Paper F7 guide

Question 1: Consolidated Financial Statements

Consolidated Statement of Income Statement
Step1
Step 2
Parent
Subsidy
$'000
$'000
Revenue step 3
22,800 4,300(6/12)
Cost of Sales step 3 and 6
13,600 2,600(6/12)
Gross Profit
Distribution Costs
Administrative Expense
Finance Costs step 4
Finance income step 4
Profit Before Tax
Tax Expense
Income for the Year

2,900
1,800
200
50

500(6/12)
300(6/12)
70(6/12)
X(6/12)

1,300

220(6/12)

Add/(minus)
$'000
(640)
(640)+10,000, Add profit step6, less depr step 6

Add: expense on goodwill impairment

(20)
(20)

Income Attributable to:

Owners
Non Controlling Interest Step 8
Other Comprehensive
income
Gain on Revaluation
Loss on FV Equity
Increase in equity investments
Total Comprehensive Income
TCI Attributable to:
Owners
Non Controlling Interest step 8

3,340+(116)

1,600
X
X

180(6/12)
X(6/12)

Changes in Retained Earnings Statement

Opening Balance (Parent only)
Dividend Paid
Income for the Year (Total Income attributable to Owners
Closing Balance of Retained Earnings

Total
$'000
24,630
(14,595)
10,035
(3,150)
(1,950)
(215)
30
4,750
(1,410)
3,340
3,224
116
1,690
X
5,030

5,030+(152)

$'000
12,750
(900)
4,878
16,728

Note: Associate not included for consolidated income statement

4,878
152

Step 1: Parent amounts -Put in the full amounts of all income and expenses for parent
Step 2: Subsidy amounts
Calculate number of months subsidy is owned by parent
Date Subsidy Acquire
e.g 1 July 20X4
Statement to be made
e.g. 31 Dec 20X4
Number of months
6 months
Take amounts of Subsidy and times it by (number of months/12) e.g. (6/12). If a full amount is made
after acquisition put in full amount.
Step 3: Intragroup Sales
Remove the sale by sale price not cost of goods. E.g. 640,000 from Revenue
P to S and S to P
and Cost of Sales
Increased Cost of Sales by Unrealised Profit 10,000
P to S and S to P
Decrease NCI by NCI's share of unrealized profit
S to P
Unrealised profit = ($ amount left in inventory) X (markup%/100% + markup%) = 60,000X
(20%/120%)
Or = ($ amount left in inventory) X (profit from goods sold/ cost of total goods)
Or = ($ profit from goods sold) X (fraction left in inventory)
Step 4: Intra Group Finance cancel interest from both Finance income and finance cost. 800,000 X
6/12 X 5%
Step 5: Fair Value Increase in Assets If subsidy's assets get an FV adjustment (upwards), any
additional depreciation must be charged add to cost of sales and (less) to NCI. If sold add to NCI. E.g.
200,000/20 years = 10,000
Step 6: Transfer of Non-current Asset (not in example)
Expenses must be increased by any profit on transfer. Sometimes in Cost of Sales.
Decrease any additional depreciation from carrying value. Decrease expense by additional
depreciation. Sometimes Cost of Sales.
Step 7: Dividends from subsidy to parent
Calculate parent's share and subsidy's share. Increase NCI by subsidy's share.
If dividends from parent to subsidy, dividends are cancelled and dividends paid to NCI are replaced by
allocation to NCI by their share of %.
Step 8: Calculating Non Controlling Interest
Subsidy Profit for the year (taken from subsidy's profit statement) X 6/12
Less: Unrealised Profit (step 3)
Less: Disposal Profit of non-current Asset by subsidy
Add: Additional Depreciation following disposal of asset by subsidy (step 5)
Less: Additional Depreciation from FV increase (step 5)
Add: subsidy's share of dividends (step 7)
Multiply by parent's share in subsidy e.g. 40%
Profit Attributable to Non Controlling Interest

PFtY
305
(10)
(X)
X
(5)
X
290
116

TCI
395
(10)
(X)
X
(5)
X
380
152

Consolidated Statement of Financial Position

Assets
Non-current Assets
P,P, and E
Brand Name
Goodwill Step 5
Investment in subsidy
Investment in Associate
Current Assets
Inventory
Owed to Parent Step 1
Receivables
Cash in Transit Step 1
Cash and equivalents

Parent
$'000

Subsidy
$'000

50,000
30,000
-

40,000
5,000
-

3,000

8,000
10,000
7,000

16,000
2,000

Associate
$'000

Add/(minus)
$'000

Total
$'000

Add: parent's and FV of sub.

