Group Accounts Consolidation Questions Bank

Consolidation Questions Bank
PRACTICE KIT
FOR
GROUP ACCOUNTS
CONSOLIDATION
QUESTIONS BANK
(CA MOD-E)
By: Khalid Mehmood, FCA, PhD Scholar (Accounting)
Page 0
Q.1 On 1 April 2011, Pyramid acquired 80% of Squares equity shares by means of an immediate share
exchange and a cash payment of 88 cents per acquired share, deferred until 1 April 2012. Pyramid has
recorded the share exchange, but not the cash consideration. Pyramids cost of capital is 10% per annum.
The summarized statements of financial position of the two companies as at 31 March 2012 are:
Assets
Non-current assets
Property, plant and equipment
Investments Square
Cube at cost (note (iv))
Loan notes (note (ii))
Other equity (note (v))
Current assets
Inventory (note (iii))
Trade receivables (note (iii))
Bank (note (iii))
Total assets
Equity and liabilities
Equity
Equity shares (Pyramid: 25 million shares; Square: 10 million shares)
Capital reserve
Retained earnings at 1 April 2011
for year ended 31 March 2012
Non-current liabilities
11% loan notes (note (ii))
Deferred tax
Current liabilities (note (iii))
Total equity and liabilities
Pyramid
$000
Square
$000
38,100
24,000
6,000
2,500
2,000
72,600
28,500
nil
28,500
13,900
11,400
900
98,800
10,400
5,500
600
45,000
25,000
17,600
16,200
14,000
72,800
10,000
nil
18,000
8,000
36,000
12,000
4,500
4,000
nil
9,500
98,800
5,000
45,000
The following information is relevant:

(i) At the date of acquisition, Pyramid conducted a fair value exercise on Squares net assets which were equal to
their carrying amounts with the following exceptions:
An item of plant had a fair value of $3 million above its carrying amount. At the date of acquisition it had
a remaining life of five years. Ignore deferred tax relating to the fair value.
Square had an unrecorded deferred tax liability of $1 million, which was unchanged as at 31 March 2012.
(ii)
Pyramids 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 $350 each is representative of the fair value of the shares held by
the non-controlling interest.
Immediately after the acquisition, Square issued $4 million of 11% loan notes, $25 million of which were
bought by Pyramid. All interest due on the loan notes as at 31 March 2012 has been paid and received.
Page 1

(iii) Pyramid sells goods to Square at cost plus 50%. Below is a summary of the activities for the year ended 31
March 2012 and balances as at 31 March 2012:
Sales to Square
Purchases from Pyramid
Included in Pyramids receivables
Included in Squares payables
Pyramid
$000
16,000
Square
$000
14,500
4,400
1,700
On 26 March 2012, Pyramid sold and dispatched goods to Square, which Square did not record until they
were received on 2 April 2012. Squares 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.
(iv) Pyramid bought 15 million shares in Cube on 1 October 2011; this represents a holding of 30% of Cubes equity. At
31 March 2012, Cubes retained profits had increased by $2 million over their value at 1 October 2011. Pyramid
uses equity accounting in its consolidated financial statements for its investment in Cube.
(v) The other equity investments of Pyramid are classified as financial assets at fair value through profit or loss and are
carried at their fair values on 1 April 2011. At 31 March 2012, these had increased to $28 million.
(vi) There was no impairment losses within the group during the year ended 31 March 2012.
Required:
Prepare the consolidated statement of financial position for Pyramid as at 31 March 2012.
(25 marks)
Page 2
Q.2 On 1 April 2008, Pedantic acquired 60% of the equity share capital of Sophistic in a share exchange of two
shares in Pedantic for three shares in Sophistic. The issue of shares has not yet been recorded by Pedantic. At the
date of acquisition shares in Pedantic had a market value of $6 each. Below are the summarized draft financial
statements of both companies.
Income statements for the year ended 30 September 2008
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Finance costs
Profit before tax
Income tax expense
Profit for the year
Statements of financial position as at 30 September 2008
Non-current assets
Current assets
Total assets
Equity shares
Retained earnings
10% loan notes
Current liabilities
Pedantic
$000
85,000
(63,000)
22,000
(2,000)
(6,000)
(300)
13,700
(4,700)
9,000
Sophistic
$000
42,000
(32,000)
10,000
(2,000)
(3,200)
(400)
4,400
(1,400)
3,000
40,600
12,600
16,000
56,600
6,600
19,200
10,000
35,400
45,400
4,000
6,500
10,500
3,000
4,000
8,200
56,600
4,700
19,200

(i) At the date of acquisition, the fair values of Sophistics assets were equal to their carrying amounts with the
exception of an item of plant, which had a fair value of $2 million in excess of its carrying amount. It had
remaining life of five years at that date [straight-line depreciation is used]. Sophistic has not adjusted the
carrying amount of its plant as a result of the fair value exercise.
(ii) Sales from Sophistic to Pedantic in the post acquisition period were $8 million. Sophistic made a mark up
on cost of 40% on these sales. Pedantic had sold $52 million (at cost to Pedantic) of these goods by 30
September 2008.
(iii) Other than where indicated, income statement items are deemed to accrue evenly on a time basis.
(iv) Sophistics trade receivables at 30 September 2008 include $600,000 due from Pedantic which did not
agree with Pedantics corresponding trade payable. This was due to cash in transit of $200,000 from
Pedantic to Sophistic. Both companies have positive bank balances.
(v) Pedantic has a policy of accounting for any non-controlling interest at fair value. For this purpose the fair
value of the goodwill attributable to the non-controlling interest in Sophistic is $1.5 million. Consolidated
goodwill was not impaired at 30 September 2008.
Page 3

Required:
a)
Prepare a consolidated income statement for Pedantic for the year ended 30 September 2008. (9 marks)
b) Prepare a consolidated statement of financial position for Pedantic as at 30 September 2008. (16 marks)
Note: a statement of changes in equity is not required.

(25 marks)
Q.3 On 1 June 2010, Premier acquired 80% of the equity share capital of Sanford. The consideration consisted of
two elements: a share exchange of three shares in Premier for every five acquired shares in Sanford and the issue
of a $100 6% loan note for every 500 shares acquired in Sanford. The share issue has not yet been recorded by
Premier, but the issue of the loan notes has been recorded. At the date of acquisition shares in Premier had a
market value of $5 each and the shares of Sanford had a stock market price of $350 each. Below are the
summarized draft financial statements of both companies.
Statements of comprehensive income for the year ended 30 September 2010
Premier
Sanford
$000
$000
Revenue
92,500
45,000
Cost of sales
(70,500)
(36,000)
Gross profit
22,000
9,000
Distribution costs
(2,500)
(1,200)
(5,500)
(2,400)
Finance costs
(100)
Nil
Profit before tax

13,900
5,400
Income tax expense
(3,900)
(1,500)
Profit for the year

10,000
3,900
Other comprehensive income:
Gain on revaluation of land (note (i))
500
Nil
Total comprehensive income

10,500
3,900

Assets
Non-current assets
Investments
Current assets
Total assets
Equity
Equity shares of $1 each
Land revaluation reserve 30 September 2010 (note (i))
Other equity reserve 30 September 2009 (note (iv))
Retained earnings
6% loan notes
Current liabilities
25,500
1,800
27,300
12,500
39,800
13,900
Nil
13,900
2,400
16,300
12,000
2,000
500
12,300
26,800
5,000
Nil
Nil
4,500
9,500
3,000
Nil
10,000
39,800
6,800
16,300
Page 4

