of loss on disposal) (S to P) - Xx
net of Dep. of current year
PPE (Reversal of gain on disposal) Xx
(S to P) - net of Dep. of current year
CRE (No use)

NCI (CSOCI)
20
LO 11: SUMMARY OF TREATMENT OF VARIOUS ADJUSTMENTS IN CSOFP

S.No. Adjustment Treatment
1. Sale of stock by P to S on Reduce CRE and Stock with unrealised gain figure.
profit
2. Sale of stock by S to P on Reduce SRE and Stock with unrealised gain figure.
profit
3. Impairment of Goodwill Reduce CRE and goodwill with impairment loss figure.
(NCI at proportionate
basis)
4. Impairment of Goodwill Reduce SRE and Goodwill with impairment loss figure.
(NCI at fair value)
5. *Sale of fixed asset by S Reduce SRE and P.P.E with unrealised gain figure.
to P (at profit)
Increase SRE and P.P.E with Accumulated depreciation amount on
unrealised gain figure.
6. *Sale of fixed asset by P Reduce CRE and P.P.E with unrealised gain figure.
to S (at profit)
Increase CRE and P.P.E with Accumulated depreciation amount on
7. Fair value adjustments (if Revaluation Surplus

revaluation surplus) 1. Increase asset with surplus figure.
2. Record revaluation surplus on credit side of Cost of capital a/c.
Depreciation effect
3. Reduce SRE with Accumulated depreciation amount on
4. Reduce Asset
8. Fair value adjustments (in Revaluation Loss
case of revaluation loss) 1. Decrease asset with surplus figure.
2. Record revaluation loss on credit side with Negative sign of
Cost of capital a/c.
Depreciation effect
3. Increase SRE with Accumulated depreciation amount on
unrealised gain figure
4. Increase Asset
9. Inter company balances Needs to be eliminated such as:
1. Inter company current accounts
2. Inter company Debtor and creditor
3. Inter company Dividend receivable and payable
4. Inter company management fee receivable and payable
5. Inter company fixed assets disposal proceeds receivable
and payable
6. Inter company interest receivable and payable
* In case of loss treatment will be reversed.
21
LO 12: SUMMARY OF TREATMENT OF VARIOUS ADJUSTMENTS IN CSOCI

S.No. Adjustment Treatment Effect on
NCI profit
(W-5)
1. Sale of stock by P to S on profit 1. Reduce sales figure from No effect
sale and cost of sales
2. Increase cost of sales with
profit on unsold stock
2. Sale of stock by S to P on profit 1. Reduce sales figure from Decrease
sale and cost of sales
2. Increase cost of sales with
profit on unsold stock
3. Impairment of Goodwill (NCI at proportionate Increase Admin expense No effect
basis)
4. Impairment of Goodwill (NCI at fair value) Increase Admin expense Decrease
5. Sale of fixed asset by S to P (at profit) Decrease other income Decrease
Decrease Depreciation Increase
6. Sale of fixed asset by P to S (at profit) Decrease other income No effect
Decrease Depreciation No effect
7. Fair value adjustments (if revaluation surplus) Increase Depreciation Decrease
8. Fair value adjustments (in case of revaluation loss) Decrease depreciation Increase
9. Interest on loan provided by P to S Reduce other income No effect
And reduce finance cost
10. Management fee charged by P to S Reduce other income No effect
And admin expense
11. Dividend of S if already recorded by both S and P Reduce other income from P
books
22
LO 13: THEORATICAL DISCUSSION
Business Transaction or other event in which an acquirer obtains control of one or more
combination businesses.
Group A parent and its subsidiaries
Parent An entity that controls one or more entities.
Subsidiary An entity that is controlled by another entity.
Control An investor controls an investee, if and only if, it has all the following:
1. power over the investee;
2. exposure, or rights, to variable returns from its involvement with the
investee; and
3. ability to use its power over the investee to affect the amount of its returns
Acquisition The date on which the acquirer obtains control of the acquiree.
date
Acquiree The business or businesses that the acquirer obtains control of in a business
combination.
Acquirer The entity that obtains control of the acquiree.
Consolidated The financial statements of a group presented as those of a single economic
financial entity.
statements
Net Assets Total Assets minus Total Liabilities or Equity of a Company.
Pre-acquisition These are the reserves of the acquiree at the time investment is made by the
reserve acquirer
Post- These are the reserves accumulated from the date of acquisition of Investment
acquisition
reserve
NonControlling These are known as minority interest, is an ownership position whereby a
Interest shareholder owns less than 50% of outstanding shares and has no control over
decisions
Separate are those presented by an entity in which the parent entity presents its
financial investment in subsidiary at cost or in accordance with IFRS 9 (at fair value) or
statements using the equity method.
23
1. Existence of An investor, regardless of the nature of its involvement with an entity (the
Control over investee), shall determine whether it is a parent by assessing whether it
investee controls the investee. [Para 5]
(IFRS 10 – Para 5 An investor controls an investee when it is exposed, or has rights, to variable
to 7, 10, B56-B58) returns from its involvement with the investee and has the ability to affect
(MCQ-51) those returns through its power over the investee. [Para 6]
An investor controls an investee, if and only if, it has all the following [Para
7]:
 Power over the investee: [Para 10] this is when the investor has
existing rights that give it the current ability to direct the relevant
activities, i.e. the activities that significantly affect the investee‟s
returns.
 Exposure, or rights, to variable returns from its involvement with
the investee: [Para B56,57] variable returns are returns that are not
fixed and have the potential to vary as a result of the performance of
an investee. Variable returns can be positive and/or negative.
Examples of returns include dividends, capital gain from investment
in investee, remuneration from providing services to investee,
residual interest in the assets of investee on liquidation, tax benefits,
economies of scale, cost savings and gaining access to proprietary
knowledge, etc., and
 Ability to use its power over the investee to affect the amount of
its returns: [Para B58]it shall determine whether it is a principal or
an agent.
2. Circumstances 1- Control is assumed to exist when the parent owns directly, or indirectly
under which control through other subsidiaries, more than half of the voting power of the
may exist entity, unless in exceptional circumstances it can be clearly demonstrated
(MCQ-6) that such control does not exist. (IFRS-10, Para B-36)
(MCQ-54) Example:
A A owns a controlling interest in B.
60% B owns a controlling interest in C.
Therefore, A controls C indirectly through its
B ownership of B.
C is described as being a sub-subsidiary of A.
70%
Consolidation of sub-subsidiaries is not in this
C syllabus
2- A company might control another company even if it owns shares which

give it less than half of the voting rights. Such a company is said to have
de facto control over the other company. (De facto is a Latin phrase
which translates as of fact. It is used to mean in reality or to refer to a
position held in fact if not by legal right). (IFRS-10, B-73)
Example:
A This 45% holding probably gives A complete control
of B.
45% It would be unlikely that a sufficient number of the
B other shareholders would vote together to stop A
directing the company as it wishes.
3- A company might control another company even if it owns shares which
give it less than half of the voting rights because it has an agreement with
other shareholders which allow it to exercise control. (IFRS-10, B-39)
24
3. Conditions under IFRS 10 also requires that an entity that is a parent shall present consolidated
which parent is not financial statements and must include all the subsidiaries of the parent.
required to prepare A parent need not present consolidated financial statements if (and only if) all
Consolidated the following conditions apply:
Financial i) It is a wholly-owned subsidiary or is a partially-owned subsidiary of
statements another entity and all its other owners, including those not otherwise
(IFRS-10: 4 & 4B) entitled to vote, have been informed about, and do not object to, the parent
not presenting consolidated financial statements;
ii) its debt or equity instruments are not traded in a public market (a domestic
or foreign stock exchange or an over-the-counter market, including local
and regional markets);
iii) it did not file, nor is it in the process of filing, its financial statements with
a securities commission or other regulatory organisation for the purpose
of issuing any class of instruments in a public market; and
iv) its ultimate or any intermediate parent produces financial statements that
are available for public use and comply with IFRSs, in which subsidiaries
are consolidated or are measured at fair value through profit or loss in
accordance with this IFRS. [Para 4]
A parent that is an investment entity shall not present consolidated financial

statements if it is required to measure all of its subsidiaries at fair value
through profit or loss. [Para 4B]
4. Same reporting The financial statements of the parent and its subsidiaries used in the
dates of Parent and preparation of the consolidated financial statements shall have the same
Subsidiary reporting date (period-end). When period-end is different, the subsidiary
[IFRS-10] prepares, for consolidation purposes, additional financial information as of the
(B92 & B93) same date as the financial statements of the parent to enable the consolidation,
unless it is impracticable to do so. [Para B92]
(MCQ-49) If it is impracticable to do so, subsidiary‟s most recent financial statements
may be used with adjustments of significant transactions and events. In any
case, the difference between reporting dates shall be no more than three
months, and the length of the reporting periods and any difference between
the dates of the financial statements shall be the same from period to period.
[Para B93]
5. All subsidiaries to Consolidated financial statements must include all the subsidiaries of the
be included parent (IFRS 10). There are no grounds for excluding a subsidiary from
(MCQ-47) consolidation.
6. Uniform If a member of the group uses accounting policies other than those adopted in
Accounting policies the consolidated financial statements for like transactions and events in
(IFRS 10: B87) similar circumstances, appropriate adjustments are made to that group
(MCQ 53) member‟s financial statements in preparing the consolidated financial
statements to ensure conformity with the group‟s accounting policies.
7. Acquisition method All business combinations are accounted for by the acquisition method which
(IFRS-3, Para 4, 5) involves:
i) identifying the acquirer;
ii) determining the acquisition date;
iii) recognising and measuring the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree; and
iv) recognising and measuring goodwill or a gain from a bargain purchase
25
8. Contingent liability Topic Recognition principle Measurement at acquisition

Contingent Defined by IAS 37 and not Fair value as per IFRS 3
liability recognized in separate financial
statements.
9. Negative goodwill A bargain purchase is a business combination in which the calculation of
& bargain purchase goodwill leads to a negative figure.
(MCQ-12) When this happens the acquirer must then review the procedures used to
measure the amounts recognised at the acquisition date for all of the
following:
 the identifiable assets acquired and liabilities assumed;
 the non-controlling interest in the acquiree (if any); and
 the consideration transferred.
10. Determining Acquisition date is the date on which the acquirer effectively obtains control
acquisition date of the acquiree.
[IFRS-03
Appendix A]
The costs the acquirer expects but is not obliged to incur in the future to
11. Expected costs
effect its plan to exit an activity of an acquiree or to terminate the
employment of or relocate an acquiree‟s employees are not liabilities at the
acquisition date.
The implication of above for restructuring costs is that an acquirer should not
recognise a liability for the cost of restructuring a subsidiary or for any other
costs expected to be incurred as a result of the acquisition (including future
losses). This is because a plan to restructure a subsidiary after an acquisition
cannot be a liability at the acquisition date. For there to be a liability (and for
a provision to be recognised) there must have been a past obligating event.
This can only be the case if the subsidiary was already committed to the
restructuring before the acquisition.
Difference between Subsidiary and Associate
Parent
Subsidiary Associate
- Control - Significant influence
- Acquisition method - Equity Method
- More than 50% - 20% - 50%
26
DISCUSSION ON PURCHASE CONSIDERATION

Description Explanation Journal Entries Dr. Cr
1. Cash paid for Investment
acquisition Cash
2. Shares of P issued Recording of cost of Investment
as purchase investment using fair Share Capital
consideration value of shares of P at Share Premium
(Share exchange) date of acquisition
3. Debt instruments / Investment
loan notes issued Debt instruments
as purchase
consideration
Recording of present Investment
value of deferred Purchase Consideration payable
liability discounted
4. Deferred
using cost of capital
Consideration
Recording of Interest expense (F.C.)
unwinding of discount Purchase Consideration payable
at each year end
5. Shares to be issued Investment
as purchase Purchase consideration payable
consideration (Show in equity)
(No adjustment at year end)
Recording of
contingent liability at
fair value on date of
acquisition.
Investment
Contingent liability
Contingent consideration payable
will be recorded as
purchase consideration
6. Contingent
even if outflow is not
consideration
probable
(Depending upon
Recording of Contingent consideration payable
the performance of
gain/(loss) on P/L (CRE)
Subsidiary)
contingent liability at (in case of gain due to decrease in
balance sheet date liability)
P/L (CRE)
Contingent liability
(in case of loss due to increase in
liability)
7. Asset is given for Asset will be Investment (FV of Asset)
Acquisition of S transferred to old Other Income (CRE)
owners of S at fair Asset-BV
value. So P will record
gain or loss. Balancing figure may be loss
Note: No entry of appearing on debit side of Journal
depreciation is Entry.
required.
27
LO 14: SUMMARIES
LO 14.1 DIFFERENT WAYS IN WHICH ADJUSTMENT FOR SALE OF STOCK IS TESTED
1. Inter-company sales of goods are S to P

invoiced at a mark-up of 20%. P‟s Sold stock Not known
inventory includes goods purchased from Unsold stock 27
S amounting to Rs. 27 million. Profit on stock (27/120 x 20) 4.5
2. Inter-company sales are invoiced at cost P to S
plus 20%. During the year P sold goods Sold stock 60
amounting to Rs. 60 million to S. At Unsold stock (60 x 40%) 24
year-end, inventory of S included 40% in Profit on stock (24/120 x 20) 4
respect of such goods.
3. On 1 February 2017 S delivered goods S to P
having sale price of Rs. 100 million to Sold (net sale) (100 x 60%) 60
P on „sale or return basis‟. 40% of these Unsold (60 x 20%) 12
goods were returned on 1 May 2017 and Unsold profit (12 / 133.33 x 33.33) 3
the remaining were accepted by P. 20%
of the goods accepted were included in
the closing inventory of P. S earned a
profit of 33.33% on cost.
Year end 30 June 2017.
4. In the post-acquisition period Hillusion Sale of stock by P to S
(P) sold goods to Skeptik (S) at a price of Sold 12,000
Rs. 12 million. These goods had cost Unsold (12,000 – 10,000) 2,000
Hillusion Rs. 9 million. During the year Unsold profit (2,000/100 x 25) 500
Skeptik had sold Rs. 10 million (at cost *Margin calculation= 3/12 x 100 = 25%
to Skeptik) of these goods for Rs. 15 (Cost =9, Sale price =12, Profit =3)
million.
5. P Limited sells inventory costing Rs. 30 Sale of stock by P to S
million to S Limited for Rs. 45 million. Sold 45
By the end of the year, S Limited has just Unsold (45 x 1/2) 22.5
half of this inventory remaining. Unsold profit (22.5/100 x 33.33) 7.5
*Margin calculation = 15/45 x 100 = 33.33%
(Cost =30, Sale price =45, Profit =15)
6. P acquired S on 1 May 2018 Sale by S to P
In each month of 2018, S sold goods Sold (40/100 x 120 ) = 48 x 8Months 384
costing Rs. 40 million to P at cost plus Unsold 40/100 x 120 = 48 x 75% 36
20%. At year end, 75% of the goods Profit on unsold stock (36/120 x 20) 6
purchased in December were included in
stock of P.
Year end 31 December 2018.
28
LO 14.2 TREATMENT OF INTEREST INCOME/EXPENSE AND MANAGEMENT FEE

INCOME/EXPENSE
1. INTEREST
SCEN # 1
P Books S Books Only B/S Q P/L Q
Cash 12 Interest Exp. 12 Do nothing - Reduce 12 from
Int. Income 12 Cash 12 interest income and
12 from interest
Expense
SCEN # 2
Cash 9 Int. Exp. 9 - Reduce 12 from
Int. Income 9 Cash 9 interest income and
interest Expense.
Int. Rec. 3 Int. Exp. 3 Reduce 3 from current
Int. Income 3 Int. Payable 3 asset and current
liabilities
2. MANAGEMENT FEE
SCEN # 1
Cash 12 Mange Fee Exp. 12 Do nothing - Reduce 12 from
Man. Fee Inc. 12 Cash 12 other income and
admin Exp.
SCEN # 2
Cash 9 Mang. Fee Exp. 9 - Reduce 12 from
Mang Fee Inc. 9 Cash 9 admin exp. And
other income.
Mang. Fee rec. 3 Mang. Fee Exp.3 Reduce 3 from current - Reduce 3 from
Mg. Fee income 3 Mg. Fee Payable 3 assets and current current assets and
liabilities current liabilities
29
LO 14.3 DIVIDEND IN CSOFP
Dividend of S (SOFP Q.)

A. UNPAID AND DECLARED BEFORE YEAR END
Sr. Scenario Entries already passed Action required
No.
P books S books
1. Not recorded by - - 1. Div. receivable 30
both Div. income 30
2. Div. 50
Div. payable 50
3. Cancel receivable/
payable with Rs. 30
2. Recorded by Div. receivable 30 Div. 50 Cancel receivable/
both Div. income 30 Div. payable 50 payable with Rs. 30
3. Recorded by P Div. receivable 30 - 1. Div. 50

but not recorded Div. income 30 Div. payable 50
by S
payable with Rs. 30
4. Recorded by S - Div. 50 1. Div. receivable 30
but not recorded Div. payable 50 Div. income 30
by P
payable with Rs. 30
B. PAID
- Entries already passed Action required
P books S books
Cash 30 Div. 50 Nothing
Div. income 30 Cash 50
Dividend of P (SOFP Q.)

Sr. No. Scenario Action required
1. Announced and recorded/Paid Do nothing
2. Announced and not recorded Dividend (CRE) XX
Div. payable XX
Note: If it is written in question that dividend is announced/declared in current year and question is silent
regarding payment we will assume that it is paid.
30
LO 14.4 DIVIDEND IN CSOCI
S announced dividend
ADJUSTMENT IN CSOCI
A. UNPAID AND DECLARED BEFORE YEAR END
Sr. No. Scenario Action required
1. Not recorded by both Do nothing
2. Recorded by both Show S full dividend in W-6
Deduct P share of S dividend from other income

3. Recorded by P but not recorded by S Deduct P share of S dividend from other income
4. Recorded by S but not recorded by P Show S full dividend in W-6
B. PAID
Show S full dividend in W-6
Deduct P share of S dividend from other income in

CSOCI
P announced dividend
ADJUSTMENT IN CSOCI
Sr. No. Scenario ADJ. IN CSOCI
1. Announced and recorded/Paid Show in W-6
2. Announced and not recorded Do nothing
31
CHAPTER-10
CONSOLIDATION
PRACTICE QUESTIONS
Example
PTCL bought 80% shares of Ufone by paying Rs.70,000,000. Pass the entry in the books of PTCL.
Parent Company
It is a company which buys the shares of another company.
On buying the shares parent company (PTCL) will pass the following entry in its individual books:
Journal entry
Particulars Dr. Cr.
Investment 70,000,000
Cash 70,000,000
Subsidiary Company
It is a company whose shares are bought by parent company.
Question-1
The statements of financial position of Parent and Subsidiary as at December 31, 2012 were as follows:
Parent Subsidiary
----------Rs.----------
Non- current assets
Investments in Subsidiary 10,000 -
80,000 10,000
Equity
Share capital 40,000 7,000
80,000 10,000
Parent acquired 100% shares of subsidiary on December 31, 2012.
Required: Prepare Consolidated Statement of Financial Position as at December 31, 2012.
Question-2
The statements of financial position of Parent and Subsidiary as at June 30, 2016 were as follows:
Parent Subsidiary
----------Rs.----------
Non-current Assets
90,000 30,000
Equity
90,000 30,000
Parent acquired 100% shares of subsidiary on June 30, 2016.
Required:
Prepare Consolidated Statement of Financial Position as at June 30, 2016.
32
Question-3
Parent Subsidiary
----------Rs.----------
Non-current assets

80,000 10,000
Equity
80,000 10,000
Parent acquired 100% shares of subsidiary on December 31, 2012.
Required:
Prepare Consolidated Statement of Financial Position as at December 31, 2012.
Question-4
The statements of financial position of Parent and Subsidiary as at June 30, 2016 were as follows:
Parent Subsidiary
----------Rs.----------
Non- current assets
r

90,000 25,000
Equity
90,000 25,000
 Parent acquired 100% shares of subsidiary on June 30, 2016.
Required:
Prepare Consolidated Statement of Financial Position as at June 30, 2016.
33
Question-5
Parent Subsidiary
----------Rs.----------
Non- current assets
r
390,000 70,000
Equity
390,000 70,000
 Parent acquired 90% shares of subsidiary on December 31, 2012.
Required:
Question-6
Parent Subsidiary
----------Rs.----------
Non- current assets
Investments in Subsidiary r 50,000 -
300,000 30,000
Equity
300,000 30,000
 Parent acquired 90% shares of subsidiary on December 31, 2016.
Required:
34
Question-7
Parent Subsidiary
----------Rs.----------
Non- current assets
r
1,030,000 700,000
Equity
Current Liabilities 20,000 150,000

1,030,000 700,000
 Parent acquired 60% shares (24,000 shares) of S on December 31, 2009 when retained earnings of
subsidiary were Rs. 20,000.
 NCI is measured on proportionate basis
Required:
Question-8
Parent Subsidiary
----------Rs.----------
Non- current assets
r
1,450,000 900,000
Equity
Share capital (Rs. 10 per share) 1,000,000 500,000
1,450,000 900,000
 Parent acquired 70% shares of subsidiary on December 31, 2009 when retained earnings of subsidiary
were Rs. 30,000.
Required:
35
Question-9
Parent Subsidiary
----------Rs.----------
Non- current assets
r
510,000 180,000
Equity
Share capital(Rs. 10 per share) 320,000 100,000
510,000 180,000
 Parent acquired 60% shares of subsidiary on December 31, 2013 when retained earnings of subsidiary
were Rs. 14,000.
Required:
Question-10
Following are the balance sheets as at December 31, 2012:
P S
----------Rs.----------
Non-current assets
Investment (2,700 shares of S) 47,600 -
Current assets
Inventories 14,800 13,000
Debtors 11,800 15,000
Cash & bank 8,000 9,000
182,200 115,000
Equity
Current liabilities
Creditors 21,200 20,000
182,200 115,000
Following further information is available:
(i) P acquired shares of S 6 years ago when retained earnings were Rs. 12,000.
(ii) P values non-controlling interest on the date of acquisition at its fair value. S share price was Rs.
17 on acquisition date.
36
(iii) An impairment test has indicated that goodwill of S was impaired by 10% on 31 December 2012.
There was no impairment during the previous years.
(iv) Inter-company sales are invoiced at cost plus 20%. Details of inter-company transactions for the
year ended 31 December 2012 are as follows:
o P sold goods amounting to Rs. 13,000 to S. At year-end, inventory of S included
Rs. 5,000 in respect of such goods.
o S sold goods amounting to Rs. 20,000 to P. At year-end, inventory of P included
Rs. 6,000 in respect of such goods.
(v) Receivables from S on 31 December 2012 as per P books are Rs. 3,000. (Note for students: In
this case we will assume that books of S are also showing same amount as payable)
Required:
Prepare consolidated Statement of financial position as at December 31, 2012.
Question-11
Ponting Stewart
--------Rs.--------
Non-current assets
Current assets
Stewart current account 10,000 -
Debtors 15,000 15,000
Cash & bank 8,000 12,000
168,000 115,000
Equity
Capital reserves 18,000 -
Non-current liabilities
Bank loan - 23,000
Current liabilities
Creditors 22,000 14,000
Ponting current account - 8,000
168,000 115,000
a. Ponting acquired 80% shares of Stewart on 1st July, 2012 for Rs. 27,400 when retained earnings had a
debit balance of Rs. 6,000.
b. P values non-controlling interest on the date of acquisition at its fair value. S share price was Rs. 9.5
per share on acquisition date.
c. During the year Stewart sold goods to Ponting for Rs. 10,000. Profit included in this sale was Rs.
1,000. Ponting still has worth Rs. 5,000 of these goods held in its inventory.
d. Ponting sold to Stewart a plant on 1st January, 2013 costing 20,000 which had a book value of 18,000
for Rs 22,000. Remaining life is 10 years on date of sale.
37
Required:
Prepare consolidated Statement of financial position as at June 30, 2015.
Question-12
P bought 80% of S 3 years ago.
At the date of acquisition S’s retained earnings stood at Rs. 600,000. The fair value of its net assets was
not materially different from the book value except for a Plant whose fair value was less than its book
value by Rs.500,000 and estimated useful life was 20 years.
The statements of financial position P and S as at 31 December 2001 were as follows:
P S
Rs. Rs.
Property, Plant and Equipment 1,800,000 1,000,000
Investment in S 1,000,000
Other assets 400,000 300,000
3,200,000 1,300,000
Retained earnings 2,900,000 1,000,000
Liabilities 200,000 200,000
3,200,000 1,300,000
Required:
Prepare consolidated Statement of financial position as at December 31, 2001.
Question-13
The following are the draft statements of financial position of Hail and its subsidiary Snow as at
31 December 2015.
Hail Snow
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
Shareholders’ equity
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
38
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)
Question-14 (Mid-year acquisition)