S56.734
S1(30,000) less intra group loan note

90,000
5,000
6,734
0

S12,000 +S8(X)
S1(10,000)
Add: both P and S
X
Add: both P and S

13,000
0
23,000
X
2,000

X
(X)

0 (as per
eg)

Total Assets
Equity and Liabilities
Equity
Ordinary Shares
Revaluation Surplus
Retained Earnings

139,734

45,000
12,000
26,000

Only P's

Non-controlling Interest

Unless it's

share exchange eg S's X 2/3 X 80%

X/(X)

S617,600+ S9(612) S8(X)

45,000
12,000
42,988

S713,400

13,400

Total Equity

113,388

Current Liabilities
Trade Payables
Owed to subsidy Step 1
Contingent consideration

10,000
8,000

7,000

Add: both P and S

S1(8,000)
S99,346

Non- current Liabilities

Add: both P and S less: intragroup

loan note

Total Equity & Liabilities

17,000
0
9,346

139,734

Step 1: Addition, Cancellation and part Cancellation

Add all parent's and subsidiary's Assets and liabilities
Cancel out items which appear as an asset in one company and liability in another. Owed to parent and
subsidy.
Cancel Shares in subsidy companies which appear in parent company accounts. Investment in subsidy
Goods and cash in transit. Add: Good in transit to inventory e.g. 10,000-8,000= 2,000
Step 2: Calculate Subsidy Equity Add up closing balances of subsidy equity.
25,000+5,000+28,000= 58,000
Step 3: Consideration (Investment in subsidy)
Regular
Cash paid
30,000
Add: Contingent Consideration
8,734
PV of future consideration= 10,000 (1/1+r^n)
Step4: Pre Acquisition Equity
S's PreAc Share Capital
S's Pre Ac Revaluation Reserve
S's Pre Ac Retained Earnings
Add: FV Revaluation
Add: Asset over stated
Less: Asset under stated

80% Majority share

Step 5: Good Will
Consideration S3
38,734
Less: (41,000X80%) (32,800)
5,934
Add: If NCI FV
800
Goodwill
6,734
Less: goodwill impairment
(X)
Goodwill
X

Share Exchange
(# of shares) times
(# of shares exchange)/(# of shares exchanged)
times Market Value X acquired % add: loan notes
Step: 6 Post Acquisition share to P and NCI

25,000
5,000
6,000
36,000
5,000
X
(X)
41,000
20% NCI share

(41,000X20%)

Balancing
NCI FV

8,200
800
9,000

Step 7: Non-controlling Interest

FV of NCI (given in question)
9,000
NCI share of post acquisition profit S6
4,400
Total Non-controlling Interest
13,400

Revaluation
Reserve
Retained Earnings
Less: Depreciation
after FV of asset
revalue
Less: Asset
overstated
Add: Asset
understated

Closing

(Opening)

Total

5,000
28,000

(5,000)
(6,000)

0
22,000
(X)
(X)
X
22,000

80% Majority to RE

20% NCI

(22,000X80%)
17,600
Less: Impairment 80% (X)
Add: dividends to P
X
To Retained earnings 17,600

(22,000X20%) 4,400
Less: imp X 20% (X)
Less: prov of UP (X)
Add: dividents to S X
To NCI
4,400

Step 8: Intra group sales

Less: Unrealised profit to inventory and Retained
earnings. Check Consolidated Income statement
guide for calculation.

Step 9: Finance Cost of Deferred Contingent Consideration

PV of date of statement
9,346
Less PV for nex year
(8,734)
Fiance Cost
612
Associate Note: if acquired during the year # of months / 12 for profit
Step 1: investment in Associate
Cost of investment
X
Add: Share of Profit (Close begi) X %
X (not including dividend) (add this to RE)
(if loss then show as zero)
X (add to investment in associate)
Less: Unrealised profit P to A
(X) reduce from RE
Less: Impairment Losses
(X) reduce from RE
(if loss then show as zero)
X (add to investment in associate)
Parent sells to Associate
Eliminate profit/loss to parent's share of % (COS)
And Reduce from Investment of Associate

Associate Sells to Parent

Eliminate profit/loss to parent's share of % (COS)
And Reduce from inventory