(i) At the date of acquisition, the fair values of Sanfords assets were equal to their carrying amounts with the
exception of its property. This had a fair value of $12 million below its carrying amount. This would lead to a
reduction of the depreciation charge (in cost of sales) of $50,000 in the post-acquisition period. Sanford has not
incorporated this value change into its entity financial statements.
Premiers group policy is to revalue all properties to current value at each year end. On 30 September 2010, the
value of Sanfords property was unchanged from its value at acquisition, but the land element of Premiers property
had increased in value by $500,000 as shown in other comprehensive income.
(ii) Sales from Sanford to Premier throughout the year ended 30 September 2010 had consistently been $1 million per
month. Sanford made a mark-up on cost of 25% on these sales. Premier had $2 million (at cost to Premier) of
inventory that had been supplied in the post-acquisition period by Sanford as at 30 September 2010.
(iii) Premier had a trade payable balance owing to Sanford of $350,000 as at 30 September 2010. This agreed with
the corresponding receivable in Sanfords books.
(iv) Premiers investments include some available-for-sale investments that have increased in value by $300,000 during
the year. The other equity reserve relates to these investments and is based on their value as at 30 September
2009. There were no acquisitions or disposals of any of these investments during the year ended 30
September 2010.
(v) Premiers policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose
Sanfords share price at that date can be deemed to be representative of the fair value of the shares held by
the non-controlling interest.
(vi) There has been no impairment of consolidated goodwill.
Required:
a) Prepare the consolidated statement of comprehensive income for Premier for the year ended 30
September 2010.
b) Prepare the consolidated statement of financial position for Premier as at 30 September 2010.
The following mark allocation is provided as guidance for this question:
(i) 9 marks
(ii) 16 marks
(25 marks)
Page 5
Q.4 On 1 October 2010 Prodigal purchased 75% of the 160 million equity shares in Sentinel. The acquisition was
through a share exchange of two shares in Prodigal for every three shares in Sentinel. The stock market price of
Prodigals shares at 1 October 2010 was $4 per share.
The summarized statements of comprehensive income for the two companies for the year ended 31 March 2011 are:
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income
Gain on revaluation of land (note (i))
Loss on fair value of equity financial asset investment
Total comprehensive income
Prodigal
$000
450,000
(260,000)
190,000
(23,600)
(27,000)
(1,500)
137,900
(48,000)
89,900
Sentinel
$000
240,000
(110,000)
130,000
(12,000)
(23,000)
(1,200)
93,800
(27,800)
66,000
2,500
(700)
1,800
91,700
1,000
(400)
600
66,600
The following information for the equity of the companies at 1 April 2010 (i.e. before the share exchange took
place) is available:
Equity shares
Revaluation reserve (land)
Other equity reserve (re equity financial asset investment)
Retained earnings
$000
350,000
8,400
3,200
90,000
$000
160,000
Nil
2,200
125,000

(i) Prodigals policy is to revalue the groups land to market value at the end of each accounting period. Prior
to its acquisition, Sentinels land had been valued at historical cost. During the post acquisition period
Sentinels land had increased in value over its value at the date of acquisition by $1 million. Sentinel has
recognized the revaluation within its own financial statements
(ii) Immediately after the acquisition of Sentinel on 1 October 2010, Prodigal transferred an item of plant with a
carrying amount of $4 million to Sentinel at an agreed value of $5 million. At this date the plant had a
remaining life of two and half years. Prodigal had included the profit on this transfer as a reduction in its
depreciation costs. All depreciation is charged to cost of sales.
(iii) After the acquisition Sentinel sold goods to Prodigal for $40 million. These goods had cost Sentinel $30
million. $12 million of the goods sold remained in Prodigals closing inventory.
(iv) Prodigals policy is to value the non-controlling interest of Sentinel at the date of acquisition at its fair value
which the directors determined to be $100 million.
(v) The goodwill of Sentinel has not suffered any impairment.
(vi) All items in the above statements of comprehensive income are deemed to accrue evenly over the year
unless otherwise indicated.
Page 6

Required:
(i) Prepare the consolidated statement of comprehensive income of Prodigal for the year ended 31
March 2011;
(ii) Prepare the equity section (including the non-controlling interest) of the consolidated
statement of financial position of Prodigal as at 31 March 2011.
Note: you are NOT required to calculate consolidated goodwill or produce the statement of changes in equity.
The following mark allocation is provided as guidance for this requirement:

(i) 14 marks
(ii) 7 marks
(21 marks)
(b) IFRS 3 Business combinations permit a non-controlling interest at the date of acquisition to be valued
by one of two methods:
(i) at its proportionate share of the subsidiarys identifiable net assets; or
(ii) at its fair value (usually determined by the directors of the parent company).
Required:
Explain the difference that the accounting treatment of these alternative methods could have on the
consolidated financial statements, including where consolidated goodwill may be impaired.
(4 marks)
(25 marks)
Q.5
On 1 January 2012, Viagem acquired 90% of the equity share capital of Greca in a share exchange in which Viagem
issued two new shares for every three shares it acquired in Greca. Additionally, on 31 December 2012, Viagem will pay the
former shareholders of Greca $176 per share acquired. Viagems cost of capital is 10% per annum.
At the date of acquisition, shares in Viagem and Greca had a stock market value of $650 and $250 each,
respectively.
Income statements for the year ended 30 September 2012
Revenue
Cost of sales
Gross profit
Distribution costs
Investment income
Finance costs
Profit before tax
Income tax expense
Profit for the year
Equity as at 1 October 2011
Retained earnings
Viagem
$000
64,600
(51,200)
13,400
(1,600)
(3,800)
500
(420)
8,080
(2,800)
5,280
30,000
54,000
Greca
$000
38,000
(26,000)
12,000
(1,800)
(2,400)
Nil
Nil
7,800
(1,600)
6,200
10,000
35,000

(i) At the date of acquisition, the fair values of Grecas assets were equal to their carrying amounts with
the exception of two items:
An item of plant had a fair value of $18 million above its carrying amount. The remaining life of the
plant at the date of acquisition was three years. Depreciation is charged to cost of sales.
Page 7

Greca had a contingent liability which Viagem estimated to have a fair value of $450,000. This has
not changed as at 30 September 2012.
Greca has not incorporated these fair value changes into its financial statements.
(ii) Viagems policy is to value the non-controlling interest at fair value at the date of acquisition. For this
purpose, Grecas share price at that date can be deemed to be representative of the fair value of the
shares held by the non-controlling interest.
(iii) Sales from Viagem to Greca throughout the year ended 30 September 2012 had consistently been
$800,000 per month. Viagem made a mark-up on cost of 25% on these sales. Greca had $15 million
of these goods in inventory as at 30 September 2012.
(iv) Viagems investment income is a dividend received from its investment in a 40% owned associate
which it has held for several years. The underlying earnings for the associate for the year ended 30
September 2012 were $2 million.
(v) Although Greca has been profitable since its acquisition by Viagem, the market for Grecas products
has been badly hit in recent months and Viagem has calculated that the goodwill has been impaired
by $2 million as at 30 September 2012.
Required:
a) Calculate the consolidated goodwill at the date of acquisition of Greca.

b) Prepare the consolidated income statement for Viagem for the year ended 30 September 2012.
The following mark allocation is provided as guidance for this requirement:
(i) 7 marks
(ii) 14 marks
(21 marks)
c) The carrying amount of a subsidiarys leased property will be subject to review as part of the fair value
exercise on acquisition and may be subject to review in subsequent periods.
Required:
Explain how a fair value increase of a subsidiarys leased property on acquisition should be
treated in the consolidated financial statements; and how any subsequent increase in the carrying
amount of the leased property might be treated in the consolidated financial statements.
Note: Ignore taxation.
(4 marks)
(25 marks)
Page 8
Q.6 On 1 October 2010, Paladin secured a majority equity shareholding in Saracen on the following terms:
an immediate payment of $4 per share on 1 October 2010; and
a further amount deferred until 1 October 2011 of $54 million.
The immediate payment has been recorded in Paladins financial statements, but the deferred payment has
not been recorded. Paladins cost of capital is 8% per annum.
On 1 February 2011, Paladin also acquired 25% of the equity shares of Augusta paying $10 million in cash.
The summarized statements of financial position of the three companies at 30 September 2011 are:
Assets
Non-current assets
Intangible assets
Investments Saracen (8 million shares at $4 each)
Augusta
Current assets
Inventory
Trade receivables
Bank
Total assets
Equity
Retained earnings at 1 October 2010
for year ended 30 September 2011
Deferred tax
Current liabilities
Bank
Trade payables
Paladin
$000
Saracen
$000
Augusta
$000
40,000
7,500
32,000
10,000
89,500
31,000
30,000
nil
31,000
nil
30,000
11,200
7,400
3,400
111,500
8,400
5,300
nil
44,700
10,000
5,000
2,000
47,000
50,000
25,700
9,200
84,900
10,000
12,000
6,000
28,000
10,000
31,800
1,200
43,000
15,000
8,000
1,000
nil
11,600
111,500
2,500
6,200
44,700
nil
3,000
47,000