Entity P bought 75% of S on 01 September, 2010
The income statements for the year to 31 December, 2010 are as follows.
P S
Rs. Rs.
Revenue 400,000 200,000
Cost of sales (250,000) (100,000)
Gross profit 150,000 100,000
Administrative expenses (20,000) (15,000)
Profit 130,000 85,000
Required:
Prepare consolidated statement of comprehensive income for the year ending 31st December, 2010.
Question-15
Entity P Ltd. bought 55% of S Ltd. on 1st January, 2011
The income statements for the year to 31st December, 2014 are as follows.
P S
Rs. Rs.
Revenue 600,000 400,000
Cost of sales (350,000) (200,000)
Gross profit 250,000 200,000
Other income 20,000 15,000
Distribution costs (15,000) (5,000)
Finance cost (3,000) (1,000)
Profit before tax 227,000 189,000
Tax (25,000) (20,000)
Profit after tax 202,000 169,000
Other information:
1. P sold goods for Rs.40,000 to S at mark up of 25%. At the year-end S has sold 80% of these goods.
2. Good will is impaired by Rs 2,500 in current year. NCI is carried at proportionate basis.
3. On 31st December, 2014, P sold one of its plant to S for Rs. 150,000. The plant had a carrying value
of Rs. 140,000.
Required:
Prepare consolidated statement of comprehensive income for the year ending 31st December, 2014.
39
Question-16
The income statements for the year to 31 December, 2010 are as follows.
P S
Rs. Rs.
Revenue 800,000 450,000
Cost of sales (350,000) (150,000)
Gross profit 450,000 300,000
Income tax expense (95,000) (18,000)
Profit for the period 315,000 237,000
Entity P bought 75% of S on 01 September, 2010
Required:
Prepare consolidated statement of comprehensive income for the year ending December 31, 2010.
Question-17
Following are the statements of comprehensive income for the year ending March 31, 2015.
Danial Shakir
Ltd. Ltd.
Rs. Rs.
Sales 120,000 90,000
Cost of sales (80,000) (45,000)
Gross profit 40,000 45,000
Distribution cost (7,000) (5,000)
Admin expenses (6,000) (2,500)
Finance cost (3,000) (3,500)
Other income 1,500 500
Tax (4,500) (5,500)
Following additional information is available:
(i) Danial Ltd. acquired 70% shares of Shakir Ltd. on April 1, 2014 to enlarge its productivity in the
market.
(ii) At acquisition date:
 office building of Shakir Ltd. was undervalued by Rs. 4,000. Its remaining useful life at
that date was 10 years.
 Factory plant of Shakir Ltd. was overvalued by Rs. 6,000. Its remaining useful life at that
date was 20 years.
(iii) Impairment loss of goodwill for the year was Rs. 2,000. NCI is measured at fair value.
(iv) During the year Danial Ltd. sold goods to Shakir Ltd. for Rs. 10,000 at a markup of 25%. One-
fourth of these goods are still in Shakir Ltd. stock.
(v) During the year Shakir Ltd. sold goods to Danial Ltd. for Rs. 9,000 at a margin of 30%. At year
end 30% of these goods are still held in Danial’s inventory.
(vi) On 01 April, 2014 P gave a loan of Rs. 6,000 to S. Interest on this loan is 3% per annum payable
every six months.
40
(vii) On 01 July, 2014, P had sold one of its plant to S at it agreed fair value of Rs. 300. Its
carrying amount prior to the sale was Rs. 100. The estimated remaining life at the time of
sale was 10 years.
Required:
Prepare consolidated statement of comprehensive income for the year ending March 31, 2015.
Question-18
Following are the statements of comprehensive income for the year ending March 31, 2009.
Azeem Inc. Ahmed Inc.
Rs. Rs.
Sales 170,000 110,000
Cost of sales (90,000) (85,000)
Distribution cost (15,000) (8,000)
Finance cost (8,000) (3,000)
Tax (8,000) (4,000)
Following additional information is available:
(i) P acquired 80% shares of S some years ago.
(ii) At acquisition date plant and machinery of S was overvalued by Rs. 25,000. Its remaining life at
that date was 10 years.
(iii) Impairment loss of goodwill for the year was Rs. 1,500.
(iv) On April 1, 2008 S sold a machine to P at a profit of Rs. 3,000. Carrying amount of that machine in
Ahmed Inc. books was Rs. 38,000. P depreciated this machine on straight line basis over a life of 5
years. It is included in cost of sales.
(v) Other inter-company transactions during the year were as follows:
Sales Included in buyer’s Profit %
closing stock-in-trade
------------ Rs. In million ------------
P to S 6,000 2,000 25% of cost
S to P 3,000 500 20% of sales
Required:
Prepare consolidated statement of comprehensive income for the year ending March 31, 2009.
41
Question-19
Atlas Stilly &
&Co. (A Co. (S
and Co.) and Co.)
--------Rs.--------
Non-current assets
Current assets
Trade Debtors 15,000 6,000
Bank 6,000 8,000
301,000 158,000
Equity
Revaluation surplus 6,000 -
Current liabilities
Trade Creditors 24,500 27,000
301,000 158,000
(i) Atlas & Co. acquired 60% shares of Stilly & Co. at 1st July 2011 for Rs. 45,000 when retained
earnings were Rs. 11,000.
(ii) At acquisition date, fair value of non controlling interest was Rs. 13 per share.
(iii) At acquisition date, office building of S&co was overvalued by Rs. 4,000. Its remaining useful
life at that date was 10 years.
(iv) S&co has not recognised the value of brand in its books of account. At the date of acquisition, the
fair value of brand was assessed at Rs. 5,000. The remaining useful life of the brand was
estimated as 10 years.
(v) On 1 July 2013, A&co sold certain equipment to S&co as detailed below:
Rs.
Cost 20,000
Accumulated depreciation 5,000
Sale proceeds 12,000
Remaining life is 10 years on date of sale.
(vi) On June 30, 2017 A & co and S and Co. both declared a dividend of Rs. 2 per share. Neither
parent nor subsidiary has recorded any dividend.
(viii) Other inter-company transactions during the year 2017 were as follows:
------------ Rs. ------------
S & co to A & co 5,000 2,000 25% of cost
A & co to S & co 2,000 1,500 20% of sales
Required: Prepare consolidated Statement of financial position as at June 30, 2017.
42
Question-20
Statements of profit or loss for the year ended 31 December 2016
Tred Steel
Rs. Rs.
Sales 150,000 110,000
Cost of sales (80,000) (70,000)
Profit 19,000 13,500
Tred acquired 90% of the shares in Steel on 1st January, 2010 when the balance on the retained earnings
of Steel was Rs 11,000.
Statements of financial position as at 31, December 2016
Non-current assets Tred Steel
136,000 101,500
Equity

136,000 101,500
Statement of changes in equity for the year end 31 December 2016 (extract)
Retained earnings brought forward 20,000 19,000
Profit for the financial year 19,000 13,500
Retained earnings carried forward 39,000 32,500
Required:
Prepare Tred consolidated statement of profit or loss, consolidated statement of financial position for the
year ended 31 December 2016.
43
Question-21
The following are the statements of profit or loss for the year ended 31 December 2015 of Harry and its
subsidiary Sally.
Harry Sally
Rs. 000 Rs. 000
Revenue 1,120 390
Cost of sales (610) (220)
Gross profit 510 170
Distribution costs (50) (40)
Administration costs (55) (45)
Operating profit 405 85
Investment income 20 4
Finance costs (18) (4)
Profit before tax 407 85
Income tax expense (140) (25)
Profit for the year 267 60
Statement of changes in equity for the year end 31 December 2015 (extract)
Rs. 000 Rs. 000
Retained profit brought forward 100 45
Less: Dividends paid – Final Dividend 2014 (50) (20)
Profit for year 267 60
Retained profit carried forward 317 85
The following information is relevant.
(1) Harry acquired 75% of Sally six years ago when Sally’s retained earnings were Rs. 9,000.
(2) Harry made sales to Sally totalling Rs. 100,000 in the year. At the year end the statement of
financial position of Sally included inventory purchased from Harry. Harry had taken a profit of
Rs. 3,000 on this inventory.
(3) Harry’s investment income includes Rs. 15,000 being its share of Sally’s dividends.
Required
Prepare a consolidated statement of profit or loss for the year ended 31 December 2015.
44
Question-22
Statements of financial position as at 30 June 2015
Heron Stork
Assets Rs. 000 Rs. 000
Non-current assets
Investment in Stork (1,000,000 ordinary shares) 1,500
32,000 15,000
55,000 26,000
Shareholders’ equity and liabilities
Share capital (Rs. 1 ordinary shares) 10,000 1,500
Share premium 5,000 -
35,000 20,000
Non-current liabilities 15,000 -
55,000 26,000
Heron acquired its shares in Stork on 1.7.2012 when the balance on the retained earnings was Rs. 300.
Statements of profit or loss for the year ended 30 June 2015
Rs. 000 Rs. 000
Revenue 30,000 25,000
Cost of sales (9,000) (10,000)
Finance costs (2,000) -
Profit for the period 12,000 8,000
Statement of changes in equity for the year ended 30 June 2015 (extract)
Profit for the financial year 12,000 8,000
Retained earnings carried forward 20,000 18,500
Required
Prepare Heron’s consolidated statement of profit or loss, consolidated statement of financial position for
the year ended 30 June 2015.
45
Question-23
Muneeb Ltd. acquired a 80% holding in Rizwan Ltd. 3 years ago when Rizwan’s retained earnings
balance stood at Rs. 15,000 and share capital at Rs. 40,000. Cost of investment is Rs. 50,000. Both
businesses have been very successful since the acquisition and their respective statements of profit or
loss for the year ended 31 March 2015 are as follows:
Muneeb Ltd. Rizwan Ltd.

Rs. Rs.
Revenue 400,000 185,000
Cost of sales (250,000) (85,000)
Gross profit 150,000 100,000
Dividends from Rizwan Ltd. 17,000
Profit for the year 100,000 40,000
Statement of changes in equity (extract)

for the year ended 31 March 2015
Muneeb Ltd. Rizwan Ltd.
Retained earnings Retained earnings
Rs. Rs.
Balance at 1 April 2014 170,000 55,000
Dividends (50,000) (21,250)
Balance at 31 March 2015 220,000 73,750
Additional information:
During the year Rizwan Ltd. sold some goods to Muneeb Ltd. for Rs. 50,000, including 25% mark up.
Half of these items were still in inventories at the year-end.
Required:
Produce the consolidated statement of profit or loss of Muneeb Ltd. for the year ended 31 March 2015.
46
Question-24
On 1 January 2009, AB acquired 80% of the ordinary share capital of CD at a cost of Rs. 10,500,000
when the retained earnings of CD were Rs. 4,500,000. The summarised draft financial statements of both
companies are:
Income statements for the year ended 31 December 2012

AB CD
Rs. ‘000’ Rs. ‘000’
Sales revenue 50,000 34,000
Cost of sales (32,000) (25,000)
Administration expenses (2,500) (1,700)
Finance cost - (1,400)
Other income 4,000 -
Operating profit 19,500 5,900
Taxation (4,000) (850)
Profit after tax for the year 15,500 5,050
Balance sheet as at 31 December 2012

Tangible non-current Assets 22,350 7,500
Investments 10,500 Nil
32,850 7,500
Current Assets 12,000 8,000
Total assets 44,850 15,500
Ordinary shares of Rs. 1 each 10,000 3,000
Retained earnings 31/12/12 25,550 10,600
35,550 13,600
6% Loan notes Nil 650

Total equity and liabilities 44,850 15,500
The following information is relevant:
(i) The fair values of CD’s assets were equal to their book values with the exception of its plant,
which had a fair value of Rs. 2.5 million in excess of its book value at the date of acquisition.
The remaining life of all of CD’s plant at the date of its acquisition was 5 years and this period
has not changed as a result of the acquisition. Depreciation of plant is on a straight-line basis
and charged to cost of sales. CD has not adjusted the value of its plant as a result of the fair
value exercise.
(ii) During current year, CD sold goods to AB at a price of Rs. 0.5 million at a mark-up of 25%.
AB had sold none of these goods throughout the year.
(iii) The goodwill was reviewed for impairment at the end of reporting period and suffered an
impairment loss of Rs. 500,000 (2010: Rs. 300,000).
(iv) Revenues and profits should be deemed to accrue evenly throughout the year.
(v) It is the group policy to value non-controlling interest at its fair value. The directors valued
the non-controlling interest at Rs. 3 million at the date of acquisition.
(vi) On 1 January 2010 AB sold a machine to CD for Rs. 3 million. The asset’s book value was 2
million on that date and it had a useful remaining life of 20 years.
47
Required:
a) Prepare consolidated income statement for the year ended 31 December, 2012.
b) Prepare consolidated statement of financial position as on 31 December, 2012.
Question-25
Statements of profit or loss for the year ended 31 December 2015.
Hamid Ltd. Salman Ltd.
Rs. 000 Rs. 000
Revenue 304,900 195,300
Cost of sales (144,200) (98,550)
Operating costs (76,450) (52,100)
Operating profit 84,250 44,650
Investment income 10,500 2,600
Statement of changes in equity (extracts) for the year ended 31 December 2015.
Hamid Ltd. Salman Ltd.
Rs. 000 Rs. 000
Proposed ordinary dividend (20,000) -
112,050 61,750
The following information is also available.
(1) Hamid limited acquired 75% of the share capital of Salman limited on 31 August 2015.
(2) Negative goodwill of Rs. 3.8 million arose on the acquisition.
(3) Profits of both companies are deemed to accrue evenly over the year except for the investment
income of Salman limited all of which was received in November 2015.
(4) Hamid limited has bought goods from Salman limited throughout the year at Rs. 2 million per
month. At the year-end Hamid limited does not hold any inventory purchased from Salman
limited.
Required
Prepare the consolidated statement of profit or loss for the year ended 31 December 2015. (10)
48
Question-26
The following summarized statement of financial position pertains to Ilm Limited (IL) and its subsidiary
Sun Limited (SL) as at 31 December, 2018.
IL SL
Property, plant and equipment 100 50
Investment in SL (80%) 40 -
Current assets 10 5
150 55
Share capital (Rs. 10 each) 100 25

Retained earnings 50 30
150 55
Following relevant information is available:
a) IL acquired 80% of SL on 1 January 2018 when retained earnings were Rs. 10. At the date of
acquisition SL had a land which had a fair value Rs. 30 and a carrying amount of Rs. 20. At the year-
end date of 31 December 2018, the fair value of the land was Rs. 32. It is group policy to use
revaluation model for its land.
b) IL values non-controlling interest at proportionate share of net assets.
Required:
Prepare a consolidated statement of financial position as at 31 December 2018 in accordance with the
requirements of International Financial Reporting Standards.
Question-27
Papilla acquired 70% of Satago three years ago, when Satago’s retained earnings were Rs.430,000.
The Financial Statements of each company for the year ended 31 March 20X7 are as follows:
Statements of financial position as at 31 March 20X7
P S
Rs.000 Rs.000
Non-current assets
Investment in S at cost 700 -
Current assets 300 600
1,900 1,000
Share capital (Rs.1) 200 150

Share premium 50
Retained earnings 1,350 700
1,600 850
Non-current liabilities 100 90
Current liabilities 200 60
1,900 1,000
Statements of profit or loss for the year ended 31 March 20X7
P S
Rs.000 Rs.000
Revenue 1,000 260
Cost of Sale (750) (80)
Gross profit 250 180
Operating expenses (60) (35)
Profit from operations 190 145
49

Other Income 20 -
Profit before tax 185 130
Tax (100) (30)
Profit for the year 85 100
You are provided with the following additional information:
(i) Satago had plant in its Statement of Financial Position at the date of acquisition with a carrying
amount of Rs.100,000 but a fair value of Rs.120,000. The plant had a remaining life of 10 years
at acquisition. Depreciation is charged to cost of sales.
(ii) The Papilla group values the non-controlling interests at fair value. The fair value of the non-
controlling interests at the date of acquisition was Rs.250,000. Goodwill has been impaired by a
total of 30% of its value at the reporting date, of which one third related to the current year.
(iii) At the start of the year Papilla transferred a machine to Satago for Rs.15,000. The asset had a
remaining useful economic life of 3 years at the date of transfer. It had a carrying amount of
Rs.12,000 in the books of Papilla at the date of transfer.
(iv) During the year Satago sold some goods to Papilla for Rs.60,000 at a mark-up of 20%. 40% of
the goods remained unsold at the year- end. At the year-end Satago’s books showed a receivables
balance of Rs.6,000 as being due from Papilla. This disagreed with the payables balance of
Rs.1,000 in Papilla’s books due to Papilla having sent a cheque to Satago shortly before the year
end which Satago had not yet received.
(v) Satago paid a dividend of Rs.20,000 on 1 March 20X7.
Required:
Prepare the consolidated statement of financial position and consolidated statement of profit or loss for
the year ended 31 March 20X7.
50
Question-28
On 1 May 20X7 Karl bought 60% of Susan paying Rs.76,000 cash. The summarised Statements of
Financial Position for the two companies as at 30 November 20X7 are:
Statement of financial position
Karl Susan
Rs. Rs.
Investments 98,000 -
Inventory 15,000 17,000
Receivables 19,000 20,000
Cash 2,000 -
272,000 152,000

239,000 109,000
8% Loan notes. - 20,000

272,000 152,000
(i) The inventory of Karl includes Rs.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 Rs.15,000. Its carrying amount at
that date was Rs.10,000. The asset had a remaining useful economic life of 5 years.
(iii) The Karl Group 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 Rs.50,000.
(iv) An impairment loss of Rs.1,000 is to be charged against goodwill at the year-end.
(v) Susan earned a profit of Rs.9,000 in the year ended 30 November 20X7.
(vi) The loan note in Susan’s books represents money borrowed from Karl on 30 November 20X7.
(vii) Included in Karl’s receivables is Rs.4,000 relating to inventory sold to Susan during the year.
Susan issued a cheque for Rs.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.
51
Question-29
Hosterling purchased on 1 October 2003 80% of the issued share capital of Sunlee. The cost of
investment was Rs. 20,000.
The summarised income statements for the 2 companies for the year ended 30 September 2006 are:
Hosterling Sunlee
Revenue 105,000 62,000
Cost of sales (68,000) (36,500)
Gross profit/(loss) 37,000 25,500
Other income (note (i)) 400 nil
Finance costs (1,200) (900)
Profit/(loss) before tax 24,700 15,600
Income tax (expense)/credit (8,700) (2,600)
Profit/(loss) for the period 16,000 13,000

