Professional Documents
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Investments in Associates
Investments in Associates
Question 2
The statement of financial position of J co and its investee companies, P co and S co
at 31st December 20x5 are shown below
J co P co S co
$000 $000 $000
Non-current assets
Freehold property 1950 1250 500
Plant and machinery 795 375 285
Investments 1500
4,245 1,625 785
Current asset
Inventory 575 300 265
Trade receivables 330 290 370
Cash 50 120 20
5,200 2,335 1,440
Equity
Share capital $1 per share 2,000 1,000 750
Retained earnings 1460 885 390
3,460 1,885 1,140
Non-current liabilities
12% loan stock 500 100
Current liabilities
Trade payable 680 350 300
Bank overdraft 560 - -
5,200 2,335 1,440
Additional information:
J Co acquired 600,000 ordinary shares in P Co on 1 January 20x0 for $1,000,000
when the retained earnings of P Co were $200,000.
At the date of acquisition of P Co, the fair value of its freehold property was
considered to be $400,000 greater than its carrying value in P Co's statement of
financial position. P Co had acquired the property in January 20x0 and the
building element (comprising 50% of the total value) is depreciated on cost over
40 years.
J Co acquired 225,000 ordinary shares in S Co on 1 January 20x4 for $500,000
when the retained earnings of S Co were $150,000.
P Co manufactures a component used by both J Co and S Co. transfers are made
by P Co at cost plus 25%. J Co held $100,000 inventory of these components at
31 December 20x5. In the same period J Co sold goods to S Co of which S Co
had $80,000 in inventory at 31 December 20x5. J Co had marked these goods up
by 25%.
The goodwill in P Co is impaired and should be fully written off. An impairment
loss of $92,000 is to be recognized on the investment in S Co.
Non-controlling interest is valued at full fair value. P Co shares were trading at
$1.60 just prior to the acquisition by J Co.
Required; prepare, in a format suitable for inclusion in the annual report of the J Co
group, the consolidated statement of financial position at 31 December 20x5.
Question 3
Hever has held shares in two companies, Spiro and Aldridge, for a number of years.
As at 31 December 20x4, they have the following statements of financial position:
Required; prepare the consolidated statement of financial position for the Hever group
(incorporating the associate).
Question 4
On October 31, 2013, Carolina paid ₦70,000 to acquire 40% of the share capital of
Kiwi (which became its associate). Draft financial statements of the two companies
for the year to October 31, 2017:
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
OCTOBER 31 2017
Carolina Kiwi
₦000 ₦000
Operating profit 325 70
Dividend received from Kiwi 10 --
Profit before tax 335 70
Income tax expense (85) (15)
Profit for the Year 250 55
Required; prepare the separate financial statements of Carolina for the year ended
October 31, 2017, incorporating the result of the associate Kiwi, using the equity
method of accounting.
Question 5
Below are the income statements of the Barbie group and its associated companies as
at 31 December 20X8
Barbie Ken Shelly
$000 $000 $000
Revenue 385 100 60
Cost of sales (185) (60) (20)
Gross profit 200 40 40
Operating expenses (50) (15) (10)
Tax (50) (12) (10)
Profit for the year 100 13 20
Additional information:
Barbie acquired 45,000 ordinary shares in Ken a number of years ago. Ken has
50,000 $1 ordinary shares. Barbie also acquired 60,000 ordinary shares In Shelly
a number of years ago. Shelly has 200,000 $1 ordinary shares.
During the year Shelly sold goods to Barbie for $28,000. Barbie still holds some
of these goods in inventory at the year end. The profit element included in these
remaining goods is $2,000.
Non-controlling interests are valued using the fair value method.
Goodwill and the investment in the associate were impaired for the first time
during the year as follows; -Shelly $2,000 -Ken $3,000. Impairment of the
subsidiary’s goodwill should be charged to operating expenses.
Required; prepare the consolidated income statement for Barbie including the results
of its associated company