(i)
Paladins policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose the
directors of Paladin considered a share price for Saracen of $350 per share to be appropriate.
(ii) At the date of acquisition, the fair values of Saracens property, plant and equipment was equal to its
carrying amount with the exception of Saracens plant which had a fair value of $4 million above its
carrying amount. At that date the plant had a remaining life of four years. Saracen uses straight-line
depreciation for plant assuming a nil residual value.
Also at the date of acquisition, Paladin valued Saracens customer relationships as a customer-base
intangible asset at fair value of $3 million. Saracen has not accounted for this asset. Trading relationships
with Saracens customers last on average for six years.
(iii) At 30 September 2011, Saracens inventory included goods bought from Paladin (at cost to Saracen) of
$26 million. Paladin had marked up these goods by 30% on cost. Paladins agreed current account
balance owed by Saracen at 30 September 2011 was $13 million.
Page 9

(iv) Impairment tests were carried out on 30 September 2011 which concluded that consolidated goodwill
was not impaired, but, due to disappointing earnings, the value of the investment in Augusta was impaired
by $25 million.
(v) Assume all profits accrue evenly through the year.
Required:
Prepare the consolidated statement of financial position for Paladin as at 30 September 2011.
(25 marks)
Q.7 On 1 April 2009 Picant acquired 75% of Sanders equity shares in a share exchange of three shares in
Picant for every two shares in Sander. The market prices of Picants and Sanders shares at the date of
acquisition were $320 and $450 each respectively.
In addition to this Picant agreed to pay a further amount on 1 April 2010 that was dependent upon the postacquisition performance of Sander. At the date of acquisition Picant assessed the fair value of this contingent
consideration at $42 million, but by 31 March 2010 it was clear that the actual amount to be paid would be
only $27 million (ignore discounting). Picant has recorded the share exchange and provided for the initial
estimate of $42 million for the contingent consideration.
On 1 October 2009 Picant also acquired 40% of the equity shares of Adler paying $4 in cash per acquired
share and issuing at par one $100 7% loan note for every 50 shares acquired in Adler. This consideration has
also been recorded by Picant.
Picant has no other investments.
The summarised statements of fi nancial position of the three companies at 31 March 2010 are:
Assets
Non-current assets
Investments
Current assets
Inventory
Trade receivables
Total assets
Equity
Equity share capital
Retained earnings at 1 April 2009
for the year ended 31 March 2010
7% loan notes
Current liabilities
Contingent consideration
Other current liabilities
Picant
$000
Sander
$000
Adler
$000
37,500
45,000
82,500
24,500
nil
24,500
21,000
nil
21,000
10,000
6,500
99,000
9,000
1,500
35,000
5,000
3,000
29,000
44,800
16,200
11,000
72,000
8,000
16,500
1,000
25,500
5,000
15,000
6,000
26,000
14,500
2,000
nil
4,200
8,300
99,000
nil
7,500
35,000
nil
3,000
29,000

(i) At the date of acquisition the fair values of Sanders property, plant and equipment was equal to its
carrying amount with the exception of Sanders factory which had a fair value of $2 million above its
Page 10

carrying amount. Sander has not adjusted the carrying amount of the factory as a result of the fair
value exercise. This requires additional annual depreciation of $100,000 in the consolidated financial
statements in the post-acquisition period.
Also at the date of acquisition, Sander had an intangible asset of $500,000 for software in itsstatement
of fi nancial position. Picants directors believed the software to have no recoverable value at the date
of acquisition and Sander wrote it off shortly after its acquisition.
(ii) At 31 March 2010 Picants current account with Sander was $34 million (debit). This did not agree
with the equivalent balance in Sanders books due to some goods-in-transit invoiced at $18 million
that were sent by Picant on 28 March 2010, but had not been received by Sander until after the year
end. Picant sold all these goods at cost plus 50%.
(iii) Picants policy is to value the non-controlling interest at fair value at the date of acquisition. For this
purpose Sanders share price at that date can be deemed to be representative of the fair value of the
(iv) Impairment tests were carried out on 31 March 2010 which concluded that the value of the investment in
Adler was not impaired but, due to poor trading performance, consolidated goodwill was impaired by $38
million.
(v) Assume all profits accrue evenly through the year.
Required:
(a) Prepare the consolidated statement of financial position for Picant as at 31 March 2010. (21 marks)
(b) Picant has been approached by a potential new customer, Trilby, to supply it with a substantial quantity of goods
on three months credit terms. Picant is concerned at the risk that such a large order represents in the current difficult
economic climate, especially as Picants normal credit terms are only one months credit. To support its application
for credit, Trilby has sent Picant a copy of Tradhats most recent audited consolidated financial statements. Trilby is
a wholly-owned subsidiary within the Tradhat group. Tradhats consolidated financial statements show a strong
statement of financial position including healthy liquidity ratios.
Required:
Comment on the importance that Picant should attach to Tradhats consolidated financial statements
when deciding on whether to grant credit terms to Trilby.
(4 marks)
(25 marks)
Page 11
Q.8 On 1 April 2009 Pandar purchased 80% of the equity shares in Salva. The acquisition was through a share
exchange of three shares in Pandar for every five shares in Salva. The market prices of Pandars and Salvas
shares at 1 April 2009 were $6 per share and $3.20 respectively.
On the same date Pandar acquired 40% of the equity shares in Ambra paying $2 per share.
The summarized income statements for the three companies for the year ended 30 September 2009 are:
Revenue
Cost of sales
Gross profit
Distribution costs
Investment income (interest and dividends)
Finance costs
Profit (loss) before tax
Income tax (expense) relief
Profit (loss) for the year
Pandar
$000
210,000
(126,000)
84,000
(11,200)
(18,300)
9,500
(1,800)
62,200
(15,000)
47,200
Salva
$000
150,000
(100,000)
50,000
(7,000)
(9,000)
Ambra
$000
50,000
(40,000)
10,000
(5,000)
(11,000)
(3,000)
31,000
(10,000)
21,000
nil
(6,000)
1,000
(5,000)
The following information for the equity of the companies at 30 September 2009 is available:
Share premium
Retained earnings 1 October 2008
Profit (loss) for the year ended 30 September 2009
Dividends paid (26 September 2009)
200,000
300,000
40,000
47,200
nil
120,000
Nil
152,000
21,000
(8,000)
40,000
nil
15,000
(5,000)
nil

(i) The fair values of the net assets of Salva at the date of acquisition were equal to their carrying amounts
with the exception of an item of plant which had a carrying amount of $12 million and a fair value of $17
million. This plant had a remaining life of five years (straight-line depreciation) at the date of acquisition of
Salva. All depreciation is charged to cost of sales.
In addition Salva owns the registration of a popular internet domain name. The registration, which had a
negligible cost, has a five year remaining life (at the date of acquisition); however, it is renewable indefinitely at
a nominal cost. At the date of acquisition the domain name was valued by a specialist company at $20 million.
The fair values of the plant and the domain name have not been reflected in Salvas financial statements.
No fair value adjustments were required on the acquisition of the investment in Ambra.
(ii) Immediately after its acquisition of Salva, Pandar invested $50 million in an 8% loan note from Salva. All
interest accruing to 30 September 2009 had been accounted for by both companies. Salva also has other
loans in issue at 30 September 2009.
(iii) Pandar has credited the whole of the dividend it received from Salva to investment income.
(iv) After the acquisition, Pandar sold goods to Salva for $15 million on which Pandar made a gross profit of
20%. Salva had one third of these goods still in its inventory at 30 September 2009. There are no intragroup current account balances at 30 September 2009.
(v) The non-controlling interest in Salva is to be valued at its (full) fair value at the date of acquisition. For this
purpose Salvas share price at that date can be taken to be indicative of the fair value of the shareholding
of the non-controlling interest.
(vi) The goodwill of Salva has not suffered any impairment; however, due to its losses, the value of Pandars
investment in Ambra has been impaired by $3 million at 30 September 2009.
Page 12