(i) The other income is a dividend received from Sunlee on 31 March 2006.
(ii) The details of share capital and retained earnings were:
Rs. Rs
Hosterling Sunlee
Equity shares of 10 each 50,000 20,000
Retained earnings 1 Oct 2003 20,000 18,000
Retained earnings 30 Sep 2006 100,000 60,000
(iii) A fair value exercise was carried out at the date of acquisition of Sunlee with the following results:
Rs. Rs.
Carrying amount fair value remaining life (straight line)
Intellectual property 18,000 22,000 still in development
Land 17,000 20,000 not applicable
Plant 30,000 25,000 five years
The fair values have not been reflected in Sunlee’s financial statements.
Plant depreciation is included in cost of sales.
(iv) In the year ended 30 September 2006 Hosterling sold goods to Sunlee at a selling price of 18,000.
Hosterling purchased these goods for Rs. 13,500. Rs. 7,500 (at cost to Sunlee) of these goods were
still in the inventories of Sunlee at 30 September 2006.
(v) In the year ended 30 September 2006 Sunlee sold goods to Hosterling for Rs.10,000. Sunlee made
a profit of Rs. 4,000 on these sales. One-quarter of these goods were still in the inventory of
Hosterling at 30 September 2006.
(vi) On 1 January 2004 Sunlee transferred a machine to Hosterling for Rs.10,000. The asset had a
remaining useful economic life of 10 years at the date of transfer. It had a carrying amount of Rs.
6,000 in the books of Sunlee at the date of transfer.
(vii) Hosterling charged Rs. 1,000 to Sunlee for management services in current year and has credited it
to admin expenses.
Required:
Prepare the consolidated income statement for the Hosterling Group for the year ended 30 September
2006 and calculate CRE as on 30 Sep 2006. (16)
52
Question-30
On 1 April 2011, Pyramid acquired 80% of Square’s equity shares. The summarised statements of
financial position of the two companies as at 31 March 2012 are:
Pyramid Square
Assets Rs.000 Rs.000
Non-current assets
Investments - Square 30,000
72,600 28,500
Current assets
Inventory 13,900 10,400
Trade receivables 11,400 5,500
Bank 900 600
Equity
Equity shares of Rs.1 each 25,000 10,000
Share premium 17,600 nil
Retained earnings - at 1 April 2011 16,200 18,000
- for year ended 31 March 2012 14,000 8,000
72,800 36,000
11% loan notes 12,000 4,000
(i) At the date of acquisition, Pyramid conducted a fair value exercise on Square’s net assets which
were equal to their carrying amounts with the following exceptions:
– An item of plant had a fair value of Rs.3 million above its carrying amount. At the date of
acquisition it had a remaining life of five years.
– Square had an unrecorded liability of Rs.1 million, which was unchanged as at 31 March
2012.
Pyramid’s policy is to value the non-controlling interest at fair value at the date of acquisition. For
this purpose a share price for Square of Rs.3.50 each is representative of the fair value of the shares
held by the non-controlling interest.
(ii) Pyramid sells goods to Square at cost plus 50%. Below is a summary of the recorded activities for
the year ended 31 March 2012 and balances as at 31 March 2012:
Pyramid Square
Sales to Square 16,000
Purchases from Pyramid 14,500
Included in Pyramid’s receivables 4,400
Included in Square’s payables 1,700
On 26 March 2012, Pyramid sold and despatched goods to Square, which Square did not record
until they were received on 2 April 2012. Square’s inventory was counted on 31 March 2012 and
does not include any goods purchased from Pyramid.
On 27 March 2012, Square remitted to Pyramid a cash payment which was not received by
Pyramid until 4 April 2012. This payment accounted for the remaining difference on the current
accounts.
53
(iii) Pyramid declared a dividend of 10% at the year end and Snow declared one of 20%. These
transactions have not been accounted for.
Required:
Prepare the consolidated statement of financial position for Pyramid as at 31 March 2012.
Question-31
On 1 April 2008, Pedantic acquired 60% of the equity share capital of Sophistics.
Income statements for the year ended 30 September 2008
Pedantic Sophistic
Rs.000 Rs.000
Revenue 85,000 42,000
Cost of sales (63,000) (32,000)
Statements of financial position as at 30 September 2008
Assets
Non-current assets
Investment in Sophistic 20,000
Equity shares of Rs.10 each 10,000 4,000
45,400 10,500
10% loan notes 3,000 4,000
(i) At the date of acquisition, the fair values of Sophistic’s assets were equal to their carrying
amounts with the exception of:
- an item of plant, which had a fair value of Rs. 2 million in excess of its carrying amount. It
had a remaining life of five years at that date.
- For many years Sophistic has been selling some of its products under the brand name of
‘Kyklop’. At the date of acquisition the directors of Pacemaker valued this brand at Rs.5
million with a remaining life of 10 years. The brand is not included in Sophistic’s statement
of financial position.
- In addition Sophistic owns the registration of a popular internet domain name which has
indefinite life. At the date of acquisition the domain name was valued by a specialist
company at Rs. 1 million. The domain name is not included in Sophistic’s statement of
financial position.
54
(ii) Sales from Sophistic to Pedantic in the post acquisition period were Rs. 8 million. Sophistic made
a mark up on cost of 40% on these sales. Pedantic had sold Rs. 5·2 million (at cost to Pedantic) of
these goods by 30 September 2008.
(iii) Sophistic’s trade receivables at 30 September 2008 include Rs. 600,000 due from Pedantic which
did not agree with Pedantic’s corresponding trade payable. This was due to cash in transit of Rs.
200,000 from Pedantic to Sophistic.
(iv) Pedantic has a policy of accounting for any non-controlling interest at fair value. For this purpose
the fair value of non-controlling interest at acquisition date is Rs. 8.3 million.
(v) Sophistic has announced a dividend of Rs. 2 per share before year end which is not recorded in
books.
Required:
(a) Prepare the consolidated income statement for Pedantic for the year ended 30 September 2008.
(b) Prepare the consolidated statement of financial position for Pedantic as at 30 September 2008.
55
SOLUTIONS
Answer-1
Parent
As on December 31st, 2012
Assets Rs.
Non-current assets
Goodwill (W-1) -
Current assets (20,000 + 4,000) 24,000
80,000
Equity
Share premium 30,000
Consolidated retained earnings 10,000
80,000
(W-1)
Share premium 2,000
Retained Earning 1,000
10,000
Goodwill (bal.) 0
Answer-2
Parent
As on June 30, 2016
Assets Rs.
Non-current assets
Goodwill (W-1) -
Current assets (20,000 + 10,000) 30,000
90,000
Equity
90,000
56
(W-1)
Share premium 8,000
30,000
Goodwill (bal.) 0
Answer-3
Parent
Assets Rs.
Non-current assets
Current assets (18,000 + 4,000) 22,000
80,000
Equity
80,000
(W-1)
Share premium 2,000
10,000
Answer-4
Parent
As on June 30, 2016
Assets Rs.
Non-current assets
Current assets (20,000 + 5,000) 25,000
90,000
Equity
90,000
57
(W-1)
Share premium 7,000
25,000
Answer-5
Parent
As on December 31, 2012
Assets Rs.
Non-current assets
Current assets (200,000 + 20,000) 220,000
397,000
Equity
390,000
397,000
(W-1)
NCI (Prop. share) (70,000 x 10%) 7,000 Share premium 5,000
70,000
(W-2)
(W-3)
c/d (bal.) 130,000
(W-4)
c/d (bal.) 7,000
58
Answer-6
Parent
Assets Rs.
Non-current assets
Current assets (50,000 + 10,000) 60,000
303,000
Equity
300,000
303,000
(W-1)
Pre-acquisition retained earnings 11,000
30,000
(W-2)
(W-3)
Parent own R.E 80,000
c/d (bal.) 80,000
(W-4)
c/d (bal.) 3,000
Answer-7
Parent
Assets Rs.
Non-current assets
Property, plant and equipment (600,000 + 500,000) 1,100,000
Good will (W-1) 88,000
Current assets (30,000 + 200,000) 230,000
1,418,000
59

Equity
1,028,000
1,248,000
Current liabilities (20,000 + 150,000) 170,000
1,418,000
(W-1)
520,000
(W-2)
Pre-Acquisition R.E. 20,000 b/d (Balance sheet closing) 50,000
CRE (30,000 x 60%) 18,000

NCI (30,000 x 40%) 12,000
(W-3)
(W-4)
Answer-8
Parent
Assets Rs.
Non-current assets
Property, plant and equipment (800,000 + 600,000) 1,400,000
Good will (W-1) 141,500
Current assets (50,000 + 300,000) 350,000
1,891,500
Equity
Share capital 1,000,000
60
1,405,000
1,616,500
1,891,500
(W-1)
Pre-acquisition retained earnings 30,000
655,000
(W-2)
CRE (50,000 x 70%) 35,000

NCI (50,000 x 30%) 15,000
(W-3)
(W-4)
Answer-9
Parent
Assets Rs.
Non-current assets
Good will (W-1) 113,600
Current assets (10,000 + 50,000) 60,000
603,600
Equity
479,600
543,600
603,600
61
(W-1)
144,000
(W-2)
CRE (16,000 x 60%) 9,600

NCI (16,000 x 40%) 6,400
(W-3)
(W-4)
Answer-10
P Ltd.
as on December 31, 2012
Assets Rs.
Non-current assets
Goodwill [(W-1) 12,200 - (W-2)1,220] 10,980
188,980
Current assets
Inventories (14,800 + 13,000 - 833 - 1,000) 25,967
Debtors (11,800 + 15,000 - 3,000) 23,800
Cash and Bank (8,000 + 9,000) 17,000
66,767
255,747
Equity
176,235
217,547
Current liabilities
Trade payables (21,200 + 20,000 - 3,000) 38,200
255,747
62
(W-1)
NCI (at F.V) 30,600 Share premium 9,000
(1,800 shares x Rs. 17/share)
66,000
(W-2)
Goodwill (Imp.) (12,200 x 10%) 1,220
Stock - URP (W-6) 1,000
CRE (26,780 x 60%) 16,068

NCI (26,780 x 40%) 10,712
(W-3)
Stock - URP (W-5) 833 Parent own R.E 76,000
c/d (bal.) 91,235 Subsidiary retained earning a/c 16,068
(W-4)
(W-5) Sale of stock by P to S
Sold stock 13,000
Unsold stock 5,000
Profit on unsold stock (5,000/120 x 20) 833
(W-6) Sale of stock by S to P
Sold stock 20,000
Unsold stock 6,000
Answer-11
Ponting‟s
as on June 30, 2015
Assets Rs.
Non-Current Assets
Property, plant and equipment (80,000 + 65,000 - (W-6) 3,000) 142,000
Investments (40,000 - 27,400+ 10,000) 22,600
164,600
Current Assets
Inventories [15,000 + 13,000 - (W-5) 500] 27,500
Debtors (15,000 + 15,000) 30,000
Cash and Bank (8,000 + 12,000) 20,000
63
Cash in transit (10,000 - 8,000) 2,000

79,500
244,100
Equity
Capital reserves 18,000
171,950
185,100
Non-Current Liabilities
Bank loan 23,000
Current Liabilities
Creditors (22,000 + 14,000) 36,000
244,100
(W-1)
NCI (at F.V) (3,500 shares x 20%) = 6,650 Share premium 8,000
700 shares x Rs 9.5/ share
Pre-Acquisition R.E. (6,000)
Negative Goodwill (bal.) 2,950 37,000
(W-2)
Stock - URP (W-5) 500 b/d (Balance sheet closing) 27,000
CRE (32,500 x 80%) 26,000

NCI (32,500 x 20%) 6,500
(W-3)
P.P.E (net gain reversal) (W-6) 3,000 Parent own R.E 58,000
Subsidiary retained earning a/c 26,000
c/d (bal.) 83,950 Negative Goodwill (other income) 2,950
(W-4)

Sold 10,000
Unsold 5,000
Profit on unsold (1,000/2) 500
64
(W-6)
Dr. Disposal account Cr.
Plant – BV 18,000
P/L (bal.) 4,000 Cash 22,000

Gain (as above) 4,000
Less: Accumulated Dep. (4,000/10 y x 2.5 y) (1,000)
3,000
Answer-12
P‟s
Assets Rs.
Non-current assets
Property, Plant and equipment (1,800,000 + 1,000,000 - 500,000 + 75,000) 2,375,000
3,215,000
Current assets (400,000 + 300,000) 700,000
3,915,000
Equity
Consolidated retained earnings (W-3) 3,280,000
3,380,000
3,515,000
3,915,000
(W-1)
Investment 1,000,000 Share capital 100,000
NCI (200,000 x 20%) 40,000 Pre-Acquisition R.E. 600,000
Rev. loss (500,000)
200,000
(W-2)
Pre-Acquisition R.E. 600,000 b/d (Balance sheet closing) 1,000,000
Dep. on Rev. loss (500,000/ 20 y x 3 y) 75,000
CRE (475,000 x 80%) 380,000

NCI (475,000 x 20%) 95,000
65
(W-3)
Parent own R.E 2,900,000
c/d (bal.) 3,280,000 Subsidiary retained earning a/c 380,000
(W-4)
Answer-13
Hail
Rs. In „000‟
Assets
Non-current assets
Investments (68,000 - 65,000) 3,000
255,500
Current assets
Cash (7,700 + 25,200) 32,900
Cash in transit (15,000 - 8,000) 7,000
Trade receivables (92,500 + 45,800) 138,300
Inventory (56,200 + 36,200) 92,400
Dividend Receivable (1,800 - 1,800) 0
526,100
Equity
Capital reserve (W-3.1) 18,000
328,480
339,900
Dividend payable (3,000 + 2,000 - 1,800) 3,200
526,100
(W-1)
Investment 65,000 Share Capital 50,000
NCI (Prop. share) (65,000 x 10% ) 6,500 Share Premium 5,000
Capital Reserve -
65,000
66
(W-2)
Dividend Payable 2,000
CRE (29,200 x 90%) 26,280

NCI (29,200 x 10%) 2,920
(W-2.1)
Dr. Subsidiary capital reserve a/c Cr.
Pre-Acquisition R.E. - b/d (Balance sheet closing) 20,000
CRE (20,000 x 90%) 18,000

NCI (20,000 x 10%) 2,000
(W-3)
Dividend Payable 3,000 Parent own R.E 185,400
Dividend Rec. (Recording of Div. income) 1,800
(2,000 x 90%)
(W-3.1)
Dr. Consolidated capital reserve a/c Cr.
Parent own capital reserve -
c/d (bal.) 18,000 Subsidiary capital reserve a/c 18,000
(W-4)
Subsidiary retained earnings a/c 2,920
c/d (bal.) 11,420 Subsidiary capital reserve a/c 2,000
Answer-14
P
Consolidated Statement of Comprehensive Income
For the year ended December 31, 2010
Rupees
Sales (400,000 + 200,000x4/12) 466,667
Less: Cost of sales (250,000 + 100,000x4/12) (283,333)
Gross profit 183,333
Less: Administration Expense (20,000 + 15,000x4/12) (25,000)
Profit before tax 158,333
Profit attributable to:
Parent (bal.) 151,250
158,333
67

S profit (85,000 x 4/12) 28,333
CRE (28,333 x 75%) (No use) 21,250

NCI (28,333 x 25%) (CSOCI) 7,083
Answer-15
P
for the year ended December 31, 2014
Rupees
Sales (600,000 + 400,000 - 40,000 ) 960,000
Less: Cost of sales (350,000 + 200,000 - 40,000 + 1,600 (W-2)) (511,600)
Add: Other income (20,000 + 15,000 - 10,000(W-4)) 25,000
Less: Distribution cost (15,000 + 5,000) (20,000)
Less: Administrative costs (25,000 + 20,000 + 2,500 (W-3)) (47,500)
Less: Finance cost (3,000+1,000) (4,000)
Profit before taxation 401,900
Less: Taxation (25,000 +20,000) (45,000)
Profit after taxation 356,900
356,900

S profit 169,000
CRE (169,000 x 55%) (No use) -

NCI (169,000 x 45%) (CSOCI) 76,050
(W-2) Entry for Sale of stock by P to S on stock
Particulars Dr. Cr.
Cost of sales 1,600
Stock 1,600
Sold 40,000
Sale price of stock unsold (40,000 x 20%) 8,000
Profit on stock (8,000/125 x 25) 1,600
(W-3)Impairment of good will

Particulars Dr. Cr.
Admin expenses 2,500
Good will 2,500
68
(W-4)Reversal Profit on sale of Fixed asset by P to S

Particulars Dr. Cr.
Other income 10,000
PPE 10,000

Plant – BV 140,000
P/L (bal.) 10,000 Cash 150,000
Answer-16
P
Rupees
Sales (800,000 + (450,000 x 4/12)) 950,000
Less: Cost of sales (350,000 + (150,000 x 4/12)) (400,000)
Add: Other income (80,000 + (45,000 x 4/12)) 95,000
Less: Administrative costs (120,000 + (90,000 x 4/12)) (150,000)
Less: Taxation (95,000 + (18,000 x 4/12)) (101,000)
394,000

S profit (237,000 x 4/12) 79,000
CRE (79,000 x 75%) (No use) -
NCI (79,000 x 25%) (CSOCI) 19,750
Answer-17
Danial Ltd.
for the year ended March 31st , 2015
Rupees
Sales (120,000 + 90,000 - 10,000 - 9,000) 191,000
Less: Cost of sales (80,000 + 45,000 - (W-3) 300 - 10,000 + (W-5) 500 (106,995)
-9,000 + 810 - (W-8) 15)
Gross profit 84,005
Less: Distribution costs (7,000 + 5,000) (12,000)
Administrative costs (6,000 + 2,500 + (W-2) 400 + (w-4) 2,000 ) (10,900)
Finance cost (3,000 + 3,500 - (W-7) 180) (6,320)
54,785
Add: Other income (1,500 + 500 - (W-7)180 - (W-8) 200) 1,620
69
Less: Taxation (4,500 + 5,500) (10,000)

46,405

Build. (Dep. on Rev. Surplus) (W-2) 400 S profit 29,000
Goodwill (Imp.) 2,000 Plant (Dep. reversal on Rev. loss) (W-3) 300
Stock-URP (W-6) 810
CRE (26,090 x 70%) (No use) -
NCI (26,090 x 30%) (CSOCI) 7,827
(W-2) Recording of Undervaluation -Office building

Particulars Dr. Cr.
PPE 4,000
Revaluation surplus 4,000
Recording of depreciation
Particulars Dr. Cr.

Admin expense (Depreciation) (4,000/10) 400
PPE 400
(W-3) Recording of overvaluation -Office building
Particulars Dr. Cr.
Revaluation loss 6,000
PPE 6,000
Reversal of depreciation
Particulars Dr. Cr.
PPE (6,000/20) 300
COS(Depreciation) 300
(W-4) Impairment of loss good will
Particulars Dr. Cr.
Admin expenses 2,000
Goodwill 2,000
Particulars Dr. Cr.
Cost of sale 500
Stock 500
Sold stock 10,000
Sale price of stock unsold (10,000x 1/4) 2,500
Profit on stock (2,500/125 x 25) 500
70
(W-6) Sale of goods by S to P

Particulars Dr. Cr.
Cost of sale 810
Stock 810
Sold stock 9,000

Sale price of stock unsold (9,000x30%) 2,700
Profit on stock (2,700/100 x 30) 810
(W-7) Interest (6,000 x 3%) = 180
(W-8) Profit on sale of fixed asset by P to S

Particulars Dr. Cr.
Other income (300 - 100) 200
PPE 200
Particulars Dr. Cr.
PPE (200/10 x 9/12) 15
COS (Depreciation) 15
Answer-18
Azeem Inc.
for the year ended March 31st , 2009
Rupees
Sales (170,000 + 110,000 - 6,000 - 3,000) 271,000
Less: Cost of sales (90,000 + 85,000 - (W-2) 2,500 - (W-3) 600 - 6,000 (163,400)
+ (W-4) 400 - 3,000 + (w-5) 100)
Administrative costs (7,000 + 5,000 + 1,500) (13,500)
Finance cost (8,000 + 3,000) (11,000)
60,100
Add: Other income (2,000 + 5,000 - 3,000) 4,000
Less: Taxation (8,000 + 4,000) (12,000)
52,100

P.P.E (net gain reversal) (W-3) 2,400 S profit 10,000
Stock-URP (W-5) 100 Plant (Dep. reversal on Rev. loss) (W-2) 2,500
CRE (10,000 x 80%) (No use) -

NCI (10,000 x 20%) (CSOCI) 2,000
71
(W-2) Recording of overvaluation -Office building

Particulars Dr. Cr.
Revaluation loss 25,000
PPE 25,000
Particulars Dr. Cr.
PPE (25,000/10) 2,500
COS(Depreciation) 2,500
(W-3) Profit on sale of fixed asset by S to P
Particulars Dr. Cr.
Other income 3,000
PPE 3,000
Reversal of depreciation by P
Particulars Dr. Cr.
PPE (3,000/5) 600
COS (Depreciation) 600
Disposal account
B.V 38,000 Cash (bal.) 41,000
P/L 3,000

Less: Accumulated Dep. (3,000/5) (600)
2,400
Particulars Dr. Cr.
Cost of sale (2,000 / 125 x 25) 400
Stock 400
(W-5) Sale of goods by S to P
Particulars Dr. Cr.
Cost of sale (500/100 x 20) 100
Stock 100
Answer-19
A and Co. ltd.
as on 30 June , 2017
Assets Rs.
Non-current assets
Property, plant and equipment (200,000 + 120,000 - 4,000 + 2,400 + 1,800(W-5)) 320,200
Investment (60,000 + 15,000 - 45,000) 30,000
Intangibles (5,000-3,000) 2,000
352,200
Current assets
Inventories (20,000 + 9,000 - 400 - 300) 28,300
72
Trade debtors (15,000 + 6,000) 21,000

Bank (6,000 + 8,000) 14,000
Dividend Receivable (10,800 - 10,800) -
415,500
Equity
Revaluation surplus 6,000
271,000
316,800
Current liabilities
Trade creditors (24,500 + 27,000) 51,500
Dividend payable (40,000 + 18,000 - 10,800) 47,200
415,500
(W-1)
NCI (at F.V) 46,800 Share Premium 13,500
(90,000/10 shares x 40%) x Rs.13/share Pre-Acquisition R.E. 11,000
Revaluation Loss - Building (4,000)
Revaluation Surplus 5,000
115,500
(W-2)
Brand (Amor.) (5,000/10 x 6) 3,000 Build. (Dep. reversal on Rev. Loss) 2,400
(4,000/10 x 6)
Dividend Payable (90,000 x *20%) 18,000
Stock-URP (2,000/125 x 25) 400
CRE (2,500 x 60%) 1,500

NCI (2,500 x 40%) 1,000
*Dividend in percentage = (2/10 x 100) = 20%
(W-3)
Subsidiary retained earnings a/c 1,500 Parent own R.E 30,500
Dividend Payable (200,000 x 20%) 40,000 Negative Goodwill 23,700
Stock-URP (1,500/100 x 20) 300 P.P.E (net loss reversal) (W-5) 1,800
c/d (bal.) 25,000 Dividend Receivable (Dividend Income) 10,800
(18,000 x 60%)
73
(W-4)
Subsidiary retained earnings a/c 1,000 Cost of Investment a/c 46,800
c/d (bal.) 45,800
(W-5)
Plant - Cost 20,000 Accumulated depreciation 5,000
Cash 12,000
P/L (bal.) 3,000
Loss (as above) 3,000
1,800
Answer-20
Tred
Rupees
Revenue (150,000 + 110,000) 260,000
Less: Cost of sales (80,000 + 70,000) (150,000)
Less: Administrative expenses (51,000 + 26,500) (77,500)
32,500
Tred
Assets Rupees
Non-current assets
Investment 8,000
146,400
Current assets (28,000 + 23,500) 51,500
197,900
Equity
Share premium 5,000
113,350
Non-controlling interests (W-4) 6,550
Current liabilities ( 42,000 + 36,000) 78,000

197,900
74
(W-1)
44,000
(W-2)
CRE (21,500 x 90%) 19,350

NCI (21,500 x 10%) 2,150
(W-3)
(W-4)

S profit 13,500
CRE (13,500 x 90%)(No use) 12,150

NCI (13,500 x 10%) (CSOCI) 1,350
Answer-21
Harry Limited
Rs. In „000‟
Revenue (1,120 + 390 - 100) 1,410
Less: Cost of sales (610 + 220 - 100 + 3) (733)
Gross profit 677
Less: Distribution costs (50 + 40) (90)
Administration costs (55 + 45) (100)
Operating profit 487
Investment income (20 + 4 - 15) 9
Finance costs (18 + 4) (22)
Profit before taxation 474
Less: Taxation (140 + 25) (165)
Profit after taxation 309
75

Parent (bal.) 294
Non-controlling interest (W-5) 15
309
(W-1)
Investment Xx Share Capital Xx
NCI Xx Share Premium Xx
Pre-Acquisition R.E. 9
Xx
Goodwill (bal.) Xx
(W-2)
Pre-Acquisition R.E. 9 b/d (Balance sheet closing) 85
CRE (76 x 75%) 57
NCI (76 x 25%) 19
(W-3)
Parent own R.E 317
Stock - URP 3 Subsidiary retained earnings a/c 57
c/d (bal.) 371
(W-4)
Cost of Investment a/c Xx
c/d (bal.) Xxx Subsidiary retained earnings a/c 19

