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QUESTION 1

Statement of financial position for Panini group as at 30 September 2013

$000
$000
Non-current assets
Goodwill (W3) 67,405
Property, plant and equipment 488,175
(345,000 1000 +250 + 141,000 + 3,000 FV adj 75 FV depn )
Investments 28
(179,530 120,000 cash 6,530 deferred 28,000 Alec -24,972
FVOCI)
Investment in Associate (W6) 25,000

580,608
Current assets
Inventory (43,000 + 17,320) 60,320

Receivables (32,400 + 38,000 -2,000 cash 6,000 Intra-group) 62,400


Cash (18,600 + 10,000 + 2,000 cash in transit) 30,600

153,320

733,928

Equity
Share capital (170,000 + 7,500) 177,500
Share premium (16,500) 16,500
Group retained earnings (W5) 326,665

Non-controlling interests (W4) 22,606



543,271
Non-current liabilities
Loan notes (69,000 + 60,200) 129,200
Deferred consideration (6,530 + 457 unwinding) 6,987

136,187

Current liabilities (35,350 + 25,120 6,000) 54,470


733,928

Note: The discount on the deferred consideration needs to be unwound, as Panini accounted for it at the start
of the year. As the SOFP is exactly one year later, a years unwinding must be performed. 7% 6,530 = $457
(Dr RE w5, Cr Deferred Consideration)
25%
Panini
75% 01/07/13

01/10/12 3 months ago

1 year ago Kwaku Alec

(W2) Net assets - Kwaku

At acquisition At reporting Post


date acquisition
$000 $000 $000
Share capital 15,000 15,000 0
Retained earnings 82,000 104,925 22,925

Fair value adjustment 3,000 3,000 0


100,000 122,925 22,925

(W2b) Net assets - Alec

At acquisition At reporting Post


date acquisition
$000 $000 $000
Share capital 28,000 28,000 0
Retained earnings 124,000 120,000 (4,000) *


152,000 148,000 (4,000)

(W5/W6)

*Note The $4,000 post acquisition loss is calculated by time-apportioning Alecs loss for the year. Alec has
made a $16,000 loss for the year, and Panini has had an influence for 3 months. Therefore 3/12 x $16,000 =
$4,000.

(W3) Goodwill

$000

Controlling interest:

Cash 120,000

Deferred cash ($8 m/1.073) 6,530


Shares (75% x 15,000 S shares = 11,250 shares in K, x 2/3 = 24,000
7,500 P shares @ $3.20 each)

150,530
Fair value of NCI
16,875
(NCI owns 3,750 shares (25% x 15,000 K shares), @ 4.50 each)

167,405

100% net assets at acquisition (W2) (100,000)

Goodwill on acquisition 67,405

(W4) Non-controlling interests

$ 0 00

Fair value of non-controlling interest 16,875

Plus: share of subsidiary post-acquisition retained earnings 5,731


(25% x 22,925 (W2))
22,606

(W5) Group retained earnings

$000

100% Panini retained earnings 312,928

Unwinding of discount ($6,530 x 7%) (457)

75% Kwakus post-acquisition profit (22,925 (W2) x 75%) 17,194

25% Alecs post-acquisition loss (3/12 x (16,000)x 25%) (1,000)

Impairment in Alec (2,000)



326,665

(W6) Investment in Associate

$000

Cost of investment (25% x 28,000 = 7,000 shares @ $4) 28,000

25% Alecs post-acquisition loss (3/12 x (16,000)x 25%) (1,000)

Impairment in Alec (2,000)



25,000
Journal entries for Additional Information:

Note 1a

Dr PPE of Kwaku 3,000,000

Cr FVA of Kwaku 3,000,000

Being Fair value adjustment

Note 1b

Dr RE of Kwaku 75,000

Cr PPE of Kwaku 75,000

Being additional depreciation

Note 2a

Dr RE of Kwaku 1000,000

Cr PPE of Panini 1,000,000

Being adjustment of PURP on the sale of NCA

Note 2a

Dr Panini 250,000

Cr RE of Panini 250,000

Being reversal of over-depreciation provided

Note 3

Dr RE of Panini 24,972,000

Cr Investments of Panini 24,972,000

Being adjustment for fall in value of investment from 25,000,000 to 28,000

Note 4a

Dr Bank of Kwaku 2,000,000

Cr Trade Receivab of Kwaku 2,000,000

Let cash reach its destination

Note 4a

Dr Trade payables of Panini 6,000,000

Cr Trade Receivables of Kwaku 6,000,000

Same company cannot owe itself


b)

Explanation of treatment of Note 2:

This is a sale within the same company, so the carrying value of the fixed asset instead of the selling price

should be used, as the same company cannot make a profit on itself.

Dr. RE of Kwaku 1,000,000

Cr PPE of Panini 1,000,000

Being adjustment of PURP on the sale of NCA

As $5,000,000 was recorded in its books by Panini there was, therefore, an over-statement of $1,000,000. The

depreciation charge of $250,000 on the over-statement which Panini applied, must be reversed.

Dr PPE of Panini 250,000

Cr RE of Panini 250,000

Being reversal of over-depreciation provided

Explanation of treatment of Note 4:

Kwakus Trade receivable balance differed from Paninis Trade payables balance by $2,000,000 because this

payment was still in transit.

Dr Bank of Kwaku 2,000,000

Cr Trade Receivables of Kwaku 2,000,000

Let cash reach its destination

Same company cannot owe or be a debtor to itself

Dr Trade payables of Panini 6,000,000

Cr Trade Receivables of Kwaku 6,000,000

Same company cannot owe itself

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