(vii) All items in the above income statements are deemed to accrue evenly over the year unless otherwise indicated.
Required:
(a) (i)
Calculate the goodwill arising on the acquisition of Salva at 1 April 2009;
(6 marks)
(ii) Calculate the carrying amount of the investment in Ambra to be included within the consolidated
Statement of financial position as at 30 September 2009.
(3 marks)
(b) Prepare the consolidated income statement for the Pandar Group for the year ended 30 September
2009.
(16 marks)
(25 marks)
Q.9 Below are the summarized statements of financial position for three companies as at 31 March 2009:
Assets
Non-current assets
Investments
Current assets
Inventory
Trade receivables
Cash and bank
Total assets
Equity shares of $1each
Share premium
Retained earnings
10% loan notes
Current liabilities
Pacemaker
Syclop
Vardine
$ million $ million $ million $ million $ million $ million
520
345
865
142
95
8
245

1,110
500
100
130
230

730
280
40
320
160
88
22
270
590
240
nil
240
120
50
10
145
nil
260
180
200
1,110
260
405
20
165
590
180
420
100
nil
240
240
340
nil
80
420
Notes:
Pacemaker is a public listed company that acquired the following investments:
(i) Investment in Syclop
On 1 April 2007 Pacemaker acquired 116 million shares in Syclop for an immediate cash payment
of $210 million and issued at par one 10% $100 loan note for every 200 shares acquired. Syclops
retained earnings at the date of acquisition were $120 million.
(ii) Investment in Vardine
On 1 October 2008 Pacemaker acquired 30 million shares in Vardine in exchange for 75 million of
its own shares. The stock market value of Pacemakers shares at the date of this share exchange
was $160 each. Pacemaker has not yet recorded the investment in Vardine.
(iii) Pacemakers other investments, and those of Syclop, are available-for-sale investments which are
carried at their fair values as at 31 March 2008. The fair value of these investments at 31 March
2009 is $82 million and $37 million respectively.
Other relevant information:
Page 13

(iv) Pacemakers policy is to value non-controlling interests at their fair values. The directors of
Pacemaker assessed the fair value of the non-controlling interest in Syclop at the date of acquisition
to be $65 million.
There has been no impairment to goodwill or the value of the investment in Vardine.
(v) At the date of acquisition of Syclop owned a recently built property that was carried at its
(depreciated) construction cost of $62 million. The fair value of this property at the date of
acquisition was $82 million and it had an estimated remaining life of 20 years.
For many years Syclop 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 $25 million with a remaining
life of 10 years. The brand is not included in Syclops statement of financial position.
The fair value of all other identifiable assets and liabilities of Syclop were equal to their carrying values
at the date of its acquisition.
(vi) The inventory of Syclop at 31 March 2009 includes goods supplied by Pacemaker for $56 million (at
selling price from Pacemaker). Pacemaker adds a mark-up of 40% on cost when selling goods to
Syclop. There are no intra-group receivables or payables at 31 March 2009.
(vii) Vardines profit is subject to seasonal variation. Its profit for the year ended 31 March 2009 was
$100 million. $20 million of this profit was made from 1 April 2008 to 30 September 2008.
(viii) None of the companies have paid any dividends for many years.
Required:
Prepare the consolidated statement of financial position of Pacemaker as at 31 March 2009.
(25 marks)
Q.10
On 1 August 2007 Patronic purchased 18 million of a total of 24 million equity shares in Sardonic. The
acquisition was through a share exchange of two shares in Patronic for every three shares in Sardonic. Both
companies have shares with a par value of $1 each. The market price of Patronics shares at 1 August 2007 was
$575 per share. Patronic will also pay in cash on 31 July 2009 (two years after acquisition) $242 per acquired
share of Sardonic. Patronics cost of capital is 10% per annum. The reserves of Sardonic on 1 April 2007 were
$69 million.
Patronic has held an investment of 30% of the equity shares in Acerbic for many years.
The summarised income statements for the three companies for the year ended 31 March 2008 are:
Revenue
Cost of sales
Gross profit
Distribution costs
Finance costs (note (ii))
Profit before tax
Income tax expense
Profit for the period
Patronic
$000
150,000
(94,000)
56,000
(7,400)
(12,500)
(2,000)
34,100
(10,400)
23,700
Sardonic
$000
78,000
(51,000)
27,000
(3,000)
(6,000)
(900)
17,100
(3,600)
13,500
Acerbic
$000
80,000
(60,000)
20,000
(3,500)
(6,500)
Nil
10,000
(4,000)
6,000

(i) The fair values of the net assets of Sardonic at the date of acquisition were equal to their carrying
amounts with the exception of property and plant. Property and plant had fair values of $41 million and
$24 million respectively in excess of their carrying amounts. The increase in the fair value of the
Page 14

property would create additional depreciation of $200,000 in the consolidated financial statements in the
post acquisition period to 31 March 2008 and the plant had a remaining life of four years (straight-line
depreciation) at the date of acquisition of Sardonic. All depreciation is treated as part of cost of sales.
The fair values have not been reflected in Sardonics financial statements. No
fair value adjustments were required on the acquisition of Acerbic.
(ii) The finance costs of Patronic do not include the finance cost on the
deferred consideration.
(iii) Prior to its acquisition, Sardonic had been a good customer of Patronic. In the year to 31 March 2008,
Patronic sold goods at a selling price of $125 million per month to Sardonic both before and after its
acquisition. Patronic made a profit of 20% on the cost of these sales. At 31 March 2008 Sardonic still held
inventory of $3 million (at cost to Sardonic) of goods purchased in the post acquisition period from Patronic.
(iv) An impairment test on the goodwill of Sardonic conducted on 31 March 2008 concluded that it should
be written down by $2 million. The value of the investment in Acerbic was not impaired.
(v) All items in the above income statements are deemed to accrue evenly over the year.
(vi) Ignore deferred tax.

Required:
(a) Calculate the goodwill arising on the acquisition of Sardonic at 1 August 2007.
(b)
(6 marks)
Prepare the consolidated income statement for the Patronic Group for the year ended 31 March
2008.
Note: assume that the investment in Acerbic has been accounted for using the equity method since its
acquisition.
(15 marks)
(c) At 31 March 2008 the other equity shares (70%) in Acerbic were owned by many separate
investors. Shortly after this date Spekulate (a company unrelated to Patronic) accumulated a 60%
interest in Acerbic by buying shares from the other shareholders. In May 2008 a meeting of the
board of directors of Acerbic was held at which Patronic lost its seat on Acerbics board.
Required:
Explain, with reasons, the accounting treatment Patronic should adopt for its investment in Acerbic
when it prepares its financial statements for the year ending 31 March 2009.
(4 marks)
(25 marks)
Page 15
Q.11
On 1 April 2013, Polestar acquired 75% of the equity share capital of Southstar. Southstar had been
experiencing difficult trading conditions and making significant losses. In allowing for Southstars difficulties,
Polestar made an immediate cash payment of only $150 per share. In addition, Polestar will pay a further
amount in cash on 30 September 2014 if Southstar returns to profitability by that date. The value of this
contingent consideration at the date of acquisition was estimated to be $18 million, but at 30 September 2013 in
the light of continuing losses, its value was estimated at only $15 million. The contingent consideration has not
been recorded by Polestar. Overall, the directors of Polestar expect the acquisition to be a bargain purchase
leading to negative goodwill.
At the date of acquisition shares in Southstar had a listed market price of $120 each. Below are the summarized
draft financial statements of both companies.
Statements of profit or loss for the year ended 30 September 2013
Revenue
Cost of sales
Gross profit (loss)
Distribution costs
Finance costs
Profit (loss) before tax
Income tax (expense)/relief
Profit (loss) for the year
Polestar
$000
110,000
(88,000)
22,000
(3,000)
(5,250)
(250)
13,500
(3,500)
10,000
Southstar
$000
66,000
(67,200)
(1,200)
(2,000)
(2,400)
nil
(5,600)
1,000
(4,600)
41,000
16,000
57,000
16,500
73,500
21,000
nil
21,000
4,800
25,800
30,000
28,500
58,500
15,000
73,500
6,000
12,000
18,000
7,800
25,800