S profit 60
CRE (60 x 75%) (No use) 45

NCI (60 x 25%) (CSOCI) 15
76
Answer-22
Heron Limited
For the year ended June 30, 2015
Rs. In „000‟
Revenue (30,000 + 25,000) 55,000
Less: Cost of sales (9,000 + 10,000) (19,000)
Gross profit 36,000
Administrative costs (1,000 + 2,800) (3,800)
Finance costs (2,000)
Less: Taxation (3,000 + 3,000) (6,000)
20,000
Heron Limited
As on June 30, 2015
Rs. In „000‟
Assets
Non-current assets
Good will (W-1) 300
45,800
Current assets (23,000 + 11,000) 34,000
79,800
Equity
Share premium 5,000
47,133
53,800
Non-current liabilities 15,000
79,800
(W-1)
NCI (Prop. share) (1,800 x 33.33%) 600 Pre-Acquisition R.E. 300
1,800
Goodwill (bal.) 300
77
(W-2)
Pre-Acquisition R.E. 300 b/d (Balance sheet closing) 18,500
CRE (18,200 x 66.67%) 12,133
NCI (18,200 x 33.33%) 6,067
Percentage holding in S = 1,000,000/1,500,000 = 66.67%
(W-3)
c/d (bal.) 32,133
(W-4)
Cost of Investment a/c 600
S profit 8,000
CRE (8,000 x 66.67%) (No use) 5,333

NCI (8,000 x 33.33%) (CSOCI) 2,667
Answer-23
Muneeb Ltd.
for the year ended March 31, 2015
Rupees
Sales (400,000 + 185,000 - 50,000) 535,000
Less: Cost of sales (250,000 + 85,000 - 50,000 + (W-6) 5,000) (290,000)
Less: Administrative costs (20,000 + 18,000) (38,000)
Distribution costs (15,000 + 15,000) (30,000)
Less: Taxation (32,000 + 27,000) (59,000)
118,000
(W-1)
55,000
78
(W-2)
Stock - URP (W-6) 5,000
CRE (53,750 x 80%) 43,000

NCI (53,750 x 20%) 10,750
(W-3)
c/d (bal.) 263,000
(W-4)
Stock - URP (W-6) 5,000 S profit 40,000
CRE (35,000 x80%) (No use) 28,000

NCI (35,000 x 20%) (CSOCI) 7,000

Sold 50,000
Unsold (50,000/2) 25,000
79
Answer-24
AB
Rs. in '000'
Sales (50,000 + 34,000 - 500) 83,500
Less: Cost of sales [(32,000 + 25,000 + 500 - 500 + 100 - 50 (1,000/20)] (57,050)
Gross Profit 26,450
Less: Administrative costs (2,500 + 1,700 + 500) (4,700)
Finance cost (1,400)
20,350
Add: Other income 4,000
Less: Taxation (4,000 + 850) . (4,850)
19,500
b)
AB
Rs. in ‟000'
Assets
Non-current assets
Property, Plant & Equipment [(22,350 + 7,500 + 2,500 - 2,000 - 850] 29,500
Good will [3,500 - 800] 2,700
32,200
Current assets (12,000 + 8,000 - (W-6)100) 19,900
52,100
Equity
37,260
40,900
6% loan notes 650
Current liabilities (9,300+ 1,250) 10,550

52,100
80
(W-1)
NCI (at F.V) 3,000 Pre-Acquisition R.E. 4,500
10,000
(W-2)
P.P.E (Revaluation Surplus dep.) 2,000
(2,500/5 x 4)
Stock - URP (W-6) 100
Goodwill (Imp.) (300 + 500) 800
CRE (3,200 x 80%) 2,560

NCI (3,200 x 20%) 640
(W-3)
P.P.E (net gain reversal) (W-7) 850 Parent own R.E 25,550
(W-4)
c/d (bal.) 3,640 Subsidiary retained earnings a/c 640
P.P.E (Revaluation Surplus dep.) 500 S profit 5,050
(2,500/5)
Goodwill (Imp.) 500
CRE (3,950 x 80%) (No use) 3,160

NCI (3,950 x 20%) (CSOCI) 790
(W-6) adjustment (ii)

Sold 500
Unsold 500
Profit on unsold stock (500/125x25) 100
(W-7) Profit on sale of fixed asset by AB to CD
Cost 3,000 Cash 2,000
P/L(Bal) 1,000

Less: Accumulated Dep. (1,000/20 x 3) (150)
850
81
Answer-25
Hamid Limited
Rs. In „000‟
Revenue [304,900 + (195,300 x 4/12) - (2,000 x 4)] 362,000
Less: Cost of sales [144,200 + (98,550 x 4/12) - (2,000 x 4)] (169,050)
Operating costs [76,450 + (52,100 x 4/12)] (93,817)
Operating profit 99,133
Investment income (10,500 + 2,600) 13,100
Other income (negative goodwill) 3,800
Less: Taxation [42,900 + (16,500 x 4/12)] (48,400)
67,633
(W-1) Not required

(W-2)
Pre-Acquisition R.E. (W-2.1) 49,767 b/d (Balance sheet closing) 61,750
CRE (11,983 x 75%) 8,987

NCI (11,983 x 25%) 2,996
(W-2.1) Calculation of retained earnings of S as on Acq. date
S
01.01.15 Opening Retained earning 31,000
Profit after tax for 8 months (30,750 - 2,600) x 8/12 18,767
31.08.15 Closing Retained earnings (bal.) 49,767
(W-3)
c/d (bal.) 124,837 Negative Goodwill 3,800
(W-4)
Cost of Investment a/c Xx
c/d (bal.) Xx Subsidiary retained earnings a/c 2,996
(W-5) Calculation of NCI figure in CSOCI
S profit [(30,750 - 2,600) x 4/12 + 2,600] 11,983
CRE (11,983 x 80%) (No use) -

NCI (11,983 x 20%) (CSOCI) 2,996
82
Answer-26
Ilm Limited (IL)

Assets Rs.
Non-current assets
Property, plant and equipment (100 + 50 + 10 + 2) 162
Goodwill (W-1) 4
Current assets (10 + 5) 15
181
Equity
Share capital 100
Revaluation surplus (32 - 30) 2
Consolidated retained earnings (W-3) 66
168
181
(W-1)
Investment 40 Share capital 25
NCI (Prop. share) (45 x 20%) 9 Pre-Acquisition R.E. 10
Revaluation Surplus 10
45
Goodwill (bal.) 4
(W-2)
CRE (20 x 80%) 16

NCI (20 x 20%) 4
(W-3)
Parent own R.E. 50
c/d (bal.) 66 Subsidiary retained earning a/c 16
(W-4)
c/d (bal.) 13 Subsidiary retained earning a/c 4
83
Answer-27
Papilla
as on 31.3.20X7
Rs. In
„000‟
Assets
Non-current assets
Property, plant and equipment (900 + 400 + 20 - 6 - (W-7) 2) 1,312
Goodwill (350 - 105) 245
1,557
Current assets
Current assets (300 + 600 - (W-8) 4 - (Adj. iv) 6) 890
Cash in transit (Adj. iv) 5
895
2,452
Equity
Share capital 200
Share premium 50
Consolidated retained earnings (W-3) 1,456.5
1,706.5
Non-controlling interest (W-4) 296.5
2,003
Liabilities
Non-current liabilities (100 + 90) 190
Current liabilities (200 + 60 - (Adj. iv) 1) 259
2,452
Papilla
for the year ended 31.3.20X7
Rs. In
“000”
Sales (1,000 + 260 - 60) 1,200
Less: Cost of sales (750 + 80 + 2(a) - 1(W-7) - 60 + (W-8) 4) (775)
Gross profit 425
Less: Operating expenses (60 + 35 + 35(b)) (130)
Finance cost (25 + 15) (40)
255
Add: Other income (20 - (W-7) 3 - 14(c)) 3
Less: Taxation (100 + 30) (130)
Share of parents owners (bal.) 110
128
(a) Recording of extra depreciation on revaluation surplus during current year (20/10) = 2
(b) Impairment loss on goodwill during current year (105 x 1/3) = 35
(c) Share of P in S dividend (20 x 70%) = 14
84
(W-1)
Dr. Cost of investment (For calculating Goodwill) Cr.
NCI (at F.V) 250 Retained earnings 430
Revaluation surplus - Plant (120 - 100) 20
600
Goodwill (bal.) 350
(W-2)
Pre-acquisition R.E. 430 b/d (balance sheet closing) (W-6) 700
Plant (Dep.) (20/10y x 3y) 6
Goodwill (impairment) (350 x 30%) 105
Stock - URP (W-8) 4
CRE (155 x 70%) 108.5

NCI (155 x 30%) 46.5
(W-3)
P.P.E (net gain reversal) (W-7) 2 Parent own R.E (W-6) 1,350
c/d (bal.) 1,456.5 Subsidiary retained earning a/c 108.5
(W-4)
c/d (bal.) 296.5 Subsidiary retained earning a/c 46.5

Plant (Dep.) (20/10y x 1y) 2 S profit 100
Goodwill (Impairment) (105 x 1/3) 35
Stock - URP (W-7) 4
CRE (59 x 70%) (No use) -

NCI (59 x 30%) (CSOCI) 18
(W-6) Calculation of profits and retained earnings (part of question)

P S
Rs. 000 Rs. 000
Opening retained earning - 01.04.X6 (Bal.) 1,265 620
Profit after tax 85 100
Less: Dividend (if recorded by the accountant) - (20)
Closing retained earning - 31.03.X7 1,350 700
(W-7) Fixed asset sold by P to S

Asset-B.V 12 Sale proceeds 15
P/L (Gain) (bal.) 3
85

Gain (as above) 3
Less: Accumulated Dep. (3/3 years) (1)
2
(W-8) Stock sold by S to P
Sold 60
Unsold (60 x 40%) 24
Profit on unsold (24/120 x 20) 4
Answer-28
Note for students:
- As per question investment appearing in Karl books is 98. It includes 76 cost of investment.
Further on the face of balance sheet of Karl we do not find loan receivable from S therefore 20 is
also included in investment figure of balance sheet.
- In this question intercompany balance in the books of S is not given rather C.I.T figure of Rs. 2.5
is given. Therefore if P is showing a figure of Rs. 4 and C.I.T is 2.5 than it means 1.5 (bal.) is
included in payables of S only.
Karl Limited
As on 30.11.20X7
Rs in ‟000’
Assets
Non-current assets
Property, plant and equipment (138 + 115 - 4.5(W-7)) 248.5
Investment (98 - 76 - 20) 2
Goodwill (22.25(W-1) - 1(W-2)) 21.25
271.75
Current assets
Inventory (15 + 17 - 1.6 (W-6)) 30.4
Accounts receivable (19 + 20 - (Adj. vii) 4) 35
Cash 2
Cash in transit 2.5
69.9
341.65
Equity
Share capital 50
Consolidated retained earnings (W-3) 186.09
236.09
Non-controlling interest (W-4 ) 51.06
287.15
Non-Current liabilities
8% Loan notes (20 - 20 (Adj. vi)) -
Current liabilities (33 + 23 - 1.5 (Adj. vii)) 54.5
341.65
86
(W-1)
NCI (at F.V) 50 Retained earnings 63.75
103.75
Goodwill (bal.) 22.25
(W-2)
Pre-Acquisition R.E. (W-5) 63.75 b/d (Balance sheet closing) 69
(60 + 9 x 5/12)
Stock - URP (W-6) 1.6
Goodwill(Impairment) 1
CRE (2.65 x 60%) 1.59

NCI (2.65 x 40%) 1.06
(W-3)
P.P.E (net gain reversal) (W-7) 4.5 Parent own R.E 189
(W-4)
(W-5) Calculation of profits and retained earnings (Part of Question)

S
Rs. 000
Opening Retained Earning-01.12.20X6 (bal.) 60
Profit after tax 9
Dividend -
Closing Retained Earning-30.11.20X7 (Given) 69
Sold -
Unsold 8
Profit on unsold (8/125 x 25) 1.6
(W-7) Fixed asset sold by P to S

Asset-B.V 10 Sale Proceeds 15
P/L (Gain) (bal.) 5

Gain (as above) 5
Less: Accumulated Dep. (5/5 x 6/12) (0.5)
4.5
87
Answer-29
Hosterling
for the year ended 30 September 2006
Rs.
Sales (105,000 + 62,000 - 18,000 - 10,000) 139,000
Less: Cost of sales (68,000 + 36,500 - 1,000(a) - 18,000 + 1,875 (W-7) - (77,975)
10,000 + 1,000 (W-8) - 400(b))
Gross profit 61,025
Less: Distribution (4,000 + 2,000) (6,000)
Admin (7,500 + 7,000 + 1,000 (adj. vii) - 1,000 (adj. vii)) (14,500)
Finance cost (1,200 + 900) (2,100)
38,425
Add: Other income (400 - 400) -
Less: Taxation (8,700 + 2,600) (11,300)
Share of parents owners (bal.) 24,445
27,125
(a) Reversal of depreciation on rev. loss on plant for current year (5,000/5) = 1,000
(b) Reversal of depreciation on sale of fixed by S to P (4,000/10) = 400
CRE is Rs. 143,005.
(W-1)
NCI (at Prop.) (40,000 x 20%) 8,000 Retained earnings 18,000
Revaluation surplus - intellectual property 4,000
Revaluation surplus - Land 3,000
Revaluation loss – plant (5,000)
40,000
(W-2)
Subsidiary retained earning a/c Cr.
Stock - URP (W-8) 1,000 P.P.E (Dep. reversal on Rev. loss) 3,000
(5,000/5y x 3y)
P.P.E (net gain reversal) (W-9) 2,900
CRE (41,100 x 80%) 32,880

NCI (41,100 x 20%) (No use) -
(W-3)
Stock - URP (W-7) 1,875 Parent own R.E 100,000
Negative goodwill 12,000
88
(W-4) Not required

Stock - URP (W-8) 1,000 S profit 13,000
P.P.E (Dep. reversal on Rev. loss) 1,000
(5,000/5y x 1y)
P.P.E (Dep. reversal) (W-9) 400
(4,000/10y x 1y)
CRE (13,400 x 80%) (No use) -

NCI (13,400 x 20%) (CSOCI) 2,680
(W-6) Not required
(W-7) Stock sold by P to S

Sold 18,000
Unsold 7,500
Profit on unsold (7,500/100 x *25) 1,875
*Margin [(18,000 - 13,500)/18,000] x 100 = 25%

Sold 10,000
Unsold (10,000 x 1/4) 2,500
Profit on unsold (2,500/100 x **40) 1,000
**Margin (4,000 /10,000 x 100 ) = 40%
(W-9) Fixed asset sold by S to P

Asset-B.V 6,000 Sale proceeds 10,000
P/L (Gain) (bal.) 4,000
Gain net of depreciation

Gain 4,000
Less: Accumulated dep. [4,000/10y x 2.75 years] (1,100)
2,900
89
Answer-30
Pyramid
As on March 31, 2012
Assets Rs In „000‟
Non-current assets
Property, plant and equipment (42,600 + 28,500 + 3,000 - 600) 73,500
80,500
Current assets
Inventory (13,900 + 10,400 +1,500 (G.I.T) (W-5) - 500(W-5) 25,300
Trade receivables (11,400 + 5,500 - 4,400(W-5)) 12,500
Bank (900 + 600 + 1,200 (C.I.T) (W-5)) 2,700
Dividend receivable (1,600 - 1,600) -
40,500
121,000
Equity
75,720
83,800
Liabilities
Loan (12,000 + 4,000) 16,000
Un-recorded liability 1,000
Current liabilities (14,000 + 5,000 - 1,700 (W-5)) 17,300
Dividend payable (2,500 + 2,000 -1,600) 2,900
121,000
(W-1)
NCI (at F.V) (10,000 shares x 20% 7,000 Retained earnings 18,000
= 2,000 shares x Rs. 3.5/share)
Unrecorded Liability (1,000)
30,000
(W-2)
Pre-acquisition R.E. 18,000 b/d (Balance sheet closing) (18,000 + 8,000) 26,000
Plant (Dep.) (3,000/5y) 600
Dividend payable (10,000 x 20%) 2,000
CRE (5,400 x 80%) 4,320

NCI (5,400 x 20%) 1,080
90
(W-3)
Stock-URP (goods-in-Transit) (W-6) 500 Parent own R.E (16,200 + 14,000) 30,200
Dividend payable (25,000 x 10%) 2,500 Dividend income (10,000 x 20% = 2,000 x 1,600
80%)
(W-4)
(W-5) Explanation of Current Account

As P has recorded the sale of Rs. 16,000 and S has recorded the purchase of Rs. 14,500 therfore Rs. 1,500
represents goods in transit.
Further as the total difference in current accounts is Rs. 2,700 (4,400 - 1,700) therefore if we deduct Rs.
1,500 from 2,700 the remaining difference is cash in transit
Journal entries for understanding
Particulars Dr. Cr.
Payable 1,700
Good in transit ( 16,000 - 14,500 ) 1,500
Cash in transit (Bal.) 1,200
Receivable 4,400
Sale of goods by P to S
G.I.T 1,500
Profit on unsold (1,500 /150 x 50) 500
Answer-31
Pedantic
for the year ended September 30,2008
Rs.
Sales (85,000 + 42,000 x 6/12 - 8,000) 98,000
Less: Cost of sales (63,000 + 32,000 x 6/12 +200 - 8,000 + 800) (72,000)
Gross profit 26,000
Less: Distribution (2,000 + 2,000 x 6/12 + 250) (3,250)
Admin (6,000 + 3,200 x 6/12) (7,600)
Finance cost (300 + 400 x 6/12) ( 500 )
Add: Other income (Dividend) -
Less: Taxation (4,700 + 1,400 x 6/12) (5,400)
Share of parents owners (bal.) 9,150
9,250
91
Pedantic
As on September 30, 2008
Assets Rs In „000‟
Non-current assets
Property, plant and equipment (20,600 + 12,600 + 2,000 - 200) 35,000
Brand (5,000 - 250) 4,750
Internet domain 1,000
52,050
Current assets
Other current assets [16,000 + 6,600 - 800(W-7) - 600 (Adj iii) + 480 - 480] 21,200
Cash in transit 200
21,400
73,450
Equity
45,550
Non-Controlling Interest (W-4) 8,080
53,630
Liabilities
Loan-10% loan notes (3,000 + 4,000) 7,000
Current liabilities [8,200 + 4,700 - 400 (Adj( iii)) +800(Adj (v) - 480 (Adj 12,820
(v)) ]
73,450
(W-1)
NCI (at F.V) 8,300 Retained earnings ((W-6) 3,500 + 3,000 x 5,000
6/12)
Revaluation surplus - Plant 2,000
Revaluation surplus - Brand 5,000
Revaluation surplus - Internet domain 1,000
17,000
(W-2)
Plant (Dep.) (2,000/5 x 6/12) 200
Brand (Amor.) (5,000/10 x 6/12) 250
Dividend Payable (4,000 x 20%*) 800
CRE (550 x 60%) 330

NCI (550 x 40%) 220
*Dividend percentage = 2 / 10 = 20%
92
(W-3)
Subsidiary retained earning a/c 330 Parent own R.E 35,400
c/d (bal.) 35,550 Dividend Income (4,000 x 20% = 800 x 60%) 480
(W-4)
Subsidiary retained earning a/c 220 Cost of Investment a/c 8,300
c/d (bal.) 8,080
Plant (Dep.) (2,000/5 x 6/12) 200 S profit (3,000 x 6/12) 1,500
Brand (Amor.) (5,000/10 x 6/12) 250
CRE (250 x 60%) (No use) -

NCI (250 x 40%) (CSOCI) 100
(W-6) Calculation of profits and retained earnings
PL SL
Opening retained earning - 01.10.07 (Bal.) 26,400 3,500
Less: Dividend (if recorded by the accountant) - -
Closing retained earning - 30.09.08 35,400 6,500
Sold 8,000
Unsold (8,000 - 5,200) 2,800
Profit on unsold (2,800 /140 x 40) 800
93
CHAPTER-10
CONSOLIDATION
ICAP PAST PAPER QUESTIONS
Question- 1
The following summarized statement of financial position pertain to Alpha Limited (AL) and its
subsidiary Delta Limited (DL) as at 30 June, 2014.
AL DL
---Rs. In million---
Investment (2 million shares of DL) 340 -
Long term loan granted to DL 30 -
1,425 600

Long term borrowings 200 72
1,425 600
Following relevant information is available:
(i) AL acquired investment in DL on 1 July 2013 when retained earnings of DL were Rs. 140 million
and the fair value of DL’s net assets was equal to their carrying values.
(ii) Both the companies depreciate equipment at 10%, on straight line basis. On 30 June 2014, AL
sold certain equipment to DL as detailed below:
Rs. In million
Cost 40
Accumulated depreciation 30
Sale proceeds 25
(iii) Inter-company sales of goods are invoiced at a mark-up of 20%. The relevant details are as under:
Rs. In million
AL’s inventory includes goods purchased from DL 27
DL’s inventory includes goods purchased from AL 24
Receivables from DL on 30 June 2014 as per AL’s books 19
Payable to AL on 30 June 2014 as per DL’s books 19
(iv) Long term loan was granted to DL on 1 July 2013. It is repayable after five years and carries
interest at 12% per annum, payable on 30 June and 31 December, each year.
(v) AL values non-controlling interest at the acquisition date at its fair value which was Rs. 80
million.
Required:
Prepare a consolidated statement of financial position as at 30 June 2014 in accordance with the
requirements of International Financial Reporting Standards.
(20)
{Autumn 2014, Q.6}
94
Question- 2
The following summarized Trial Balances pertain to Rivera Limited (RL) and its subsidiary Chenab
Limited (CL) for the year ended 31 December 2014:
RL CL
Debit Credit Debit Credit
-------Rs. In million-------
Sales - 285 - 320
Cost of sales 186 - 240 -
Selling and distribution expense 27 - 25 -
Administration expense 17 - 15 -
Finance charges 8 - 10 -
Tax expense 19 - 12 -
Share capital (Rs. 100 each) - 350 - 200
Retained earnings - 1 January 2014 - 50 - 36
Properly, plant and equipment 190 - 263 -
Current assets 23 - 35 -
Investment in CL (1.6 million shares) 250 - - -
Current liabilities 35 - 44
720 720 600 600
Other relevant information is as under:
(i) RL acquired the controlling interest in CL on 1 January 2014. On the acquisition date, fair value
of CL's net assets was equal to its book value except for an office building whose fair value
exceeded its carrying value by Rs. 18 million. The remaining useful life of the office building on
the acquisition date was 15 years.
(ii) Inter-company sales are invoiced at cost plus 20%. Details of inter-company transactions for the
year ended 31 December 2014 are as follows:
o RL sold goods amounting to Rs. 60 million to CL. At year-end, inventory of CL included
Rs. 9.60 million in respect of such goods.
o CL sold goods amounting to Rs. 48 million to RL. At year-end, inventory of RL included
Rs. 16.80 million in respect of such goods.
(iii) There were no inter-company balances outstanding at the year-end.
(iv) RL values the non-controlling interest at its proportionate share of CL's identifiable net assets.
(v) As at 31 December 2014, goodwill of CL was impaired by 10%.
Required:
In accordance with the requirements of International Financial Reporting Standards, prepare:
(a) Consolidated Statement of Comprehensive Income for the year ended 31 December 2014. (11)
(b) Consolidated Statement of Financial Position as at 31 December 2014. (06)
(Ignore tax effects on adjustments) {Autumn 2014, Q.1}
95
Question- 3
On 1 July 2014, Galaxy Limited (GL) acquired controlling interest in Beta Limited (BL). The following
information has been extracted from the financial statements of GL and BL for the year ended 30 June
2015.
GL BL
Rs. In million
Retained earnings –1 July 2014 40 18
Profit for the year ended 30 June 2015 20 6
Shareholders’ equity/Net assets 160 74
Investment in BL (300,000 shares) 50 -
Inter-company sales (at invoice value) 25 30
Inter-company purchases remained unsold at year-end 9 5
Inter-company current account balances 7 (4)
Other relevant information is as under:

(i) On the date of acquisition, fair value of BL's net assets was equal to their book value except for
the following:
 Fair value of a land exceeded its carrying value by Rs. 20 million.
 The value of a plant was impaired by Rs. 10 million. The impairment was also recorded by
BL on 2 July 2014.
 BL measures its property, plant and equipment using cost model.
(ii) There is no change in share capital since 1 July 2014.
(iii) Inter-company sales are invoiced at cost plus 20%. The difference between the current account
balances is due to goods dispatched by GL on 30 June 2015 which were received by BL on 5 July
2015.
(iv) GL values non-controlling interest at the acquisition date at its fair value which was Rs. 35
million.
(v) As at 30 June 2015, goodwill of BL was impaired by 10%.
Required:
Compute the amounts of goodwill, consolidated retained earnings and non-controlling interest as they
would appear in GL's consolidated statement of financial position as at 30 June 2015. (15)
{Autumn 2015, Q.6}
96
Question- 4
The summarized trial balances of Oscar Limited (OL) and United Limited (UL) as at 31 December 2015
are as follows:
Oscar Limited (OL) United Limited (UL)
------------- Rs. In million -------------

Sales 835 645
Cost of sales 525 396
Operating expense 115 102
Tax expense 65 48
Share premium 150 60
Retained earnings as at 1 January 2015 265 179
Cost of investment 500
Stock-in-trade 125 115
Trade receivables 140 125
Cash and bank 105 103
1,965 1,965 1,239 1,239
(i) On 1 May 2015, OL acquired 80% shares of UL. UL has not recognised the value of brand in its
books of account. At the date of acquisition, the fair value of brand was assessed at Rs. 45
million. The remaining useful life of the brand was estimated as 15 years.
(ii) OL charged Rs. 2.5 million monthly to UL for management services provided from the date of
acquisition and has credited it to operating expenses.
(iii) On 1 October 2015, UL sold a machine to OL for Rs. 24 million. The machine had been
purchased on 1 October 2013 for Rs. 26 million. On the date of acquisition the machine was
assessed as having a useful life of ten years and that estimate has not changed. Gain on disposal
was erroneously credited to sales account.
(iv) Other inter-company transactions during the year 2015 were as follows:
------------ Rs. In million ------------
OL to UL 60 20 25% of cost
UL to OL 30 5 20% of sales
UL settled the inter-company balance as on 31 December 2015 by issuing a cheque of Rs. 30
million. However, the cheque was received by OL on 1 January 2016.
(v) The non-controlling interest is measured at the proportionate share of UL’s identifiable net assets.
It may be assumed that profits of both companies had accrued evenly during the year.
Required:
Prepare consolidated statement of comprehensive income for the year ended 31 December 2015 and
consolidated statement of financial position as at 31 December 2015. (18)
{Spring 2016, Q.1}
97
Question-5
Following information has been extracted from the financial statements of Yasir Limited (YL) and Bilal
Limited (BL) for the year ended 30 June 2016.
Assets YL BL Equity & Liabilities YL BL
Rs. in million Rs. in million
Fixed assets 250 540 Share capital (Rs. 10 each) 750 500
Accumulated depreciation (70) (70) Retained earnings 340 258
180 470 1,090 758
Investment in BL – at cost 675 - Loan from YL - 12
Loan to BL 16 - Creditors & other liabilities 75 51
Stock in trade 160 150
Other current assets 71 50
Cash and bank 63 151
1,165 821 1,165 821
(i) On 1 July 2014, YL acquired 75% shares of BL at Rs. 18 per share. On the acquisition date, fair
value of BL’s net assets was equal to its book value except for an office building whose fair value
exceeded its carrying value by Rs. 12 million. Both companies provide depreciation on building
at 5% on straight line basis.
(ii) Year-wise net profit of both companies are given below:
2016 2015
-- Rs. in million --
YL 219 105
BL 11 168
(iii) The following inter-company sales were made during the year ended 30 June 2016:
closing stock in trade
------------ Rs. in million ------------
YL to BL 120 20 30% on cost
BL to YL 80 32 15% on sale
(iv) BL declared interim dividend of 12% in the year 2015 and final dividend of 20% for the year
2016.
(v) The loan was granted by YL to BL on 1 July 2014 and carries interest rate of 12% payable
annually. The principal is repayable in five equal annual instalments of Rs. 4 million each. On 30
June 2016, BL issued a cheque of Rs. 5.92 million which was received by YL on 2 July 2016. No
interest has been accrued by YL.
(vi) YL values non-controlling interest on the date of acquisition at its fair value. BL’s share price
was Rs. 15 on acquisition date.
(vii) An impairment test has indicated that goodwill of BL was impaired by 10% on 30 June 2016.
There was no impairment during the previous year.
Required
Prepare a consolidated statement of financial position as at 30 June 2016 in accordance with the
requirements of International Financial Reporting Standards. (18)
{Autumn 2016, Q.1}
98
Question-6
The draft summarized statements of financial position of Golden Limited (GL) and its subsidiary Silver
Limited (SL) as at 31 December 2016 are as follows:
GL SL
-----Rs. in million-----
Building 1,600 500
Plant & machinery 1,465 690
Investment in SL 327
Current assets 2,068 780
5,460 1,970

Share premium 730 150
Retained earnings 3,150 210
4,860 810
Liabilities 600 1,160
5,460 1,970
(i) GL acquired 60% of the shares of SL on 1 April 2016 at following consideration:
 Issuance of 20 million ordinary shares;
 Cash amounting to Rs. 87 million, which includes consultancy charges of Rs. 10 million and
legal expenses of Rs. 5 million.
The market value of each share of GL and SL on acquisition date was Rs. 12 and Rs. 11
respectively. At acquisition date, retained earnings of SL were Rs. 100 million.
(ii) The following table sets out those items whose fair value on the acquisition date was different
from then book value. These values have not been incorporated in SL’s books of account.
Book value Fair value
Rs. in million
Building 250 170
Inventory 11 2 62
Provision for bad debts (15) (24)
(iii) Upon acquisition of SL, a contract for management services was also signed under which GL
would provide various management services to SL at an annual fee of Rs. 50 million from the
date of acquisition. The payment would be made in two equal instalments payable in arrears on
1 April and 1 October.
(iv) On 30 September 2016, GL acquired a plant from SL in exchange of a building which was
currently not in use of GL. The details of plant and building are as follows:
Cost Accumulated Exchange
depreciation price *
----------------Rs. in million----------------
Building 240 130 120
Plant 200 60 120
**Equivalent to fair value
Both companies follow cost model for subsequent measurement of property, plant and equipment
and charge depreciation on building and plant at 5% and 20% respectively on cost.
(v) SL paid an interim cash dividend of 10% on 31 July 2016.
(vi) GL values non-controlling interest at the acquisition date at its fair value.
Required:
Prepare a consolidated statement of financial position as at 31 December 2016 in accordance with the
requirements of International Financial Reporting Standards. (17)
99
Question-7
The following balances are extracted from the records of Present Limited (PL) and Future Limited (FL)
for the year ended 30 June 2017:
PL FL
----------------Rs. in million----------------
Sales 2,060 1,524
Cost of sales 1,300 846
Selling and administrative expenses 350 225
Investment income 190 50
Gain on disposal of fixed assets - net 35
Taxation 80 60
Share capital (Rs. 10 each) 3,500 2,600
Retained earnings as on 30 June 2017 1,996 704
(i) PL acquired 65% shares of FL on 1 September 2016 against the following consideration:
 Cash payment of Rs. 900 million.
 Issuance of shares having nominal value of Rs. 1,000 million.
The fair value of each share of PL and FL on acquisition date was Rs. 16 and Rs. 12 respectively.
Retained earnings of PL and FL on the acquisition date were Rs. 1,671 million and Rs. 506.5
million respectively.
At acquisition date, fair value of FL’s net assets was equal to their book value except a brand
which had not been recognised by FL. The fair value of the brand is assessed at
Rs. 90 million. PL estimates that benefit would be obtained from the brand for the next 10 years.
(ii) The incomes and expenses of FL had accrued evenly during the year except investment income.
The investment income is exempt from tax and had been recognised in August 2016 and received
in September 2016.
(iii) On 1 January 2017 PL sold a manufacturing plant having carrying value of Rs. 42 million to FL
against cash consideration of Rs. 30 million. The plant had a remaining useful life of 6 years on
the date of disposal.
(iv) On 1 February 2017 FL delivered goods having sale price of Rs. 100 million to PL on ‘sale or
return basis’. 40% of these goods were returned on 1 May 2017 and the remaining were accepted
by PL. 20% of the goods accepted were included in the closing inventory of PL. FL earned a
profit of 33.33% on cost.
(v) Both companies paid interim cash dividend at the rate of 5% in May 2017.
(vi) An impairment test carried out at year end has indicated that goodwill of FL has been impaired by
10%.
(vii) PL measures the non-controlling interest at its fair value.
Required:
(a) Prepare consolidated statement of profit or loss for the year ended 30 June 2017. (13)
(b) Compute the amounts of consolidated retained earnings and non-controlling interest as would
appear in the consolidated statement of financial position as at 30 June 2017. (04)
{Autumn 2017, Q#4}
100
Question-8
Following are the draft statement of financial position of Jasmine Limited (JL) and its subsidiary,
Sunflower- Limited (SL) as on 31 December 2017:
JL SL
-----Rs. in million-----
Intangible assets 40 50
Investment in SL 520 -
Loan to JL - 120
2,080 845

Share premium 240 -
Loan from SL 96 -
2,080 845
(i) JL acquired 75% shares of SL on 1 January 2017. Cost of investment in JL’s books consists
of:
 10 million JL's ordinary shares issued at Rs. 24 per share; and
 cash payment of Rs. 280 million (including professional fee of Rs. 10 million for
advice on acquisition of SL)
(ii) On acquisition date, carrying value of SL's net assets was equal to fair value except an
intangible asset (brand) whose fair value was Rs. 40 million as against carrying value of Rs.
25 million. The remaining useful life of the brand is estimated at 5 years.
(iii) JL values non-controlling interest at fair value. The market price of SL's shares was Rs. 36 at
the date of acquisition, which has increased to Rs. 40 as of 31 December 2017.
(iv) JL and SL showed a net profit of Rs. 200 million and Rs. 60 million respectively for the year
ended 31 December 2017.
(v) The loan was granted on 1 July 2017 and carries mark-up of 10% per annum. A cheque of Rs.
30 million including interest was dispatched by JL on 31 December 2017 but was received by
SL after the year end. No interest has been accrued by SL in its financial statements.
(vi) On 1 May 2017 SL sold a machine to JL for Rs. 52 million at a gain of Rs. 12 million.
However, no payment has yet been made by JL. The remaining useful life of the machine at
the time of disposal was 2 years.
(vii) During the year, JL made sales of Rs. 250 million to SL at 20% above cost. 60% of these goods
are included in SL’s closing stock.
(viii) SL declared interim cash dividend of 10% in November 2017 which was paid on
2 January 2018. The dividend has correctly been recorded by both companies.
Required:
Prepare JL's consolidated statement of financial position as at 31 December 2017. (15)
{Spring 2018, Q#3}
101
Question-9
The following summarized trial balances pertain to Arrow Limited (AL) and its subsidiary Box Limited
(BL) for the year ended 31 December 2018:
AL BL
------------ Rs. in million ------------
Sales - 5,177 - 3,996
Cost of sales 3,255 - 2,448 -
Operating expenses 713 - 636 -
Other income - 350 - 18
Tax expense 403 - 288 -
Share capital (Rs. 10 each) - 3,720 - 1,600
Share premium - 1,430 - 322
Retained earnings as at 1 January 2018 - 2,293 - 516
Current liabilities 713 - 651
Property, plant and equipment 5,418 - 1,934 -
Investments 1,600 - - -
Loan to BL's Director 10 - - -
Current assets 2,284 - 1,797 -
13,683 13,683 7,103 7,103
(i) AL acquired 96 million shares of BL on 1 May 2018 at following consideration:
 Cash payment of Rs. 450 million
 Issuance of 40 million shares of AL at Rs. 25 each
(ii) On acquisition date, carrying values of BL's net assets were equal to fair value except the
following:
 A building whose fair values and value-in-use were Rs. 390 million and Rs. 520 million
respectively as against carrying value of Rs. 480 million. The group follows cost model for
subsequent measurement of property, plant and equipment. The remaining life of building on
acquisition date was 20 years. Fair value of the building has increased to Rs. 440 million at 31
December 2018.
 A brand which had not been recognized by BL. The fair value of the brand was assessed at Rs.
162 million. It is estimated that benefit would be obtained from the brand for the next 6 years.
(iii) AL measures the non-controlling interest at fair value. On the date of acquisition, the market price
of BL's shares was Rs. 14 per share.
(iv) On 1 July 2018 AL sold an equipment to BL for Rs. 250 million at a gain of Rs. 20 million. BL
has charged depreciation of Rs. 12.5 million on this equipment. It is used in factory.
(v) In each month of 2018, BL sold goods costing Rs. 40 million to AL at cost plus 20%. At year end,
75% of the goods purchased in December were included in stock of AL.
(vi) BL's credit balance of Rs. 38 million in AL’s books does not agree with BL's books due to Rs. 7
million charged by AL for management service on 26 December 2018. Total management fee
charged by AL to BL since acquisition amounted to Rs. 16 million.
(vii) BL declared interim cash dividend of Re. 0.50 per share in December 2018. AL has correctly
recorded the dividend in its books. However, BL has not yet accounted for the dividend.
(viii) The incomes and expenses of BL may be assumed to have accrued evenly during the year.
102
Required:
Prepare the following:
 Consolidated statement of profit or loss for the year ended 31 December 2018. (15)
 Consolidated statement of financial position as at 31 December 2018. (10)
(Spring 2019, Q.2)
103
SOLUTIONS
Answer-1
Alpha Limited
As on June 30, 2014
Assets Rs in million
Non-current assets
Property, plant and equipment [460 + 200 -15(W-5)] 645
Long term loan (30 - 30) -
Good will (W-1) 30
675
Current assets [595 + 400 - (W-6) 4.5 -(W-7) 4 - 19] 967.5
1,642.50
Equity
Share capital 600
950.4
1,041.5
Long term borrowings (200 + 72 - 30) 242
Current liabilities (300 + 78 - 19) 359
1,642.50
(W-1)
Investment 340 Share Capital 250
NCI (at F.V) 80 Pre-Acquisition R.E. 140
390
Goodwill (bal.) 30
(W-2)
Stock - URP (W-6) 4.5
CRE (55.5 x 80%) 44.4

NCI (55.5 x 20%) 11.1
Percentage holding in S = 2 mill/2.5 mill = 80%
(W-3)
P.P.E – (Gain reversal) (W-5) 15 Parent own R.E 325
Stock - URP (W-7) 4 Subsidiary retained earnings a/c 44.4
c/d (bal.) 350.4
104
(W-4)
c/d (bal.) 91.1 Subsidiary retained earnings a/c 11.1
(W-5)
Disposal account
Cost 40 Accumulated depreciation 30
P/L (bal.) 15 Cash 25
Note:
As Fixed asset is sold at year end, so no depreciation adjustment is required.
(W-6) Stock sold by subsidiary to parent

Unsold stock 27
Profit on stock (27/120 x 20) 4.5
(W-7) Stock sold by parent to subsidiary

Unsold stock 24
Profit on stock (24/120 x 20) 4
Answer- 2
Rivera Limited
For the year ended 31 December 2014
Rs. In „million‟
Revenue (285 + 320 - 60 - 48) 497.00
Less: Cost of sales (186 + 240 - 60 - 48 + 1.6 + 2.8) (322.40)
Gross Profit 174.6
Less: Selling and distribution (27 + 25) 52.00
Admin expense (17 + 15 + 1.2 + 4.68 ) 37.88
Finance charges (8 + 10) 18.00
(107.88)
Profit before taxation 66.72
Less: Taxation (19 + 12) (31.00)
Profit after taxation 35.72
Parent (bal.) 32.92
35.72
105
Rivera Limited
As on 31 December, 2014
Assets
Non-current assets
Property, plant and equipment (190 + 263 + 18 - 1.20) 469.80
Good will (46.8 - 4.68) 42.12
511.92
Current assets (23 + 35 - 1.6 - 2.8) 53.60
565.52
Equity
Share capital 350.00
432.92
486.52
Current liabilities (35 + 44) 79.00
565.52
(W-1)
NCI (Prop. share) (254 x 20%) 50.8 Pre-Acquisition R.E. 36
254
(W-2)
Pre-Acquisition R.E. 36 b/d (Balance sheet closing) (W-6) 54
Building (Dep) (18 / 15) 1.2
Stock - URP (16.8/120 x 20) 2.8
CRE (14 x 80%) 11.2

NCI (14 x 20%) 2.8
Percentage holding in S = 1.6 mill/2 mill = 80%
(W-3)
Stock - URP (9.6/120 x 20) 1.6 Parent own R.E (W-6) 78
Goodwill (imp.) (46.8 x 10%) 4.68 Subsidiary retained earnings a/c 11.2
c/d (bal.) 82.92
(W-4)
Cost of Investment a/c 50.8
106

Building (Dep) (18 / 15) 1.2 S profit 18
Stock - URP (16.8/120 x 20) 2.8
CRE (14 x 80%) (No use) 11.2

NCI (14 x 20%) (CSOCI) 2.8

Opening Retained earning 50 36
PAT (285 - 186 - 27 - 17 - 8 - 19) : (320 - 240 - 25 -15 -10 -12) 28 18
Closing Retained earning 78 54
Answer- 3
Galaxy Limited
Amounts that would appear in statement of financial position
as at June 30, 2015
Rs. in “million”
Goodwill [7(W-1) - 0.7(W-2)] 6.3
(W-1)
NCI (at Fair value) 35 Pre-Acquisition R.E. 18
Revaluation Surplus (Land) 20
Revaluation Loss (Plant) (10)
78
Goodwill (bal.) 7
(W-2)
Stock - URP (W-7) 1.5 Plant (Reversal of Impairment Loss) 10
Goodwill (Imp.) (7 x 10%) 0.7
CRE (13.8 x 60%) 8.28

NCI (13.8 x 40%) 5.52
Percentage holding in S = 300,000 / 500,000 = 60%
(W-3)
Stock - URP (W-6) 0.83 Parent own R.E (W-5) 60
Stock (in-transit)-URP (W-8) 0.5 Subsidiary retained earnings a/c 8.28
c/d (bal.) 66.95
107
(W-4)

P S
Profit after tax 20 6
Closing Retained earning (bal.) 60 24
(W-6) Stock sold by Parent to subsidiary

Sold stock 25
Unsold stock 5
(W-7) Stock sold by Subsidiary to parent

Sold stock 30
Unsold stock 9
(W-8) Stock sold by P to S but in transit

Profit on in-transit stock (7 - 4) = 3/120 x 20 0.5
Answer- 4
OSCAR Limited
Rs. In “million”
Sales [(835 + 645 x 8/12 -3.2 (W-8) - 60 x 8/12 - *20] 1,201.80
Less: Cost of sales [(525 + 396 x 8/12 - 60 x 8/12 - *20 - 0.1 (W-8) + 4 + 1] (733.90)
Gross profit 467.90
Add: Other income ((W-7) 20 – (W-7) 20) -
Operating expenses (115 + 102 x 8/12 + 2 + 20 (W-7) - 20 (W-7)) (185.00)
Profit before taxation 282.90
Less: Taxation (65 + 48 x 8/12) (97.00)
Profit after taxation 185.90
Parent (bal.) 173.92
185.90
* 30 x 8/12 = 20
108
OSCAR Limited
Assets
Non-current assets
Property, plant and equipment (390 + 350 - 3.1 (W-8)) 736.9
Intangible-Brand (45 - 2) 43
Goodwill (W-1) 46.4
826.3
Current assets
Inventory (125 + 115 - 4 -1) 235
Accounts receivable (140 + 125 - 30) 235
Cash and Bank (105 + 103) 208
Cash in transit 30
708
1,534.3
Equity
Share capital 600
Share premium 150
Consolidated Retained earnings (W-3) 438.92
1,188.92
1,314.3
Current liabilities (115 + 105 - 0) 220
1,534.3
(W-1)
NCI (Prop. share) (567 x 20%) 113.4 Share Premium 60
Pre-Acquisition R.E. (179 + 99 (W-6) x 4/12) 212
Revaluation Surplus (Brand) 45
567
(W-2)
Brand (Amortisation) (45/15 x 8/12) 2
P.P.E (Gain reversal) (W-8) 3.1
Stock - URP (5/100 x 20) 1
CRE (59.9 x 80%) 47.92

NCI (59.9 x 20%) 11.98
109
(W-3)
Stock - URP (20/125 x 25) 4 Parent own R.E (W-6) 395
(W-4)
(W-5)
Brand (Amortisation) (45/15 x 8/12) 2 S profit (99(W-6) x 8/12) 66
P.P.E (Gain reversal) (W-8) 3.1
Stock - URP (5/100 x 20) 1
CRE (59.9 x 80%) (No use) 47.92

NCI (59.9 x 20%) (CSOCI) 11.98

PAT (835 - 525 -115 - 65) : (645 - 396 -102 - 48) 130 99
Closing Retained earning (bal.) 395 278
(W-7) Management Service
2.5 x 8 = 20
It is assumed that subsidiary has recorded management expense in operating expenses.
(W-8) Disposal of machine
Accumulated Depreciation on 1 Oct 2015 (26/10 years x 2 years) 5.20
Disposal Account
Cost 26 Accumulated depreciation 5.2
P/L(Bal) 3.2 Cash 24
Deprecation on above (3.2/8 x 3/12) 0.1

Remaining life = 10 - 2 = 8 years
Gain (as above) 3.2
Less: Accumulated Dep. (3.2/8 x 3/12) (0.1)
3.1
110
Answer-5
Yasir Limited
As on June 30, 2016
Rs. in million
Assets
Non-current assets
Property, plant and equipment (180 + 470 + 12 - 1.2) 660.8
Good will (211.5 (W-1) - 21.15(W-2)) 190.35
Loan receivable (16 – 16) -
851.15
Current assets
Cash and Bank (63 + 151) 214
Other current assets (71 + 50) 121
Stock in trade (160 + 150 - 4.62 - 4.8) 300.58
Cash in transit (W-6) 5.92
641.5
1,492.65
Equity
Share capital 750
1,156.19
1,366.65
Loan Payable (12 – 12) -
Current liabilities
Creditors and others (75 + 51) 126
1,492.65
111
(W-1)
(50 mill. shares x 75% x Rs.18/share)
NCI (at F.V) 187.5 Pre-Acquisition R.E. (W-5) 139
(50 million x 25% x Rs.15/share)
Revaluation Surplus (Plant) 12
651
(W-2)
PPE (Dep. on revaluation surplus) 1.2
(12 x 5% x 2 year)
Stock - URP (32/100 x 15) 4.8
Goodwill (Imp.) (211.5 x10%) 21.15
CRE (91.85 x 75%) 68.89

NCI (91.85 x 25%) 22.96
(W-3)
Stock - URP (20/130x 30) 4.62 Parent own R.E 340
Interest Receivable (Record income) 1.92
(16 x 12%)
(W-4)
(W-5) Calculation of retained earnings of BL on date of acquisition

BL
01-07-14 Opening Retained earning (bal.) 139
30-06-15 Profit after tax 168
Dividend (500 x 12%) (60)
30-06-15 Closing Retained earnings (bal.) 247
30-06-16 Closing Retained earnings (Given) 258
112
(W-6)
Combined Entry for posting adjustment (v) Dr. Cr.
Loan Payable 16
CIT ( 4 + 1.92) 5.92
CRE (Int. Income) 1.92
Loan Receivable 12
Journal entries to understand adjustment (v) Dr. Cr.