Assets
Non-current assets
Financial asset: equity investments (note (iii))
Current assets
Total assets
Equity
Equity shares of 50 cents each
Retained earnings
Current liabilities
(i) At the date of acquisition, the fair values of Southstars assets were equal to their carrying amounts with
the exception of a leased property. This had a fair value of $2 million above its carrying amount and a
remaining lease term of 10 years at that date. All depreciation is included in cost of sales.
(ii) Polestar transferred raw materials at their cost of $4 million to Southstar in June 2013. Southstar
processed all of these materials incurring additional direct costs of $14 million and sold them back to
Polestar in August 2013 for $9 million. At 30 September 2013 Polestar had $15 million of these goods
still in inventory. There were no other intra-group sales.
Page 16

(iii) Polestar has recorded its investment in Southstar at the cost of the immediate cash payment; other
equity investments are carried at fair value through profit or loss as at 1 October 2012. The other equity
investments have fallen in value by $200,000 during the year ended 30 September 2013.
(iv) Polestars policy is to value the non-controlling interest at fair value at the date of acquisition. For this
purpose, Southstars share price at that date can be deemed to be representative of the fair value of the
(v) All items in the above statements of profit or loss are deemed to accrue evenly over the year unless
otherwise indicated.
Required:
(a) Prepare the consolidated statement of profit or loss for Polestar for the year ended 30 September 2013.
(b) Prepare the consolidated statement of financial position for Polestar as at 30 September 2013.
(a) 14 marks
(b) 11 marks
(25 marks)
Q.12
(a) On 1 October 2012, Paradigm acquired 75% of Stratas equity shares by means of a share exchange
of two new shares in Paradigm for every five acquired shares in Strata. In addition, Paradigm issued to the
shareholders of Strata a $100 10% loan note for every 1,000 shares it acquired in Strata. Paradigm has not
recorded any of the purchase consideration, although it does have other 10% loan notes already in issue.
The market value of Paradigms shares at 1 October 2012 was $2 each.

The summarized statements of financial position of the two companies as at 31 March 2013 are:
Assets
Non-current assets
Financial asset: equity investments (notes (i) and (iv))
Current assets
Inventory (note (ii))
Trade receivables (note (iii))
Bank
Total assets
Equity
Retained earnings/(losses) at 1 April 2012
for year ended 31 March 2013
10% loan notes
Current liabilities
Trade payables (note (iii))
Bank overdraft
Paradigm
$000
Strata
$000
47,400
7,500
54,900
25,500
3,200
28,700
20,400
14,800
2,100
92,200
8,400
9,000
nil
46,100
40,000
19,200
7,400
66,600
20,000
(4,000)
8,000
24,000
8,000
nil
17,600
nil
92,200
13,000
9,100
46,100
Page 17

(i) At the date of acquisition, Strata produced a draft statement of profit or loss which showed it had made
a net loss after tax of $2 million at that date. Paradigm accepted this figure as the basis for calculating
the pre- and post-acquisition split of Stratas profit for the year ended 31 March 2013.
Also at the date of acquisition, Paradigm conducted a fair value exercise on Stratas net assets which were
equal to their carrying amounts (including Stratas financial asset equity investments) with the exception of
an item of plant which had a fair value of $3 million below its carrying amount. The plant had a remaining
economic life of three years at 1 October 2012.
Paradigms policy is to value the non-controlling interest at fair value at the date of acquisition. For this
purpose, a share price for Strata of $120 each is representative of the fair value of the shares held by the
non-controlling interest.
(ii) Each month since acquisition, Paradigms sales to Strata were consistently $46 million. Paradigm had
marked these up by 15% on cost. Strata had one months supply ($46 million) of these goods in
inventory at 31 March 2013. Paradigms normal mark-up (to third party customers) is 40%.
(iii) Stratas current account balance with Paradigm at 31 March 2013 was $28 million, which did not agree
with Paradigms equivalent receivable due to a payment of $900,000 made by Strata on 28 March 2013,
which was not received by Paradigm until 3 April 2013.
(iv) The financial asset equity investments of Paradigm and Strata are carried at their fair values as at 1
April 2012. As at 31 March 2013, these had fair values of $71 million and $39 million respectively.
(v) There was no impairment losses within the group during the year ended 31 March 2013.
Required:
Prepare the consolidated statement of financial position for Paradigm as at 31 March 2013.
(20 marks)
(b) Paradigm has a strategy of buying struggling businesses, reversing their decline and then selling them
on at a profit within a short period of time. Paradigm is hoping to do this with Strata.
Required:
As an adviser to a prospective purchaser of Strata, explain any concerns you would raise about basing an
investment decision on the information available in Paradigms consolidated financial statements and Stratas
entity financial statements.
(5 marks)
(25 marks)
Page 18
Q.13
On 1 October 2013, Penketh acquired 90 million of Spheres 150 million $1 equity shares. The acquisition
was achieved through a share exchange of one share in Penketh for every three shares in Sphere. At that date
the stock market prices of Penkeths and Spheres shares were $4 and $250 per share respectively. Additionally,
Penketh will pay $154 cash on 30 September 2014 for each share acquired. Penkeths finance cost is 10% per
annum.
The retained earnings of Sphere brought forward at 1 April 2013 were $120 million.
The summarised statements of profit or loss and other comprehensive income for the companies for the
year ended 31 March 2014 are:
Revenue
Cost of sales
Gross profit
Distribution costs
Investment income (note (iii))
Finance costs
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income
Gain/(loss) on revaluation of land (notes (i) and (ii))
Total comprehensive income for the year
Penketh
$000
620,000
(400,000)
220,000
(40,000)
(36,000)
5,000
(2,000)
147,000
(45,000)
102,000
Sphere
$000
310,000
(150,000)
160,000
(20,000)
(25,000)
1,600
(5,600)
111,000
(31,000)
80,000
(2,200)
99,800
3,000
83,000

(i) A fair value exercise conducted on 1 October 2013 concluded that the carrying amounts of Spheres net
assets were equal to their fair values with the following exceptions:
the fair value of Spheres land was $2 million in excess of its carrying amount
an item of plant had a fair value of $6 million in excess of its carrying amount. The plant had a
remaining life of two years at the date of acquisition. Plant depreciation is charged to cost of sales.
Penketh placed a value of $5 million on Spheres good trading relationships with its customers.
Penketh expected, on average, a customer relationship to last for a further five years. Amortisation of
intangible assets is charged to administrative expenses.
(ii) Penkeths group policy is to revalue land to market value at the end of each accounting period. Prior to
its acquisition, Spheres land had been valued at historical cost, but it has adopted the group policy
since its acquisition. In addition to the fair value increase in Spheres land of $2 million (see note (i)), it
had increased by a further $1 million since the acquisition.
(iii) On 1 October 2013, Penketh also acquired 30% of Ventors equity shares. Ventors profit after tax for
the year ended 31 March 2014 was $10 million and during March 2014 Ventor paid a dividend of $6
million. Penketh uses equity accounting in its consolidated financial statements for its investment in
Ventor. Sphere did not pay any dividends in the year ended 31 March 2014.
(iv) After the acquisition Penketh sold goods to Sphere for $20 million. Sphere had one fifth of these goods still in
inventory at 31 March 2014. In March 2014 Penketh sold goods to Ventor for $15 million, all of which were
still in inventory at 31 March 2014. All sales to Sphere and Ventor had a mark-up on cost of 25%
.
Page 19