Loan Payable 16
CIT (bal.) 4
Loan Receivable 12
Interest receivable 1.92
Interest Income (16 x 12%) 1.92
Interest Payable 0
CIT (bal.) 1.92
Interest Receivable 1.92
Answer-6
GL ltd.
as on 31st December , 2016
Assets Rs. Million
Non-current assets
Building (1,600 + 500 -80 +3 - (W-7) 9.87) 2,013.13
Plant and machinery (1,465 + 690 + (W-6) 19 ) 2,174
4,187.13
Current assets (2,068+780 - 50 – 9 – (W-5) 12.5) 2,776.5
6,963.63
Equity
Share capital 980
Share premium 730
4,965.33
5,216.13
Current liabilities (600 + 1,160 – (W-5) 12.5) 1,747.5
6,963.63
113
(W-1)
Investment (W-1.1) 312 Share Capital 450
NCI (at F.V) 198 Share Premium 150
(45 million x 40% x Rs.11/share)
Pre-Acquisition R.E. 100
Revaluation Loss (Building) (250 - 170) (80)
Revaluation Loss -Inventory (112 - 62) (50)
Revaluation Loss - Provision for Doubtful debt (9)
(24 - 15)
Negative Goodwill (bal.) 51 561
(W-1.1) Investment
As per question 327
Less: To be taken to expenses (10 + 5) (15)
Cash given and Shares given [(87-15) = 72 + 240 (20 million shares x Rs. 12 per share)] 312
(W-2)
Pre-Acquisition R.E. 100 b/d (Balance sheet closing) (18 + 6) 210
Build. (Dep. reversal ) (80 x 5% x9/12) 3
Plant (Loss reversal) (W-6) 19
CRE (132 x 60%) 79.2

NCI (132 x 40%) 52.8
(W-3)
Acquisition Cost (10 + 5) 15 Parent own R.E 3,150
Building (Gain reversal) (W-7) 9.87 Other income (Negative Goodwill) 51
c/d (bal.) 3,255.33 Subsidiary retained earnings a/c 79.2
(W-4)
(W-5)
Following amount is included in receivables of P and payable of S for the month of October, November
and December
Receivable/payable for management services provided by P to S (50 / 12M x 3M) 12.5
(W-6)
Dr Disposal( Plant)-in books of SL Cr.
Plant – BV 200 Accumulated depreciation 60
Asset Fair value 120
P/L (bal.) 20
114

Loss (as above) 20
Less: Accumulated Dep. (20 x 20% x 3/12) (1)
19
(W-7)
Dr Disposal (Building)-in books of GL Cr.
Building – BV 240 Accumulated depreciation 130
P/L (bal.) 10 Asset Fair value 120

Gain (as above) 10
Less: Accumulated Dep. (10 x 5% x 3/12) (0.13)
9.87
Answer- 7
(a)
Present Limited
for the year ended June 30, 2017
Sales [2,060 + 1,524 x 10/12 – (W-7) 60] 3,270
Less: Cost of sales [(1,300 + 846 x 10/12 + 1 (W-8) – (W-7) 60 + (W-7) 3] (1,949)
Gross profit 1,321
Selling and admin exp. [350 + 225 x 10/12 + 7.5 + 39.5] (584.5)
Investment income [190 - 84.5 (130 x 65%)] 105.5
Gain on FA-net [35 + 12 (W-8) ] 47
Less: Taxation (80 + 60 x 10/12) (130)
Parent (bal.) 661.9
759
Investment of S will not be included in Consolidated SOCI because this income relates to period before
acquisition date.
(b)
Non-controlling interest (W-4) 1,143.63
(W-1)
Investment (W-1.1) 2,500 Share Capital 2,600
NCI (at F.V) (W-1.2) 1,092 Pre-Acquisition R.E. 506.5
3,196.5
Goodwill (bal.) 395
115
(W-1.1)
Investment Rs in mill.
Cash given 900
Shares given (Rs. 1,000 million/Rs. 10) = 100 mill. shares x Rs. 16/share 1,600
2,500
(W-1.2)
Fair value of NCI Rs in mill.
(Rs. 2,600 million/Rs. 10) = 260 mill. shares x 35% = 91 mill. shares x Rs. 12/share 1,092
(W-2)
Pre-Acquisition R.E. 506.5 b/d (Balance sheet closing) 704
Brand (Amortisation)(90/10 x 10/12) 7.5
Stock - URP (W-7) 3
Goodwill (imp.) (395 x 10%) 39.5
CRE (147.5 x 65%) 95.87

NCI (147.5 x 35%) 51.63
(W-3)
Plant (Reversal of net Loss) (W-8) 11
(W-4)
(W-5)
Brand (Amor.) (90/10 x 10/12) 7.5 S profit [(443(W-6) -50) x 10/12] 327.5
Stock - URP (W-7) 3
Goodwill (imp.) (395 x 10%) 39.5
CRE (277.5 x 65%) (No use) 180.4

NCI (277.5 x 35%) (CSOCI) 97.1
(W-6) Calculation of profits of S

PL FL
PAT (2,060 - 1,300 - 350 + 190 + 35 - 80) : (1,524 – 846 – 225 + 50 - 60) 555 443
(W-7)
Sold (100 x 60%) 60
Unsold (60 x 20%) 12
Unsold profit (12 / 133.33 x 33.33) 3
116
(W-8)
Plant – BV 42 Cash 30
P/L (bal.) 12

Loss (as above) 12
Less: Accumulated Dep. (12/6 x 6/12) (1)
11
Answer-8
Jasmine Limited (JL)

Rs. in ‟millions'
Assets
Non-current assets
Property, Plant & Equipment (880 + 330 – 8 (W-6)) 1,202
Intangibles (40 + 50 + 15 - 3 ) 102
Goodwill (W-1) 105
Loan Receivable (120 – 120) -
1,409
Current assets (640+ 345 – 52 – 25 (W-5) - 15* (20 x75%)) 893
Cash in Transit (W-7) 30
923
Total 2,332
Equity
Share capital 700
Share premium 240
1,651.25
1,840
Loan payable (96 – 96) -
Current liabilities (324 + 235 - 52 – 15* (20x75%)) 492

Total 2,332
*It is dividend receivable
(W-1)
Investment (W-1.2) 510 Share Capital 200
NCI (at F.V) 180 Pre-Acquisition R.E. (W-1.1) 370
(20 mill. shares x 25% x Rs.36/share)
Revaluation Surplus (40 – 25 ) 15
585
Goodwill (bal.) 105
117
(W-1.1) Calculation of retained earnings of S

S
01-01-17 Opening Retained earning (bal.) 370
Dividend interim-17 (200 x 10%) (20)
31-12-17 Closing Retained earnings (Given) 410
(W-1.2) Investment
As per question 520
Less: To be taken to expenses (10)
Cash given and Shares given [(280-10) = 270 + 240 (10 million shares x Rs. 24 per share)] 510
(W-2)
Brand (Amor.) (Rs.15/5years) 3 Interest receivable (Record income) 6
P.P.E - (net Gain reversal) (W-6) 8 (120 x 10% x 6 /12) (W-7)
CRE (35 x 75%) 26.25

NCI (35 x 25%) 8.75
(W-3)
Professional charges 10 Parent own R.E 720
Stock - URP (W-5) 25 Subsidiary retained earnings a/c 26.25
c/d (bal.) 711.25
(W-4)
(W-5) Sale of stock by JL to SL

Sold stock 250
Unsold stock (250 x 60%) 150
Profit on unsold stock (150/120 x 20) 25
(W-6)
Gain 12
Less: Accumulated Dep. (12/2 x 8/12) (4)
8
(W-7)
Combined Entry for posting adjustment (v) Dr. Cr.
Loan Payable 96
CIT 30
SRE (Int. Income) 6
Loan Receivable 120
118
Journal entries to understand adjustment (v) Dr. Cr.

Loan Payable 96
CIT (bal.) 24
Loan Receivable 120
Interest receivable 6
Interest Income (120 x 10% x 6 /12) 6
Interest Payable 0
CIT (bal.) 6
Interest Receivable 6
Answer- 9
Arrow Limited
For the year ended 31 December 2018
Revenue (5,177 + 3,996 x 8/12 – 384(W-8)) 7,457
Less: Cost of sales (3,255 + 2,448 x 8/12 – 384(W-8) + (W-8) 6 - 1) (4,508)
Gross Profit 2,949
Operating expenses (713 + 636 x 8/12 – 3(W-2) + 18(W-2) + 7(adj. vi) -16) (1,143)
Other income (350 + 18 x 8/12 – 20 -16 – 48(Divid.) + 378 (W-1)) 656
Less: Taxation (403+ 288 x 8/12) (595)
Parent (bal.) 1,707
1,867
Arrow Limited
As on 31 December, 2018
Assets
Property, plant and equipment (5,418 + 1,934 – 90 + 3 – 19 (W-7)) 7,246
Brand (162 – 18) 144
Investment (1,600 – 1,450 (W-1.1)) 150
Loan to director 10
Current assets (2,284 + 1,797 – 6 – 45 (W-9) - 48) 3,982
11,532
Equity
Share capital 3,720
Share Premium 1,430
9,150
10,174
Current liabilities [713 + 651 – 38 + 80(W-2) – 48(80 x 60%)] 1,358
11,532
119
(W-1)
Investment (W-1.1) 1,450 Share Capital 1,600
NCI (at F.V) 896 Share Premium 322
(64 million shares x Rs.14/share) Pre-Acquisition R.E. (W-2) 730
Revaluation loss- Building (480 - 390) (90)
Revaluation Surplus-Brand 162
2,724
Negative Goodwill (bal.) 378
(W-1.1) Investment Rs in mill.
Cash consideration 450
Shares given (40 million shares x Rs.25/share) 1,000
1,450
(W-2)
Pre-Acquisition R.E. (516+ 642 (W-6) x4/12) 730 b/d (Balance sheet closing) (W-6) 1,158
Brand (Amor.) (162/6 x 8/12) 18 P.P.E (Reversal of Dep. on rev loss) 3
Stock – URP (W-8) 6 (90/20 x 8/12)
Management fee (recording of exp.) 7
Dividend payable (Rs. 1,600 mill. x *5%) 80
CRE (320 x 60%) 192

NCI (320 x 40%) 128
*Dividend % = Rs. 0.5/ Rs. 10 = 5%
(W-3)
P.P.E (reversal of net gain) (W-7) 19 Parent own R.E. (W-6) 3,449
Negative Goodwill (W-1) 378
c/d (bal.) 4,000 Subsidiary retained earnings a/c 192
(W-4)
Cost of Investment a/c (W-1) 896
c/d (bal.) 1,024 Subsidiary retained earnings a/c (W-2) 128

Stock – URP (W-8) 6 S profit (642 x 8/12) 428
Brand (Amor.) (162/6 x 8/12) 18 P.P.E (Reversal of Dep. on rev. loss) 3
Management fee (recording of exp.) 7 (90/20 x 8/12)
CRE (400 x 60%) (No use) -

NCI (400 x 40%) (CSOCI) 160
120

P S
Opening retained earning 2,293 516
PAT (5,177 - 3,255 – 713 + 350 - 403): (3,996 - 2,448 – 636 + 18 - 288) 1,156 642
Closing retained earning 3,449 1,158
(W-7)
Dr. Disposal a/c Cr.
P.P.E-B.V (bal.) 230 Sale proceeds 250
Gain 20
We will also calculate rate of depreciation here.

Dep = Cost x Rate x 6/12
12.5 = 250 x X x 6/12
X = 10%

Gain (as above) 20
Less: Accumulated Dep. (20 x 10%(above) x 6/12) (1)
19
(W-8) Sale by S to P
Sold (40/100 x 120 ) = 48 x 8Months 384
Unsold 40/100 x 120 = 48 x 75% 36
Profit on unsold stock (36/120 x 20) 6
(W-9)
Dr. Cr.
Payable 38
SRE (Expense) 7
Loan Receivable 45
121
CHAPTER-10
IFRS 3 & 10 CONSOLIDATION
ICAP QUESTION BANK
Question-1
Statements of financial position at 31 December 2015
Hall Stand
Rs. 000 Rs. 000
Assets
Non-current assets
Investment in Stand 12,000 -
63,000 34,000
Capital and reserves
23,000 16,000
8% Debenture loans 20,000 9,000
63,000 34,000
On 1 January 2013 Hall acquired 75% of Stand for Rs. 12,000,000. At that date the balance on Stand’s
retained earnings was Rs. 8,000,000.
Required
Prepare the consolidated statement of financial position of Hall as at 31 December 2015. (6)
Question-2
Hassle Strife
Rs. Rs.
Investment in Strife 60,000 -
Sundry assets 247,500 226,600
307,500 226,600
307,500 226,600
Hassle bought 80% of Strife when the balance on Strife’s retained profit was Rs. 50,000.
Required
Prepare the consolidated statement of financial position at 31 December 2015. (8)
122
Question-3
The following are the summarised statements of financial position of a group of companies as at
31 December 2015.
Hymn Psalm
Rs. Rs.
Assets
Non-current assets
Investment 85,000
410,000 120,000
Equity
255,000 99,000
410,000 120,000
Hymn purchased 80% of Psalm’s shares on 1 January 2015 when there was a credit balance on that
company’s retained earnings of Rs. 20,000.
Required
Prepare the Hymn group consolidated statement of financial position as at 31 December 2015. (6)
Question-4
On 31 December 2012, Hang acquired 60% of Swing for Rs. 140,000. At that date Swing had a retained
earnings balance of Rs. 50,000 and a share premium account balance of Rs. 49,000.
The following statements of financial position have been prepared as at 31 December 2015.
Hang Swing
Rs. Rs.
Assets
Non-current assets
Investment in Swing 140,000
630,000 376,000
Equity
405,000 219,000
630,000 376,000
Required
Prepare the consolidated statement of financial position of Hang and its subsidiary as at 31 December
2015. (6)
123
Question-5
Hash Stash
Rs. 000 Rs. 000
Investment in Stash (80%) 100,000 -
Sundry assets 207,500 226,600
307,500 226,600
307,500 226,600
Hash purchased the shares in Stash on 30th September 2015.
Stash’s retained profit for the year ended 31st December 2015 was Rs. 24,000,000.
Required
Prepare the consolidated statement of financial position at 31 December 2015. (8)
Question-6
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
Investments in Soft 110,000

606,000 332,000
375,000 190,000
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)
124
Question-7
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
Investments in Solong 110,000

606,000 332,000
375,000 190,000
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 net 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)
Question-8
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 Shakeel
Limited Limited
Rs. 000 Rs. 000
Non-current assets
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
125
1,338 888
Equity and liabilities:
Equity shares of Rs. 1 each 2,000 1,500
Share premium 2,000 500
6,900 3,955
10% Loan note from Hasan Limited - 160
- 160
Current liabilities
Trade payables 705 512
Hasan Limited current account - 60
Income taxes payable 228 174
Operating overdraft - 27
933 773
(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.
(vi) 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. (25)
126
SOLUTIONS
Answer-1
Hall
Assets Rs. in ‘000’
Non-current assets
58,000
Current assets (16,000 + 14,000) 30,000
88,000
Equity
26,000
30,000
Non-Current Liabilities
8% Debentures (20,000 + 9,000) 29,000
88,000
(W-1)
12,000
(W-2)
CRE (4,000 x 75%) 3,000

NCI (4,000 x 25%) 1,000
(W-3)
(W-4)
127
Answer-2
Hassle
Assets
Sundry assets (247,500 + 226,600) 474,100
474,100
Equity
243,500
267,500
Liabilities (100,000 + 106,600) 206,000
474,100
(W-1)
100,000
(W-2)
CRE (20,000 x 80%) 16,000

NCI (20,000 x 20%) 4,000
(W-3)
(W-4)
128
Answer-3
HYMN
Assets Rs.
Non-current assets
199,000
Current assets (220,000 + 55,000) 275,000
474,000
Equity
278,200
298,000
Current Liabilities (155,000 + 21,000) 176,000
474,000
(W-1)
70,000
(W-2)
CRE (29,000 x 80%) 23,200

NCI (29,000 x 20%) 5,800
(W-3)
c/d (bal.) 178,200
(W-4)
129
Answer-4
Hang
Assets Rs.
Non-current assets
446,600
Current assets (250,000 + 196,000) 446,000
892,600
Equity
423,000
510,600
Current Liabilities (225,000 + 157,000) 382,000
892,600
(W-1)
189,000
(W-2)
CRE (30,000 x 60%) 18,000

NCI (30,000 x 40%) 12,000
(W-3)
c/d (bal.) 198,000
(W-4)
130
Answer-5
Hash
Rs. In ‘000’
Assets
Sundry assets (207,500 + 226,600) 434,100
442,900
Equity
212,300
236,300
Liabilities (100,000 + 106,600) 206,600
442,900
(W-1)
(46,000(W-5) + 24,000 x 9/12)
114,000
(W-2)
Pre-Acquisition R.E. 64,000 b/d (Balance sheet closing) (W-5) 70,000
CRE (6,000 x 80%) 4,800

NCI (6,000 x 20%) 1,200
(W-3)
(W-4)
(W-5) Calculation of retained earning of S

01.01.15 Opening retained earnings (bal.) 46,000
Profit after tax -2015 24,000
31.12.15 Closing retained earnings 70,000
131
Answer-6
Hard
Rs.‘000’
Assets
Non-current assets
Property, plant and equipment [225,000 + 175,000 – (W-5) 10,000 + 2,500] 392,500
406,500
Current assets (271,000 + 157,000) 428,000
834,500
Equity
385,500
461,500
834,500
(W-1)
NCI (Prop. share) (160,000 x 40%) 64,000 Share Premium 10,000
160,000
(W-2)
CRE (30,000 x 60%) 18,000

NCI (30,000 x 40%) 12,000
(W-3)
P.P.E (reversal of gain) (W-5) 10,000 Parent own R.E 260,000
P.P.E (reversal of dep.) (10,000 x 25%) 2,500
(W-4)
132
(W-5) adjustment no. 3

Cost 100,000 Accumulated depreciation 60,000
(100,000/5 x 3 years)
P/L (bal.) (gain) 10,000 Cash 50,000
Answer-7
Hello
Rs.
Assets
Non-current assets
Fixed assets [225,000 + 175,000 + 10,000 - 2,000] 408,000
416,000
Current assets (271,000 + 157,000) 428,000
844,000
Equity
391,800
471,000
844,000
(W-1)
Revaluation Surplus (bal.) 10,000
170,000
(W-2)
P.P.E (reversal of dep. on Rev. 2,000
Surplus ) (10,000/10y x 2y)
CRE (28,000 x 60%) 16,800

NCI (28,000 x 40%) 11,200
(W-3)
c/d (bal.) 291,800
133
(W-4)
Answer-8
Hasan Ltd.
As on March 31, 2015
Rs. in ‘000’
Assets
Non-current assets
Property, Plant And Equipment [2,120 + 1,990 - (W-5) 120 + (W-6) 30] 4,020
Intangible software [1,800 - (W-7) 180 - (W-8) 180] 1,440
Investment others (65 + 210) 275
Good will (600 - 120) 480
6,215
Current assets
Inventory [719 + 560 – (W-9) 5] 1,274
Trade receivables (524 + 328) 852
Cash 20
Cash in transit 55
2,201
8,416
Equity
Share capital 2,000
Share premium 2,000
6,420
6,770
Current liabilities
Trade payables (705 + 512) 1,217
Income tax payable (228 + 174) 402
Operating overdraft 27
8,416
(W-1)
NCI (Prop. share) (3,900 x 10%) 390 Share Premium 500
Revaluation loss–Property (W-5) (120)
Revaluation loss –Software (W-7) (180)
3,900
Goodwill (bal.) 600
134
(W-2)
Intangible (Record. of Amor.) (W-8) 180 Property (Dep. reversal Rev. loss) (W-6) 30
Stock-URP (W-9) 5
CRE (400 x 90%) 360

NCI (400 x 10%) 40
(W-3)
Goodwill (Imp.) 120 Parent own R.E 2,900
Subsidiary retained earnings a/c 360
c/d (bal.) 2,420
(W-4)
Subsidiary retained earnings a/c 40 Cost of Investment a/c 390
c/d (bal.) 350
(W-5) Revaluation gain/(loss) on property at date of acquisition (adj. (i))

Fair value - Present value of future rentals (80 + 80 x 2.5) 280
Historical cost 400
Revaluation loss (280 - 400) (120)

(W-6) Depreciation adjustment on revalued property (adj. (i))
Depreciation charged by Shakeel Ltd. on property (400/4) 100
Depreciation for consolidation purpose (280/4) 70

Excess depreciation to be reversed 30
(W-7) Revaluation gain/(loss) on intangible at date of acquisition (adj. (ii))
Fair Value as per directors opinion on acquisition date (1.4.14)
Cost (1.4.13) 2,400
Less: Accumulated amortisation (1.4.14) (2,400/5) x 1 year (480) 1,920
Historical cost acquisition date (1.4.14)
Cost (1.4.13) 2,400
Less: Accumulated amortisation (1.4.14) (2,400/8) x 1 year (300) 2,100
0
Revaluation loss (1,920 - 2,100) (180)

(W-8) Amortisation adjustment on revalued intangible (adj. (ii))
Amortisation charged by Shakeel Ltd. on intangible (2,400/8) 300
Amortisation for consolidation purpose (2,400/5) 480
Further amortisation to be recorded 180

(W-9) Adjustment no. iii
Unsold stock 25
Profit on stock (25/125 x 25) 5
135
CHAPTER-10
CONSOLIDATION
MULTIPLE CHOICE QUESTIONS
01. Ahmad Hassan Limited acquired 70% of the Rs. 100 million equity share capital of Asar Limited,
its only subsidiary, for Rs. 200 million on 1 January 2019 when the retained earnings of Asar
Limited were Rs. 156 million.
At 31 December 2019 retained earnings are as follows.
Rs. in million
Ahmad Hassan Limited 275
Asar Limited 177
Ahmad Hassan Limited considers that goodwill on acquisition is impaired by 50%. Non-controlling
interest is measured at fair value, estimated at Rs. 82.8 million.
What are group retained earnings at 31 December 2019?
(a) Rs. 276.3 million
(b) Rs. 289.7 million
(c) Rs. 280.32 million
(d) Rs. 269.2 million
02. On 1 April 2010 Golden Limited acquired 75% of Silver Limited’s equity shares by means of a
share exchange and an additional amount payable on 1 April 2011 that was contingent upon the
post-acquisition performance of Silver Limited. At the date of acquisition Golden Limited assessed
the fair value of this contingent consideration at Rs. 4.2 million but by 31 March 2011 it was clear
that the amount to be paid would be only Rs. 2.7 million.How should Golden Limited account for
this Rs. 1.5 million adjustment in its financial statements as at 31 March 2011?
(a) Debit current liabilities/Credit goodwill
(b) Debit retained earnings/Credit current liabilities
(c) Debit goodwill/Credit current liabilities
(d) Debit current liabilities/Credit retained earnings
03. On 31 July 2018 Parveen Limited acquired 60% of the 18 million Rs. 10 ordinary shares of Sidra
Limited for a sum of Rs. 432 million. Sidra Limited had accumulated profits at 1 January 2018 of
Rs. 360 million and during the year to 31 December 2018 made a profit of Rs. 108 million.
Fair value of non-controlling interest at the date of acquisition is Rs. 200 million
What is the goodwill that should appear in the consolidated statement of financial position at 31
December 2018?
(a) Rs. 108 million
(b) Rs. 29 million
(c) Rs. 171 million
136
04. Tanveer Limited acquired Tabeer Traders, an unincorporated entity, for Rs. 2.8 million. A fair value
exercise performed on Tabeer Traders’ net assets at the date of purchase showed:
Rs. “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 Rs. 1.2 million
(b) Record the net assets at their above values and credit goodwill with Rs. 1.2 million
(c) Ignore the intangible asset (Rs. 500,000), recording the remaining net assets at their values
shown above and crediting profit or loss with Rs. 700,000
(d) Record the purchase as a financial asset investment at Rs. 2.8 million
05. Sunshine Limited acquired 80% of the share capital of Sun Flower Limited on 1 January 2011. Part
of the purchase consideration was Rs. 200 million cash to be paid on 1 January 2014. The
applicable cost of capital is 10%.
What will the deferred consideration liability be at 31 December 2012?
(c) Rs. 200 million
06. 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 35% of the ordinary shares and 80% of the preference shares of the investee
07. On 1 March 2019, Qazi Limited acquired 70% of the share capital of Hijazi Limited at a cost of Rs.
387 million.
At that date the fair value of the net assets of Hijazi Limited were Rs. 450 million. Transaction costs
incurred in making the acquisition were Rs. 0.045 million. Qazi Limited has decided to account for
the business combination using the full goodwill or fair value method, by attributing some goodwill
to the non-controlling interests in Hijazi Limited. It is estimated that at 1 March 2019 the fair value
of the non-controlling interests in Hijazi Limited was Rs. 153 million.
What was the total amount of goodwill recognised on the acquisition of Hijazi Limited by Qazi
Limited?
Rs. ___________
137
08. Sound Limited obtained a 60% holding in the 10 million Rs. 10 shares of Cloud Limited on 1
January 2018, when the retained earnings of Cloud Limited were Rs. 850 million.
Consideration comprised Rs. 250 million cash, Rs. 400 million payable on 1 January 2019 and one
share in Sound Limited for each two shares acquired. Sound Limited has a cost of capital of 8% and
the market value of its shares on 1 January 2018 was Rs. 23.
Sound Limited measures non-controlling interest at fair value. The fair value of the non-controlling
interest at 1 January 2018 was estimated to be Rs. 400 million.
What was the goodwill arising on acquisition?
Rs. ___________
09. On 1 August 2017 Magnesium Limited purchased 1.8 million of the 2.4 million Rs. 10 equity
shares of Copper Limited. The acquisition was through a share exchange of two shares in
Magnesium Limited for every three shares in Copper Limited. The market price of a share in
Magnesium Limited at 1 August 2017 was Rs. 57.5.
Magnesium Limited will also pay in cash on 31 July 2019 (two years after acquisition) Rs. 24.2 per
acquired share of Copper Limited. Magnesium Limited's cost of capital is 10% per annum.
What is the amount of the consideration attributable to Magnesium Limited for the acquisition of
Copper Limited?
Rs. ___________
10. Big Limited acquired 70% of Small Limited's 10 million Rs. 10 ordinary shares for Rs. 800 million
when the retained earnings of Small Limited were Rs. 570 million and the balance in its revaluation
surplus was Rs. 150 million. The non-controlling interest in Small Limited was judged to have a
fair value of Rs. 220 million at the date of acquisition.
What was the goodwill arising on acquisition?
Rs. ___________
11. Faiqa Limited acquired 75% of the 120,000 Rs. 10 ordinary shares in Saiqa Limited on 1 January
2014. At that date Saiqa Limited had accumulated profits of Rs. 700,000 and a share premium
account balance of Rs. 200,000. Faiqa Limited paid Rs. 1,680,000 for the shares in Saiqa Limited.
At 31 December 2017 Saiqa Limited had accumulated profits of Rs. 1,000,000 and Faiqa Limited
had accumulated profits of Rs. 1,600,000.
What are the consolidated accumulated profits as at 31 December 2017?
Rs. ___________
12. A bargain purchase is a business combination in which the calculation of goodwill leads to a
negative figure.
When this happens, which of the following are reviewed:
(i) The identifiable assets acquired, and liabilities assumed
(ii) The non-controlling interest in the acquire
(iii) The consideration transferred.
(a) (i) and (ii) only
(b) (i) and (iii) only
(c) (ii) and (iii) only
(d) (i), (ii) and (iii) all
13. How should the unrealised profit be posted?

(a) DR Cost of sales / CR Inventories
(b) DR Cost of sales / DR Non-controlling interest / CR Inventories
(c) DR Inventories / CR Cost of sales
(d) DR Inventories / CR Non-controlling interest / CR Cost of sales
138
14. Which of the following is not an intra group transaction?

(a) The sale of goods or rendering of services between the parent and subsidiary
(b) Transfers of non-current assets between the parent and subsidiary
(c) The payment of dividend by subsidiary
(d) The payment of dividend by parent
15. What is accounting treatment of acquisition related costs when goodwill is being measured at
acquisition?
(a) Added to cost of investment
(b) Deducted from cost of investment
(c) Charged as expense of parent entity
(d) Charged as expense of subsidiary entity
16. Haris Limited acquired 80% of the equity shares of Faris Limited on 1 July 2014, paying Rs. 300
for each share acquired. This represented a premium of 20% over the market price of Faris Limited
shares at that date.
Faris Limited’s equity at 31 March 2015 comprised:
Equity shares of Rs. 100 each 100
Retained earnings at 1 April 2014 80
Profit for the year ended 31 March 2015 40 120
220,000
The only fair value adjustment required to Faris Limited’s net assets on consolidation was a Rs. 20
million increase in the value of its land.
Haris Limited’s policy is to value non-controlling interests at fair value at the date of acquisition.
For this purpose the market price of Faris Limited’s shares at that date can be deemed to be
representative of the fair value of the shares held by the non-controlling interest.
What would be the carrying amount of the non-controlling interest of Faris Limited in the
consolidated statement of financial position of Haris Limited as at 31 March 2015?
(a) Rs. 54 million
(b) Rs. 50 million
(c) Rs. 56 million
(d) Rs. 58 million
17. IFRS Standards require extensive use of fair values when recording the acquisition of a subsidiary.
Which TWO of the following comments, regarding the use of fair values on the acquisition of a
subsidiary, are correct?
(a) The use of fair value to record a subsidiary’s acquired assets does not comply with the
historical cost principle.
(b) The use of fair values to record the acquisition of plant always increases consolidated
post-acquisition depreciation charges compared to the corresponding charge in the
subsidiary’s own financial statements.
(c) Cash consideration payable one year after the date of acquisition needs to be discounted
to reflect its fair value.
(d) When acquiring a subsidiary, the fair value of liabilities and contingent liabilities must
also be considered.
139
18. Wareesha Limited has an 80% subsidiary Irfan Limited. In the last month of the year, Wareesha
Limited sold inventory to Irfan Limited for Rs. 21.6 million making a mark-up of 20% on cost. The
goods are still held by Irfan Limited at the year end.
If Wareesha Limited has an inventory balance of Rs. 162 million and Irfan Limited has Rs. 108
million, what will be the inventory figure in the consolidated statement of financial position?
(a) Rs. 270 million
19. Aliyan Limited is a subsidiary of Shaiq Limited. At the year-end Aliyan Limited has a current
account debit balance of Rs. 75 million, but Shaiq Limited has a current account credit balance of
only Rs. 60 million.
Which of the following two reasons might explain the difference?
1. Shaiq Limited had posted a cheque for Rs. 15 million to Aliyan Limited on the last day of the year.
2. Aliyan Limited had despatched Rs. 15 million of inventory to Shaiq Limited on the last day of the
year.
(a) Both may be the reason
(b) None is the reason
(c) Only statement 1 may be the reason
(d) Only statement 2 may be the reason
20. A holding company sold goods to its wholly owned subsidiary for Rs. 18 million representing cost
plus 20%. At the year-end two-thirds of the goods were still in stock.
The unrealised profit in inventory is?
(a) Rs. 2 million
(b) Rs. 2.4 million
(c) Rs. 3 million
(d) Rs. 3.6 million
21. ABC Limited buys goods from its 75% owned subsidiary XYZ Limited. XYZ Limited earns a
markup of 25% on such transactions. At the group’s year end, 30 June 2011 ABC Limited had not
yet taken delivery of goods, at a sales value of Rs. 10 million, which were despatched by XYZ
Limited on 29 June 2011.
What would be the balance inventory in the consolidated statement of financial position of the ABC
Limited group at 30 June 2011?
(a) Rs. 6 million
(b) Rs. 7.5 million
(c) Rs. 8 million
(d) Rs. 10 million
22. Thal Limited owns 80% of the ordinary share capital of its subsidiary Cholistan Limited. At the
group’s year end, 28 February 2011, Thal Limited’s payables include Rs. 3.6 million in respect of
inventories sold by Cholistan Limited. Cholistan Limited’s receivables include Rs. 6.7 million in
respect of inventories sold to Thal Limited. Two days before the year end Thal Limited sent a
payment of Rs. 3.1 million to Cholistan Limited that was not recorded by the latter until two days
after the year end.
What is the entry that should be made to remove the intragroup transaction from the group accounts
apart from cancelling intra group balances?
(a) Rs. 2.325 million to be added to cash
(b) Rs. 3.1 million to be added to payables
140
(c) Rs. 3.1 million to be added to inventories

(d) Rs. 3.1 million to be added to cash
23. P Limited transferred an item of plant to S Limited on 1 January 2013 for Rs. 30 million. The plant
had originally cost P Limited Rs. 30 million at 1 January 2011 and had a useful economic life of 10
years, which is unchanged.
What is the unrealised profit on the plant at 31 December 2013?
(b) Rs. 12 million
(c) Rs. 5.4 million
(d) Rs. 9 million
24. Python Limited acquired 75% of the share capital of Snake Limited on 1 January 2011. On this
date, the net assets of Snake Limited were Rs. 80 million. The non-controlling interest was
calculated using fair value, which was calculated as Rs. 40 million at the date of acquisition. At 1
January 2013 the net assets of Snake Limited were Rs. 120 million and goodwill had been impaired
by Rs. 10 million.
What was the value of the non-controlling interest at 1 January 2013?
(a) Rs. 50 million
25. King Limited acquired 60% of Queen Limited's Rs. 100 million share capital on 1 January 2013,
when Queen Limited also had retained earnings of Rs. 120 million. King Limited paid Rs. 50
million cash, and also agreed to pay a further Rs. 90 million on 1 January 2015. King Limited also
gave the owners of Queen Limited 1 King Limited share for every 2 shares of Queen Limited
purchased.
The fair value of King Limited's shares were Rs. 40 on 1 January 2013, and Rs. 60 on 31 December
2013. At 31 December 2013 King Limited had retained earnings of Rs. 210 million and Queen
Limited had retained earnings of Rs. 110 million. King Limited has a cost of capital of 10%.
King Limited measures the non-controlling interest at fair value. The fair value of the non-
controlling interest at 1 January 2013 was Rs. 25 million.
What is the total goodwill at 1 January 2013?
(b) Rs. 24 million
(d) Rs. 65 million
26. King Limited acquired 60% of Queen Limited's Rs. 100 million share capital on 1 January 2013,
when Queen Limited also had retained earnings of Rs. 120 million. King Limited paid Rs. 50
million cash and agreed to pay a further Rs. 90 million on 1 January 2015. King Limited also gave
the owners of Queen Limited 1 King Limited share for every 2 shares of Queen Limited purchased.
The fair value of King Limited's shares were Rs. 40 on 1 January 2013, and Rs. 60 on 31 December
2013. At 31 December 2013 King Limited had retained earnings of Rs. 210 million and Queen
Limited had retained earnings of Rs. 110 million. King Limited has a cost of capital of 10%.
King Limited measures the non-controlling interest at fair value. The fair value of the non-
controlling interest at 1 January 2013 was Rs. 25 million.
What is the group retained earnings at 31 December 2013?
141

27. On 1 June 2011 Arsalan Limited acquired 80% of the equity share capital of Habib Limited. At the
date of acquisition, the fair values of Habib Limited's net assets were equal to their carrying
amounts with the exception of its property.
This had a fair value of Rs. 1.2 million below its carrying amount. The property had a remaining
useful life of eight years.
What effect will any adjustment required in respect of the property have on group retained earnings
at 30 September 2011?
Rs. ___________
28. On 1 April 2017 Riyasat Limited acquired 116 million of Farasat Limited's 145 million ordinary
shares for an immediate cash payment of Rs. 210 million and issued at par one 10% Rs. 100 loan
note for every 200 shares acquired.
At the date of acquisition Farasat Limited owned a recently built property that was carried at its
depreciated construction cost of Rs. 62 million. The fair value of this property at the date of
acquisition was Rs. 82 million and it had an estimated remaining life of 20 years.
Farasat Limited also had an internally-developed brand which was valued at the acquisition date at
Rs. 25 million with a remaining life of 10 years.
The inventory of Farasat Limited at 31 March 2019 includes goods supplied by Riyasat Limited for
a sale price of Rs. 56 million. Riyasat Limited adds a mark-up of 40% on cost to all sales.
(a) What is the total amount of the consideration transferred by Riyasat Limited to acquire
the investment in Farasat Limited?
(b) What will be the amount of the adjustment to group retained earnings at 31 March 2019
in respect of the movement on the fair value adjustments?
(c) What is the amount of the unrealised profit arising from intragroup trading?
29. Samreen Limited has a 75% owned subsidiary Narmeen Limited. During the year Samreen Limited
sold inventory to Narmeen Limited for an invoiced price of Rs. 800,000. Narmeen Limited have
since sold 75% of that inventory on to third parties.
The sale was at a mark-up of 25% on cost to Samreen Limited. Narmeen Limited is the only
subsidiary of Samreen Limited.
What is the adjustment to inventory that would be included in the consolidated statement of
financial position of Samreen Limited at the year-end resulting from this sale?
Rs. ___________
30. Abrish Limited acquired 80% of Shazim Limited on 1 July 2012. In the post-acquisition period
Abrish Limited sold goods to Shazim Limited at a price of Rs. 12 million. These goods had cost
Abrish Limited Rs. 9 million. During the year to 31 March 2013 Shazim Limited had sold Rs. 10
million (at cost to Shazim Limited) of these goods for Rs. 15 million.
How will this affect group cost of sales in the consolidated statement of comprehensive income of
Abrish Limited for the year ended 31 March 2013?
(a) Increase by Rs. 11.5 million
(b) Increase by Rs. 9.6 million
(c) Decrease by Rs. 11.5 million
(d) Decrease by Rs. 9.6 million
142
31. Maaz Limited acquired 80% of Hamza Limited on 1 January 2018. At the date of acquisition
Hamza Limited had a building which had a fair value Rs. 22 million and a carrying amount of Rs.
20 million. The remaining useful life was 20 years. At the year-end date of 30 June 2018, the fair
value of the building was Rs. 23 million.
Hamza Limited's profit for the year to 30 June 2018 was Rs. 1.6 million which accrued evenly
throughout the year.
Maaz Limited measures non-controlling interest at fair value. At 30 June 2018 it estimated that
goodwill in Hamza Limited was impaired by Rs. 500,000.
What is the total comprehensive income attributable to the non-controlling interest at 30 June 2018?
(a) Rs. 250,000
(b) Rs. 260,000
(c) Rs. 360,000
(d) Rs. 400,000
32. Asim Limited acquires 80% of the share capital of Arif Limited on 1 August 2016 and is preparing
its group financial statements for the year ended 31 December 2016.
How will Arif Limited’s results be included in the group statement of comprehensive income?
(a) 80% of Arif Limited’s revenue and expenses for the year ended 31 December 2016
(b) 100% of Arif Limited’s revenue and expenses for the year ended 31 December 2016
(c) 80% of Arif Limited’s revenue and expenses for the period 1 August 2016 to 31
December 2016
(d) 100% of Arif Limited’s revenue and expenses for the period 1 August 2016 to 31
December 2016
33. Which of the following would result in an unrealised profit within a group scenario?
(a) A parent sells a building originally costing Rs. 800,000 to its subsidiary for Rs.
900,000. The subsidiary still holds this asset at the date of consolidation.
(b) A parent sells a building originally costing Rs. 800,000 to its subsidiary for Rs.
900,000. The subsidiary has sold this asset before the date of consolidation.
(c) A parent sells goods which originally cost Rs. 14,000 to its subsidiary for Rs. 18,000.
The subsidiary has sold all of these goods at the date of consolidation.
(d) A parent sells goods which originally cost Rs. 14,000 to an associate for Rs. 18,000.
The associate has sold all of these goods at the date of consolidation.
34. Jerry Limited acquired an 80% holding in Tom Limited on 1 April 2016. From 1 April 2016 to 31
December 2016 Tom Limited sold goods to Jerry Limited for Rs. 4.3m at a mark-up of 10%. Jerry
Limited's inventory at 31 December 2016 included Rs. 2.2m of such inventory. The statements of
comprehensive income for each entity for the year to 31 December 2016 showed the following in
respect of cost of sales:
Rs. in million
Jerry Limited 14.7
Tom Limited 11.6
What is the cost of sales figure to be shown in the consolidated statement of comprehensive income
for the year to 31 December 2016?
(a) Rs. 18,900,000
(b) Rs. 20,200,000
(c) Rs. 19,100,000
(d) Rs. 19,300,000
143
35. Sun Limited acquired a 60% holding in Moon Limited on 1 January 2016. At this date Moon
Limited owned a building with a fair value Rs. 200 million in excess of its carrying amount, and a
remaining life of 10 years.
All depreciation is charged to operating expenses. Goodwill had been impaired by Rs. 55 million in
the year to 31 December 2016. The balances on operating expenses for the year to 31 December
2017 are shown below:
Rs. in million
Sun Limited 600
Moon Limited 350
What are consolidated operating expenses for the year to 31 December 2017?
(a) Rs. 930 million
(b) Rs. 970 million
(c) Rs. 950 million
(d) None of the above
36. A Limited acquired a 60% holding in B Limited on 1 July 2016. At this date, A Limited gave B
Limited a Rs. 500 million 8% loan. The interest on the loan has been accounted for correctly in the
individual financial statements.
The totals for finance costs for the year to 31 December 2016 in the individual financial statements
are shown below.
Rs. in million
A Limited 200
B Limited 70
What are consolidated finance costs for the year to 31 December 2016?
(a) Rs. 215 million
(b) Rs. 225 million
(c) Rs. 230 million
(d) Rs. 250 million
37. Abeeha Limited has owned 80% of Seema Limited for many years. In the current year ended 30
June 2013, Abeeha Limited has reported total revenues of Rs. 5.5 million, and Seema Limited of
Rs. 2.1 million. Abeeha Limited has sold goods to Seema Limited during the year with a total value
of Rs. 1 million, earning a margin of 20%. Half of these goods remain in year-end inventories.
What is the consolidated revenue figure for the Abeeha group for the year ended 30 June 2013?
(a) Rs. 7.6 million
(b) Rs. 6.6 million
(c) Rs. 8.6 million
(d) Rs. 5.5 million
38. On 1 January 2014, Venice Limited acquired 80% of the equity share capital of Greece Limited.
Extracts of their statements of comprehensive income for the year ended 30 September 2014 are:
Venice Greece
Limited Limited
Rs. in „000‟ Rs. in „000‟
Revenue 64,600 38,000
Cost of sales (51,200) (26,000)
Sales from Venice Limited to Greece Limited throughout the year to 30 September 2014 had
consistently been Rs. 800,000 per month. Venice Limited made a mark-up on cost of 25% on these
sales.
Greece Limited had Rs. 1.5 million of these goods in inventory as at 30 September 2014.
144
What would be the cost of sales in Venice Limited’s consolidated statement of comprehensive
income for the year ended 30 September 2014?
(a) Rs. 63,500,000
(b) Rs. 70,700,000
(c) Rs. 63,800,000
(d) Rs. 77,900,000
39. Haris Limited has owned a 90% subsidiary Faris Limited for many years, but then purchased a 75%
subsidiary Suria Limited half way through this year. The revenue of each company is as follows:
Rs. in million
Haris Limited 150
Faris Limited 135
Suria Limited 120
During the year, Faris Limited sold goods to Haris Limited for Rs. 30 million. These items were
then sold outside of the group by Haris Limited just before the end of the year.
What is the consolidated revenue figure for the year?
(a) Rs. 255 million
(b) Rs. 375 million
(c) Rs. 315 million
(d) Rs. 435 million
40. Halim Limited owns 55% of Namal Limited. In 2018 Namal Limited made a profit after tax of Rs.
72 million. During the year Halim Limited sold goods costing Rs. 36 million to Namal Limited at a
mark-up of 40%. Two thirds of these goods had been sold outside of the group by the year end.
Calculate the non-controlling interest to be shown in the consolidated statement of comprehensive
income for 2018.
(b) Rs. 72 million
(c) Rs. Nil
(d) Cannot be determined with this information
41. Two years ago, Burhan Limited purchased 60% of Hussain Limited and 10% of Meerab Limited.
Burhan Limited is not able to exert significant influence over its investment in Meerab Limited.
Revenue for the three companies for the year to 30th June 2010 was:
Burhan Limited Hussain Limited Meerab Limited
Rs. in million Rs. in million Rs. in million
Revenue 180 144 108
The group revenue in the consolidated statement of comprehensive income is:
(c) Rs. 324 million
(d) Rs. 432 million
145
42. Hareem Limited and its subsidiary Maneha Limited have the following results for the year 2014.
Hareem Limited Maneha
Limited
Revenue 900 450
Cost of sales 450 234
Gross profits 450 216
During the year, Hareem Limited sold goods to Maneha Limited for Rs. 90 million making a profit
of Rs. 18 million.
None of these goods remain in inventories at the year end.
What will be shown as revenue and gross profit in the 2014 consolidated Statement of
comprehensive income?
(a) Revenue Rs. 1,260 million, Gross profit Rs. 666 million
(b) Revenue Rs. 1,260 million, Gross profit Rs. 648 million
(c) Revenue Rs. 1,350 million, Gross profit Rs. 756 million
(d) Revenue Rs. 1,350 million, Gross profit Rs. 666 million
43. Bilal Limited sells inventory costing Rs. 30 million to his subsidiary Sohail Limited for Rs. 45
million. By the end of the year, Sohail Limited has just half of this inventory remaining.
If the sales of the two companies were: Rs. 150 million and Rs. 120 million respectively, and the
cost of sales were Rs. 75 million and Rs. 60 million calculate the consolidated revenue and gross
profit for the year.
(a) Revenue Rs. 225 million; Gross profit Rs. 127.5 million
(b) Revenue Rs. 270 million; Gross profit Rs. 127.5 million
(c) Revenue Rs. 225 million; Gross profit Rs. 120 million
(d) Revenue Rs. 270 million; Gross profit Rs. 120 million
44. Abrar Limited acquired 60% of Haq Limited on 1 March 2019. In September 2019 Abrar Limited
sold Rs. 46 million of goods to Haq Limited. Abrar Limited applies a 30% mark-up to all its sales.
25% of these goods were still held in inventory by Haq Limited at the end of the year.
An extract from the draft statements of profit or loss of Abrar Limited and Haq Limited at 31
December 2019 is:
Abrar Limited Haq Limited
Revenue 955 421.5
Cost of sales (407.3) (214.6)
Gross profits 547.7 206.9
All revenue and costs arise evenly throughout the year.
What will be shown as gross profit in the consolidated statement of comprehensive income of Abrar
Limited for the year ended 31 December 2019?
Rs. ___________
146
45. Shahzad Limited acquired 80% of Roy Limited on 1 June 2011. Sales from Roy Limited to Shahzad
Limited throughout the year ended 30 September 2011 were consistently Rs. 1 million per month.
Roy Limited made a mark-up on cost of 25% on these sales. At 30 September 2011 Shahzad
Limited was holding Rs. 2 million inventory that had been supplied by Roy Limited in the post-
acquisition period.
By how much will the unrealised profit decrease the profit attributable to the non-controlling
interest for the year ended 30 September 2011?
Rs. ___________
46. Fahad Limited Ltd acquired 80% of the ordinary shares of Mustufa Limited on 31 December 2014
when Mustufa Limited’s retained earnings were Rs. 20 million. At 31st December 2015, Mustufa
Limited’s retained earnings stood at Rs. 25 million. Neither companies pay dividends or have made
any other reserve transfers.
Calculate the non-controlling interest in the consolidated statement of comprehensive income for
the year ended 31st December 2015.
Rs. ___________
47. On what basis may a subsidiary be excluded from consolidation?