(v) Penkeths policy is to value the non-controlling interest at the date of acquisition at its fair value. For this
purpose, the share price of Sphere at that date (1 October 2013) is representative of the fair value of
the shares held by the non-controlling interest.
(vi) All items in the above statements of profit or loss and other comprehensive income are deemed to
accrue evenly over the year unless otherwise indicated.
Required:
(a) Calculate the consolidated goodwill as at 1 October 2013.
(b) Prepare the consolidated statement of profit or loss and other comprehensive income of Penketh for the
year ended 31 March 2014.
(a) 6 marks
(b) 19 marks
(25 marks)
Q.14 On 1 October 2012, Alpha Industries Limited (AIL) held 15% and 35% equity in Beta (Private)
Limited (BPL) and Delta (Private) Limited (DPL) respectively. The following balances pertain to the
three companies, as on the above date.
Share capital (Rs. 100 each)

Retained earnings
Other comprehensive income - fair value reserve related to BPL
Total equity
Non-current investments BPL*1 (Cost Rs. 18 million)
Non-current investments DPL*2 (Cost Rs. 40 million)
*1 recorded as available for sale
*2 recorded as investment in associate
AIL
BPL DPL
Rs. in million
100
60
50
35
30
15
6
141
90
65
20
43
On 1 April 2013, AIL acquired a further 55% equity in BPL when:

the fair value of the net assets of BPL was Rs. 100 million which was equal to their carrying
value; and
the fair value of the 15% equity already held in BPL was Rs. 25 million.
The purchase consideration comprised of 150,000 shares in AIL which were issued on the date
of acquisition at their market value of Rs. 160 per share and Rs. 42 million payable in cash on
31 March 2014. AIL uses discount rate of 12% for determining the present value of its future
assets and liabilities.
Other relevant details are as follows:
(i) For the year ended 30 September 2013 the profits after tax of AIL, BPL and DPL were
Rs. 58 million, Rs. 40 million and Rs. 30 million respectively.
(ii) AIL values non-controlling interest at the acquisition date at its fair value which was
Rs. 32 million.
(iii) AIL sold goods at Rs. 65 million to BPL on 1 July 2013. The sales were invoiced at
30% above cost. 20% of these goods remained unsold as on 30 September 2013.
(iv) DPLs sales to AIL amounted to Rs. 70 million. DPL earns a profit of 20% of sales
value. On 30 September 2013, inventory of AIL included Rs. 20 million in respect of
such goods.
(v) For the year ended 30 September 2012 AIL, BPL and DPL paid final cash dividend of
15%, 20%, and 12% respectively.
Page 20

Required:
(a) Compute the amount of goodwill, retained earnings and investment in associate as
they would appear in the consolidated statement of financial position of AIL as at 30
September 2013, in accordance with IFRS. (Ignore taxation)
(b) Describe how the investment in BPL and DPL may be accounted for and also
compute the amount of the investments as it would appear in the separate statement
of financial position of AIL as at 30 September 2013, in accordance with IFRS.
(18)
(04)
Q.15 Following are the extracts from the draft financial statements of three companies for the year
ended 30 June 2012:
INCOME STATEMENTS
Tiger Limited
Panther Limited
(TL)
(PL)
-------------------
Revenue
Cost of sales
Gross profit
Operating expenses
Profit from operations
Investment income
Profit before taxation
Income tax expense
Profit for the year
Rs. in million-------------------
6,760
(4,370)
2,390
(1,270)
1,120
730
1,850
(400)
1,450
568
(416)
152
(54)
98
98
(20)
78
STATEMENTS OF CHANGES IN EQUITY

Ordinary share capital
of Rs. 10 each
TL
PL
LL
426
(218)
208
(132)
76
10
86
(17)
69
Retained earnings
TL
PL
LL
Rs. in million--------------------------
---------------------------
As on 1 July 2011
Final dividend for the year
ended 30 June 2011
Profit for the year
As on 30 June 2012
Leopard Limited
(LL)
10,000
800
600
2,380
270
70
10,000
800
600
(1,000)
1,450
2,830
78
348
(60)
69
79
The following information is also available:

(i) Several years ago, TL acquired 64 million shares in PL for Rs. 1,000 million when PLs
retained earnings were Rs. 55 million. Up to 30 June 2011, cumulative impairment losses of
Rs. 50 million had been recognized in the consolidated financial statements, in respect of
goodwill.
On 31 December 2011, TL disposed off its entire holding in PL for Rs. 1,300 million.
(ii) On 1 July 2011, 42 million shares of LL were acquired by TL for Rs. 550 million. An
impairment review at 30 June 2012 indicated that goodwill recognized on acquisition has been
impaired by Rs. 7 million.
(iii) During the year, LL sold goods costing Rs. 50 million to TL at a mark-up of 20% on cost. 40%
of these goods remained unsold on 30 June 2012.
(iv) Investment income appearing in TLs separate income statement includes profit on sale of PLs
shares and dividend received from LL.
(v) TL values the non-controlling interest at its proportionate share of the fair value of the
subsidiarys identifiable net assets.
It may be assumed that profits of all companies had accrued evenly during the year.
Required:
Prepare TLs consolidated income statement and consolidated statement of changes in equity
for the year ended 30 June 2012 in accordance with the requirements of International
Page 21

Financial Reporting Standards. (Ignore deferred tax implications)
Q.16 The following summarized statements of financial position pertain to Bee Limited and its
investee companies as at 31 December 2011:
(23)
Bee Limited Cee Limited

Tee Limited
--------------Rs. in million-----------ASSETS
Non-current assets
Investment in Cee Limited at cost
Investment in Tee Limited at cost
Current assets
Stock in trade
Trade and other receivables
Cash and bank
EQUITY AND LIABILITIES
Equity
Ordinary share capital (Rs.10 each)
Retained earnings
Long term loan
Current liabilities
Trade and other payables
Bank overdraft
75,600
3,900
300
2,800
-
800
-
24,100
16,400
800
121,100
1,700
2,900
700
8,100
700
820
2,320
44,300
15,800
2,800
1,200
1,000
900
36,400
24,600
121,100
4,100
8,100
300
120
2,320

(i) Bee holds 252 million shares of Cee which were acquired in 2005 when the retained earnings
of Cee stood at Rs. 350 million. At the date of acquisition, the fair values of Cees net assets
were the same as their carrying amounts with the exception of a legal claim having a fair
value of Rs. 7 million which had been disclosed in the financial statements as a contingent
liability. The claim was settled on 30 November 2011, for the same amount.
(ii) Bee acquired 80% share capital of Tee several years ago for Rs. 1,200 million when Tees
retained earnings stood at Rs. 100 million. On 1 October 2011, Bee sold 75% of its holding in
Tee for Rs. 2,000 million. On the date of disposal, the fair value of remaining holding was Rs.
650 million.
(iii) During the year, Cee sold goods to Bee at cost plus 25%. The amount invoiced during the
year amounted to Rs. 32 million. 40% of these goods were held by Bee at year end. Bee has
paid Rs. 20 million against the invoiced amount, upto 31 December 2011.
(iv) At year end, an impairment review indicated that 10% of Cees goodwill is required to be
written off.
(v) During the year ended 31 December 2011, Cee and Tee earned profits after tax of Rs. 250
million and Rs. 200 million respectively. It may be assumed that the profits had accrued
evenly throughout the year.
(vi) Bee follows a policy of valuing the non-controlling interest at its proportionate share of the
fair value of the subsidiarys identifiable net assets.
Required
Prepare the consolidated statement of financial position of Bee Limited as at 31 December 2011 in
accordance with the requirements of International Financial Reporting Standards. (24 marks)
Note:
Ignore tax and comparative figures.
Notes to the consolidated statement of financial position are not
required.
Show workings wherever necessary.
Page 22
Q.17 Alpha Pakistan Limited (APL) is a listed company and has 60% holding in Bravo Limited (BL).
The company is in the process of preparation of its consolidated financial statements for the year
ended 30 September 2011. Following are the extracts from the information that has been gathered so
far:
Consolidated Statement of Comprehensive Income (Draft)
2011
Rs. in million
Sales
65,000
Cost of products sold
(59,110)
Other operating income
2,000
Operating expenses
(3,000)
Financial expenses
(890)
Income tax expense
(1,200)
Profit for the year
2,800
Profit attributable to
Owners of the holding company
2,500
Non-controlling interest
300
2,800
Consolidated Statement of Financial Position (Draft)
2011
2010
Rs. in million
Assets
Share capital (Rs. 10 each)
550
500 Property, plant and equipment
Retained earnings
5,950
3,600 Goodwill
Non-controlling interest
235
120 Long term receivables
Long term loans
440
145 Stock in trade
Deferred tax
210
10 Trade debts
4,688
3,970 Other receivables
Accrued financial expenses
35
30 Cash and bank balances
Provision for taxation
200
25
Short term borrowings
6,670
5,950
18,978
14,350
2011
2010
Rs. in million
1,100
15
24
6,760
7,534
900
2,645
900
15
29
4,280
5,421
725
2,980
18,978
14,350
Following additional information is available:

(i) During the year, BL sold goods amounting to Rs. 140 million to APL at a margin of 25% of
cost. 40% of the above amount remained unpaid and 30% of the goods remained unsold as on
30 September 2011. No adjustments in this regard have been made in the above statements.
(ii) Depreciation charge for the year was Rs. 75 million and Rs. 15 million for APL and BL
respectively.
(iii) During the year APL acquired property, plant and equipment amounting to Rs. 250 million
against a long term loan.
(iv) The amount of long term receivables represents present value of interest free loans to
employees. The gross value of the loans is Rs. 27 million (2010: Rs. 33 million).
(v) Operating expenses include bad debt expenses amounting to Rs. 44 million. During the year,
trade debtors amounting to Rs. 30 million were written off.
(vi) Trade and other payables include APLs unclaimed dividend amounting to Rs. 8 million (2010:
Rs. 10 million). At APLs Board meeting held on 30 November 2011, final cash dividend of Rs.
3.0 per share has been proposed (2010: Final cash dividend of Rs 2.0 per share and 10% bonus
shares).
Required:
Prepare a consolidated statement of cash flows including all relevant notes for Alpha Pakistan
Limited for the year ended 30 September 2011 using the direct method in accordance with
International Financial Reporting Standards. (Ignore corresponding figures.)
(23 marks)
Q.18 The draft statements of financial position of Oceana Global Limited (OGL), and its subsidiary
Page 23

Rivera Global Limited (RGL) as of March 31, 2011 are as follows:
OGL
RGL
Rs. in million
Assets
Intangible assets
Investment in RGL (opening balance)
Investment in RGL (acquired during the year)
Current assets
Equity and Liabilities
Share capital (Ordinary shares of Rs. 100 each)
Retained earnings
Fair value reserve
Current liabilities
700
4
23
108
350
1,185
300
550
3
853
150
182
1,185
200
150
350
100
80
180
40
130
350
The details of OGLs investments in RGL are as under:

Acquisition date
July 1, 2009
October 1, 2010
Face value of
Purchase
shares acquired
Consideration
Rs. in million
10
20
45
108
Other information relevant to the preparation of the consolidated financial statements is as under:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
On October 1, 2010 the fair value of RGLs assets was equal to their carrying value except for
non-depreciable land which had a fair value of Rs. 35 million as against the carrying value of
Rs. 10 million.
On October 1, 2010 the fair value of RGLs shares that were acquired by OGL on July 1,
2009 amounted to Rs. 28 million.
RGLs retained earnings on October 1, 2010 amounted to Rs. 60 million.
Intangible assets represent amount paid to a consultant for rendering professional services for
the acquisition of 45% equity in RGL.
During February 2011 RGL sold goods costing Rs. 25 million to OGL at a price of Rs 30
million. 25% of these goods were included in OGLs closing inventory and 50% of the
amount was payable by OGL, as of March 31, 2011.
OGL follows a policy of valuing non-controlling interest at its fair value. The fair value of
non-controlling interest in RGL, on the acquisition date, amounted to Rs. 70 million.
Required:
Prepare a consolidated statement of financial position for Oceana Global Limited as of March 31,
2011 in accordance with International Financial Reporting Standards.
(16 marks)
Page 24
Q.19 Rainbow Textiles Limited (RTL) is a public limited company and owns 70%
holding in Fabrics Design Limited (FDL).
FDL is located in a foreign country and its functional currency is FC. RTL acquired FDL
on July 1, 2009 for FC 12 million when FDL's share capital and retained earnings were
FC 5 million and FC 3 million respectively. On the acquisition date, fair value of FDL's
net assets was FC 11 million. The fair value of all the assets except leasehold land and
buildings was equal to their carrying amounts. The remaining lease period of the land and
useful life of the buildings at the date of acquisition was 20 years. RTL and FDL use
straight line method of depreciation.
The following balances were extracted from the Statement of Comprehensive Income of
RTL and FDL for the year ended June 30, 2010:
Statement of Comprehensive Income
RTL
Rs. in million
1,000
(450)
550
(250)
(25)
275
(100)
175
Sales revenue
Cost of sales
Gross profit
Selling and administrative expenses
Financial expenses
Profit before taxation
Taxation
Profit after taxation
FDL
FC in million
25
(15)
10
(5)
(1)
4
(1)
3
The following additional information is also available:

(i) On April 10, 2010 RTL sold goods for Rs. 30 million to FDL at a margin of 20% of
selling price. Full payment was made by FDL on May 1, 2010. No exchange gain or
loss was recorded on the transaction. Goods valuing FC 1.0 million were still in
closing inventory of FDL as of June 30, 2010.
(ii) An impairment test was carried out on June 30, 2010 which indicated that the
goodwill has been impaired by 25%.
(iii) RTL follows a policy of valuing the non-controlling interest at its proportionate share
of fair value of the subsidiaries identifiable net assets.
(iv) FDL has not issued any shares after the acquisition.
(v) Exchange rates relevant to the preparation of the financial statements are as follows:
30-Jun-2009 / 1-Jul-2009
10-Apr-2010
1-May-2010
1 FC = Rs.
22.00
22.50
23.00
30-Jun-2010
Average rate for the year
Required:
Prepare the Consolidated Statement of Comprehensive Income of Rainbow Textiles
Limited for the year ended June 30, 2010.
(23 marks)
Page 25
1 FC = Rs.
23.50
22.75
Q.20 The following information has been extracted from statements of financial position
and the comprehensive income of Parent Limited (PL), Subsidiary Limited (SL) and
Jointly Controlled Entity Limited (JCEL) for the year ended December 31, 2009.
Statement of financial position
PL
SL
JCEL
Rupees in million
Assets
Non-current assets
120
40
74
Investment in SL at cost
35
Investment in JCEL at cost
25
Current assets
Stocks in trade
Cash and bank
20
25
3
228
17
5
1
63
16
8
2
100
Equity and Liabilities

Equity
Ordinary share capital (Rs. 10 each)
Retained earnings
50
78
15
18
50
28
Long term loans
75
12
25
228
18
63
Current liabilities
22
100
Statement of comprehensive income

PL
SL
JCEL
Rupees in million
Sales
1,267
276
654
Cost of sales
(928)
(161)
(469)
Gross profit
339
115
185
Selling expenses
(174)
(68)
(100)
(88)
(30)
(57)
Other income
10
Financial charges
(12)
(4)
Taxation
(26)
(5)
(10)
Net profit
49
8
18
Following additional information is available:
(i) PL owns 80% equity of SL which was acquired on January 1, 2009. JCEL is a jointly
controlled entity in which 50% equity is held by PL since inception.
(ii) On the date of acquisition, the book values of all the assets of SL were
approximately equal to their fair values except for the following:
Equipment
Inventory
Fair value Book value