(a) The activities of the subsidiary are dissimilar to the activities of the rest of the group
(b) The subsidiary was acquired with the intention of reselling it after a short period of time
(c) The subsidiary is based in a country with strict exchange controls which make it difficult
for it to transfer funds to the parent
(d) There above three statements are not valid reasons for excluding a subsidiary from
consolidation.
48. When negative goodwill arises IFRS 3 Business combinations requires that the amounts involved in
computing goodwill should first be reassessed.
When the amount of the negative goodwill has been confirmed, how should it be accounted for?
(a) Charged as an expense in profit or loss
(b) Capitalised and presented under non-current assets
(c) Credited to profit or loss
(d) Shown as a deduction from non-current assets
49. Which TWO of the following statements are correct when preparing consolidated financial
statements?
(a) A subsidiary cannot be consolidated unless it prepares financial statements to the same
reporting date as the parent.
(b) A subsidiary with a different reporting date may prepare additional statements up to the
group reporting date for consolidation purposes.
(c) A subsidiary's financial statements can be included in the consolidation if the gap between
the parent and subsidiary reporting dates is five months or less.
(d) Where a subsidiary's financial statements are drawn up to a different reporting date from
those of the parent, adjustments should be made for significant transactions or events
occurring between the two reporting dates.
147
50. IFRS 10 Consolidated financial statements provides a definition of control and identifies three
separate elements of control.
Which one of the following is not one of these elements of control?
(a) Power over the investee
(b) The power to participate in the financial and operating policies of the investee
(c) Exposure to, or rights to, variable returns from its involvement with the investee
(d) The ability to use its power over the investee to affect the amount of the investor's returns
51. 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
52. Which of the following is not a condition which must be met for the parent to be exempt from
producing consolidated financial statements?
(a) The activities of the subsidiary are significantly different to the rest of the group and to
consolidate them would prejudice the overall group position
(b) The ultimate parent produces consolidated financial statements that comply with IFRS
Standards and are publicly available
(c) The parent’s debt or equity instruments are not traded in a public market
(d) The parent itself is a wholly owned subsidiary or a partially owned subsidiary whose
owners do not object to the parent not producing consolidated financial statements
53. Consolidated financial statements are presented on the basis that the companies within the group are
treated as if they are a single economic entity.
Which TWO of the following are requirements of preparing consolidated financial statements?
(a) All subsidiaries must adopt the accounting policies of the parent in their individual financial
statements
(b) Subsidiaries with activities which are substantially different to the activities of other
members of the group should not be consolidated
(c) All assets and liabilities of subsidiaries should be included at fair value
(d) Unrealised profits within the group must be eliminated from the consolidated financial
statements
148
54. High Limited has a number of relationships with other companies. In which of the following
relationships is High Limited necessarily the parent?
(i) Fall Limited has 50,000 non-voting and 100,000 voting equity shares in issue with each
share receiving the same dividend. High Limited owns all of Fall Limited’s non-voting
shares and 40,000 of its voting shares.
(ii) High Limited owns 49% of the equity shares in Middle Limited and 52% of its non-
redeemable preference shares. As a result of these investments, High Limited receives
variable returns from Middle Limited and has the ability to affect these returns through its
power over Middle Limited.
(a) (i) only
(b) (ii) only
(c) (i) and (ii) only
55. Which TWO of the following are non-adjusting events?
(a) Directors approved the plan to close down the major segment before year-end but
announcement to public was made after year-end.
(b) A company made an out of court settlement with a customer after year-end, for defective
products supplied before year-end.
(c) The discovery of fraud after year-end which shows that financial statements are incorrect.
(d) A change in income tax rate announced after year-end.
149
SOLUTIONS
01. (c) (W-1) Rs. In million

NCI (at F.V) 82.8 Pre-Acquisition R.E. 156
256
(W-2)
Goodwill Impairment 13.4
(26.8 x 50%)
CRE (7.6 x 70%) 5.32
NCI (7.6 x 30%) 2.28
(W-3)
Parent own R.E 275
Subsidiary retained earnings a/c 5.32
c/d (bal.) 280.32
02. (d)
03. (b) (W-1) Rs. in million
Dr. Cost of Investment (For calculating Goodwill Cr.
(18 mill. share x Rs.10/share)
(360 + 108 x 7/12)
603
Goodwill (bal.) 29
04. (a) (W-1) Rs. in million
Investment 2,800 Share Capital Xx
NCI - Pre-Acquisition R.E. Xx
Net Assets 4,000
(3,000 + 500 + 300 + 200)
05. (d) Calculation:
Deferred Consideration (200 x 1.1-1 ) 181.818
06. (b) & (d) Explanation:
The fact that unanimous consent is required would suggest that there is no
control over the investee. Preference shares carry no voting rights and therefore
are excluded when considering the control held over an investee.
07. Rs. 90 (W-1) Rs. in million

million
150

Investment 387 Share Capital Xx
NCI (At F.V) 153 Pre-Acquisition R.E. Xx
Net Assets (Given) 450
Goodwill (bal.) 90
08. Rs. 139.37 (W-1) Rs. in million
million Dr. Cost of Investment (For calculating Goodwill) Cr.
Investment (W-1.1) 689.37 Share Capital 100
(10 shares x Rs.10/share)
NCI (At F.V) 400 Pre-Acquisition R.E. 850
950
(W-1.1) Cost of Investment Rs. in million

Cash Consideration 250
-1
Deferred Consideration (400 x 1.08 ) 370.37
Share Exchange (*6 million x 1/2) x 23 69
Total 689.37
*no. of shares acquired = 10 million x 60% = 6 million
09. Rs. 105 (W-1.1) Cost of Investment Rs. in million
million Cash Consideration -
Deferred Consideration (1.8m shares x Rs.24.2/share x 1.1-2) 36
Share Exchange (1.8m x 2/3) x 57.5 69
Total 105
10. Rs. 200 (W-1) Rs. in million
million Dr. Cost of Investment (For calculating Goodwill) Cr.
(10 mill. shares x Rs.10/share)
NCI (At F.V) 220 Pre-Acquisition R.E. 570
820
Goodwill (bal.) 200
11. Rs. (W-1) Rs.
1,825,000 Dr. Cost of Investment (For calculating Goodwill) Cr.
Investment 1,680,000 Share Capital 1,200,000
(120,000 shares x Rs.10/share)
Share Premium 200,000
NCI (Prop. share) 525,000 Pre-Acquisition R.E. 700,000
(2,100,000 x 25%)
2,100,000
151
(W-2) Rs.
Pre-Acquisition R.E. 700,000 b/d (Balance sheet 1,000,000
closing)
CRE (300,000 x 75%) 225,000
NCI (300,000 x 25%) 75,000
(W-3) Rs.
Parent own R.E 1,600,000
c/d (bal.) 1,825,000
12. (d)
13. (a)
14. (d) Explanation:
Payment of dividend by parent is not intra group transaction. The payment is made
to shareholders of parent entity.
15. (c) Explanation:
The acquisition related costs are not capitalised and charged as expense by parent.
16. (c) (W-1) Rs.
(*0.8 mill. shares x Rs.300/share)
[0.2 mill. shares x Rs.**250/share] (80 + 40 x 3/12)
210
Goodwill (bal.) 80
*Total shares of S = Rs. 100 mill/Rs. 100 = 1 mill. shares. We bought 80% i.e. 0.8
mill. shares of S
**Marker price of S share on Acq. date = 300/120 x 100 = Rs.250/share
(W-2) Rs.
Dr Subsidiary retained earnings a/c Cr.
CRE (30 x 80%) 24

NCI (30 x 20%) 6
(W-3) Not Required
(W-4) Rs.
c/d (bal.) 56 Subsidiary retained earnings a/c 6
152
17. (c) & (d) Explanation:

The fair value of deferred consideration is its present value. Fair values are applied
to the subsidiary’s assets, liabilities and contingent liabilities.
While the use of fair value seems to not comply with the historical cost principle,
this will effectively form part of the cost of the subsidiary to the parent, so the
principle is still applied. Depreciation will not increase if the fair value of assets is
lower than the current carrying amount.
18. (b) Rs. In ‘million’
Inventory [162 + 108 – (W-1) 3.6] 266.4
Sold 21.6
Unsold 21.6
Unsold profit (21.6/120 x 20) 3.6
19. (a) Note:
P ne cheque bheja tou P ka payable kum. S ne goods bhejien tou S ka receivable
ziada.
20. (a) (W-1) Sale of stock by P to S
Sold 18
Unsold (18 x 2/3) 12
Unsold profit (12/120 x 20) 2
21. (c) Rs. In ‘million’
Inventory [P stock + S stock + 10 (Goods in transit) - (W-1)2 URP] 8
Sold 10
Unsold 10
Unsold profit (10/125 x 25) 2
22. (d)
Books of both show: P Books S Books
Payable 3.6
Receivable 6.7
Journal Entry Dr. Cr.

Payable 3.6
Cash-in-transit 3.1
Receivable 6.7
153
23. (a) (W-3)

P.P.E (net gain reversal) 5.25 Parent own R.E Xx
(W-5)
Subsidiary retained earnings a/c Xx
c/d (bal.) 5.25
(W-5)
Plant – BV [30 - (30/10 x 2)] 24
P/L (bal.) 6 Cash 30

Gain (as above) 6
Less: Accumulated Dep. (6/8 years) (0.75)
5.25
24. (b) (W-2) Rs. in million
Goodwill Impairment 10
CRE (30 x 75%) 22.5

NCI (30 x 25%) 7.5
(W-3) Not required
(W-4)
Share capital and Share premium balances in net assets usually remain same before
and after acquisition. Isliye net assets main jo bhi change ae gi who retained
earnings ki hi hogi.
25. (a) (W-1) Rs. in million
220
(W-1.1) Cost of Investment Rs. in ‘mil
Share Exchange (10 x 60% x 1/2) x 40 120
Total 244.38
154
26. (c) (W-1) Rs. in million

220
(W-2)
CRE (10 x 60%) 6

NCI (10 x 40%) 4
(W-3)
Interest Exp. (Def. Consideration) 7.438 Parent own R.E 210
(74.38 x 10%)
Subsidiary retained earnings a/c 6
c/d (bal.) 196.562
(W-1.1) Cost of Investment Rs. in ‘mi
Share Exchange (10 x 60% x 1/2) x 40 120
Total 244.38
27. Rs. 40,000 (W-2)

Pre-Acquisition R.E. Xx b/d (Balance sheet closing) Xx
P.P.E (Dep. on Rev. loss) 50,000
(1,200,000/8 y x 1 y x 4/12)
CRE (50,000 x 80%) 40,000
NCI (50,000 x 20%) 10,000
28. (a) Rs. 268 (W-1.1) Cost of Investment Rs. in ‘million’
million Cash consideration 210
(W-1.1) Loan notes issued 58
(b) Rs. 5.6 (116mill./200 shares x 1loan note = 0.58 mill. loan notes x Rs.100/loan note)
million Total 268
(W-2)
(c) Rs. 16 (W-2)
million Dr. Subsidiary retained earnings a/c Cr.
(W-3) Pre-Acquisition R.E. Xx b/d (Balance sheet closing) Xx
P.P.E (Dep. on Rev. gain) 2
[(82-62)/20 y x 2 y]
Brand (Amor.) 5
(25/10y x 2y)
CRE (7 x 80%) 5.6
NCI (7 x 20%) 1.4
155
(W-3) Sale of Stock by P to S

Sold stock 56
Unsold stock 56
Profit on unsold stock (56 /140 x 40) 16
(pehle 3 paras irrelevant hain ku k sirf intra group trading ka pocha hai)
29. Rs. 40,000 (W-1) Sale of Stock by P to S
Sold stock 800,000
Unsold stock (800,000 x 25%) 200,000
Profit on unsold stock (200,000 /125 x 25) 40,000
30. (c)
Rs. in million
Cost of sales [Xx – 12 + 0.5 (W-1)] Decrease by 11.5
Sold 12
Unsold (12-10) 2
Unsold profit (2/100 x 25*) 0.5
*Margin (12-9) = 3/12 x 100 = 25%
31. (c) Total NCI = 50(W-5) + 310 (W-5.1) = Rs. 360,000
(W-5) Calculation of NCI figure in CSOCI a/c: Rs. in ‘000’
Building (Dep. on Rev. Surplus) 50 S profit (1,600 × 6/12) 800
(2,000/20 × 6/12)
Goodwill impairment 500
CRE (250 x 80%) (No use) -

NCI (250 x 20%) (CSOCI) 50
(W-5.1) Calculation of NCI figure in OCI a/c: Rs. in ‘000’
Dr. Subsidiary OCI for the year Cr.
OCI for the year – 1,550
Revaluation surplus
CRE (1,000 x 80%) (No use) - (23,000 - 21,450*)
NCI (1,550 x 20%) (CSOCI) 310
22,000 – 22,000/20 x 6/12 = 21,450*

32. (d)
33. (a) Sirf is transaction main outside world ko nahi sale kia
34. (d) Rs. in million
Cost of sales [14.7 + 11.6 x 9/12 – 4.3 + 0.2(W-4)] 19.3
Sold 4.3
Unsold 2.2
Unsold profit (2.2/110 x10) 0.2
35. (b)
Rs. in million
Operating expenses [600 + 350 + 200/10] 970
Note: Last year ki goodwill ki impairment is saal kay profit and loss main record
nahi ho gi.
156
36. (b)
Rs. in million
Finance Cost [200 + {(70 – *20) x 6/12}] 225
* 500 x 8% x 6/12 = 20 (Apas ka interest)
37. (b)
Rs. in million
Revenue [5.5 + 2.1 – 1] 6.6
Baqi adjustments cost of sales main hon gi.
38. (c) Rs. in’000’
Cost of sales [51,200 + 26,000 x 9/12 –7,200 + 300 (W-1)] 63,800
Sold (800 x 9) 7,200
Unsold (given) 1,500
Unsold profit (1,500/125 x25) 300
39. (c) CSOCI (Extracts) Rs. in million
Sale (150 + 135 – 30 + 120 x 6/12) 315
40. (a) (W-5) Calculation of NCI figure in CSOCI: Rs. in million

S profit 72
CRE (72 x 55%) (No use) -

NCI (72 x 45%) (CSOCI) 32.4
41. (c)
Rs. in million
Revenue [180 + 144] 324
Meerab na subsidiary hay na associate is liye us ki sale ignore ki. Agar associate
hoti phir bhi us ki sale ignore kartay.
42. (a)
Rs. in million
Revenue (900 + 450 - 90) 1,260
Less: Cost of sales (450 + 234 - 90) (594)
Gross profit 666
Sold 90
Unsold -
Unsold profit -
43. (a)
Rs. in million
Revenue (150 + 120 - 45) 225
Less: Cost of sales (75 + 60 – 45 + 7.5) (97.5)
Gross profit 127.5
Sold 45
Unsold (45 x 1/2) 22.5
Unsold profit (22.5/100 x 33.33 ) 7.5
*Margin = (45 – 30)/45 x 100 = 33.33%
157
44. Rs.717.463
million Rs. in million
Revenue (955 + 421.5 x 10/12 - 46) 1,260.25
Less: Cost of sales (407.3 + 214.6 x 10/12 – 46 + 2.654) (542.787)
Gross profit 717.463
Sold 46
Unsold (46 x 25%) 11.5
Unsold profit (11.5/130 x 30 ) 2.654
45. Decrease (W-5) Calculation of NCI figure in CSOCI: Rupees
by Rs. Dr. S profit for the year Cr.
80,000 Stock-URP (W-6) 400,000 S profit Xx
CRE (400,000 x 80%) (No use) 320,000

NCI (400,000 x 20%) (CSOCI) 80,000
Sold (1,000,000 x 4) 4,000,000
Unsold (given) 2,000,000
Unsold profit (2,000,000/125 x 25 ) 400,000
46. Rs. 1 (W-5) Calculation of NCI figure in CSOCI: Rs. in million
million Dr. S profit for the year Cr.
S profit (W-6) 5
CRE (5 x 80%) (No use) -

NCI (5 x 20%) (CSOCI) 1
FL ML
Opening Retained Earning – 01.01.15 (Given) - 20
Profit after tax (Bal.) - 5
closing Retained Earning – 31.12.15 (Given) - 25
47. (d)
48. (c) Negative goodwill profit and loss ko credit Karen ge.
49. (b) & (d)
50. (b) Explanation:
This is the definition of significant influence, not control.
51. (c) Explanation:
While having the majority of shares may be a situation which leads to control, it
does not feature in the definition of control per IFRS 10 Consolidated Financial
Statements.
52. (a) Explanation:
The activities of the subsidiary are irrelevant when making the decision as to
whether to produce consolidated financial statements or not.
53. (c) & (d) Explanation:
While the same accounting policies must be used in the consolidated financial
statements, the subsidiaries do not have to operate the same policies as the parent.
Having different activities is not an acceptable reason for non-consolidation
54. (b)
158

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cONSOLIDATION

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CHAPTER-10 IFRS 3 & 10 CONSOLIDATION

Payment for buying Subsidiary

New Owner PTCL will pay cash

The definition of a group

Illustration: Single economic entity

The definition of control

Requirement of Companies Act, 2017

LO2: PRE- AND POST-ACQUISITION PROFITS/LOSSES

Current assets 30,000 25,000

CRE (32,000 x 70%) 22,400

3.2: NEGATIVE GOODWILL

Dr. Cost of Investment (For calculating Goodwill) Cr.

3.3: IMPAIRMENT OF POSITIVE GOODWILL (WHEN NCI ON PROPTIONATE BASIS)

1. Reduced Consolidated retained earnings by Rs. 4.

1.Reduced Consolidated retained earnings by Rs. 5

3.4: IMPAIRMENT OF POSITIVE GOODWILL (WHEN NCI ON FAIR VALUE)

Calculate impairment loss and impact on balance sheet item?

1. Reduce Subsidiary retained earnings by Rs. 10

LO 4: SALE OF STOCK BY SUBSIDIARY TO PARENT

What has happened? What to do now? Accounts to be effected

It can be illustrated through following example:

Sold stock 90,000

1. Reduce Subsidiary retained earnings by Rs. 4,615

Sold stock Not known

1. Reduce Subsidiary retained earnings by Rs. 6,000

Sold stock Not known

LO 5: SALE OF STOCK BY PARENT TO SUBSIDIARY

What has happened? What to do now? Accounts to be effected

1.Reduce Consolidated retained earnings by Rs.1,636

Sold stock 90,000

1.Reduce Consolidated retained earnings by Rs.4,615

Sold stock Not known

1.Reduce Consolidated retained earnings by Rs. 6,000

Sold stock Not known

LO 6: SALE OF FIXED ASSET BY SUBSIDIARY TO PARENT

Show impact on balance sheet items in consolidated books to be passed on 31.12.15?

Gain net of Depreciation

Gain net of Depreciation

Loss net of Depreciation

Loss net of Depreciation

LO 7: SALE OF FIXED ASSET BY PARENT TO SUBSIDIARY

Show impact on balance sheet items in consolidated books to be passed on 31.12.16?

Gain net of Depreciation

Gain net of Depreciation

Loss net of Depreciation

Loss net of Depreciation

LO 8: FAIR VALUE ADJUSTMENT

1.Increase Land by Rs. 1 million

1.Increase PPE by Rs. 4,000

Accumulated depreciation on revaluation surplus on PPE

1.Increase Intangible Assets by Rs.70,000

Accumulated amortization on revaluation surplus of intangible

Accumulated depreciation on revaluation loss of PPE

Accumulated dep. on revaluation surplus of PPE

Eliminating inter-company balances

Reconciling inter-company balances

Equity and liabilities

Debtors of subsidiary include Rs. 4,000 in respect of goods sold to P.

Equity and liabilities

Equity and liabilities

Equity and liabilities

Negative Goodwill (bal.) Goodwill (bal.) XX

(W-2) (From date of Acquisition till balance sheet date Adjustments)

Consolidated Capital reserve Xx