Rs. in million
15
12
12
10
The remaining useful life of the above equipment on the date of acquisition was 3 years.
The entire inventory acquired prior to acquisition was sold during 2009.
(iii) JCEL measures inventory using the weighted average method whereas PL uses first
Page 26

in first out (FIFO) method. On December 31, 2008 the cost of JCELs inventory
using either methods was approximately the same. However, on December 31, 2009
the value of its inventory using the FIFO method was Rs. 14 million.
(iv) PL sells goods at cost plus 25%. During 2009 invoices raised by PL against sales
made to SL and JCEL amounted to Rs. 10 million and Rs. 20 million respectively.
Out of these, inventories worth Rs. 2 million and Rs. 4 million were held by SL and
JCEL respectively as on December 31, 2009.
(v) PL uses proportionate consolidation method for recognizing its interest in JCEL.
(vi) There is no impairment in the value of goodwill.
(vii) It is the policy of PL to value the non-controlling interest at its proportionate
share of the fair value of the subsidiarys identifiable net assets.
Required:
Prepare the consolidated statements of financial position and comprehensive income of PL
for the year ended December 31, 2009 in accordance with the International Financial
Reporting Standards. (Ignore deferred tax implications)
Q.21 The statements of financial position of Habib Limited (HL), Faraz Limited (FL)
and Momin Limited (ML) as at June 30, 2009 are as follows:
HL
FL
ML
Rupees in million
Assets
Non-current assets
Investments in FL - at cost
Investments in ML - at cost
Current assets
Stocks in trade
Cash and bank
Total assets
Equity
Retained earnings
12% debentures
Current liabilities
Short term loan
978
520
300
1,798
595
595
380
380
210
122
20
352
2,150
105
116
38
259
854
125
128
37
290
670
800
784
1,584
360
354
714
100
450
550
270
124
172
296
2,150
140
140
854
120
120
670
Following additional information is also available:

(i) HL acquired 60% shares of FL on January 1, 2003 for Rs. 400 million when the
retained earnings of FL stood at Rs. 250 million. On January 1, 2006, a further
20% shares in FL were acquired for Rs. 120 million. FLs retained earnings on
the date of second acquisition were Rs. 400 million.
Page 27
(30)

(ii) 70% shares of ML were acquired by HL for Rs. 300 million, on July 1, 2006
when MLs retained earnings stood at Rs. 260 million. On December 31, 2008,
HL disposed off its entire holding in ML for Rs. 500 million. The disposal of
shares has not yet been recorded in HLs financial statements.
(iii)On January 1, 2009, FL purchased a machine for Rs. 20 million and immediately
sold it to HL for Rs. 24 million. However, no payment has yet been made by HL.
The estimated useful life of the machine is 4 years and HL charges depreciation
on the straight line method.
(iv) During the year, HL sold finished goods to FL at cost plus 20%. The amount
invoiced during the year amounted to Rs. 75 million. 60% of these goods had
been sold by FL till June 30, 2009.
(v) During the year ended June 30, 2009, FL and ML earned profits of Rs. 10 million
and Rs. 50 million respectively. The profits had accrued evenly, throughout the
year.
(vi) An impairment review at year end indicated that 15% of the goodwill recognized
on acquisition of FL, is required to be written off.
(vii)
HL values the non-controlling interest at its proportionate share of the fair
value of the subsidiarys identifiable net assets.
Required:
Prepare the consolidated statement of financial position of HL as at June 30, 2009 in
accordance with the requirements of International Financial Reporting Standards.
(Ignore Current and deferred tax implications.)
(25)
Page 28
Q.22 On January 1, 2002, Khan Limited (KL) acquired 375 million ordinary shares and
40 million preference shares in Gul Limited (GL) whose general reserve and retained
earnings on the date of acquisition, stood at Rs. 200 million and Rs. 1,000 million
respectively.
The following balances were extracted from the records of KL and its subsidiary on
December 31, 2008:

12% Preference share capital (Rs. 10 each)
General reserve
Retained earnings
Loan from KL at 15% rate of interest
14% Term Finance Certificates (TFCs) (Rs. 100 each)
Accounts payable
Dividend payable preference shares
Dividend payable ordinary shares
Property, plant and equipment - at cost
Property, plant and equipment - acc. depreciation
Investment in ordinary shares of GL
Investment in preference shares of GL
Loan to GL at 15% rate of interest
Investment in KL's TFCs (purchased at par value)
Profit before tax, interest and dividend
Dividend income
Interest income
Dividend receivable
Current assets
Interest on TFCs
Interest on loan from KL
Taxation
Preference dividend
Ordinary dividend interim
KL
GL
Debit
Credit Debit Credit
-------Rupees in million------6,800
5,000
1,000
1,750
500
2,000
1,200
2,000
2,250
445
190
60
750
300
16,250
25,000
9,750
17,000
5,500
400
2,000
1,500
2,865
1,550
273
300
210
249
1,069
1,316
315
300
650
474
120
750
300
27,183 27,183 29,010 29,010
Following relevant information is available:

(i) At the date of acquisition, the fair value of buildings, included in property, plant
and equipment of GL was assessed at Rs. 1,000 million above its carrying value.
All other identifiable assets and liabilities were considered to be fairly valued. GL
provides for depreciation on buildings at 10% per annum on the straight line
basis.
(ii) GL purchased the TFCs in KL on January 1, 2008.
(iii) The non-controlling interests are measured at their proportionate share of the
GLs identifiable net assets.
(iv) There is no impairment in the value of goodwill since its acquisition.
(v) There are no components of other comprehensive income.
Required:
Prepare the following in accordance with the requirements of International Financial
Reporting Standards:
(c) Consolidated statement of financial position as at December 31, 2008.
(d) Consolidated statement of comprehensive income for the year ended December 31,
2008.
(c) Consolidated statement of retained earnings for the year ended December 31, 2008.
(26)
Page 29

Note:
Ignore deferred tax and corresponding figures.

Notes to the above statements are not required. However, show workings
wherever it is necessary.
Q.23 Golden Limited (GL) is a listed company and has held shares in two companies, Yellow
Limited (YL) and Black Limited (BL), since July 1, 2006. The details of acquisition of shares in
these companies are as follows:
(A) GL acquired 18 million shares in YL at par, when YLs reserves were Rs. 24
million. The acquisition was made by issuing four shares in GL for every five
shares in YL. The market price of GLs shares at July 1, 2006 was Rs. 20 per
share. A fair value exercise was carried out for YLs assets and liabilities at the
time of its acquisition with the following results:
Book Value
Fair Value
Rupees in million
Land
170
192
Machines
25
45
Investments
3
6
The remaining life of machine on acquisition was 5 years. The fair values of the assets have not
been accounted for in YLs financial statements.
(B) 6 million shares in BL were acquired for Rs. 12 per share in cash. At the date of
acquisition, the reserves of BL stood at Rs. 40 million.
The summarized income statement of the three companies for the year ended June 30,
2008 is as follows:
GL
YL
BL
Rupees in million
Sales
875
350
200
Cost of sales
(567)
(206)
(244)
Gross profit / (loss)
308
144
(44)
Selling expenses
(33)
(11)
(15)
(63)
(40)
(16)
Interest expenses
(30)
(22)
(15)
Other income
65
Profit/(loss) before tax
247
71
(90)
Income tax
(73)
(15)
8
Profit/(loss) for the period
174
56
(82)
The following relevant information is available:
(i)
The share capital and reserves as at July 1, 2007 were as follows:

GL
YL
BL
Rupees in million
Ordinary share capital of Rs. 10 each
600
200
150
Reserves
652
213
108
The share capital of all companies has remained unchanged since their incorporation.
(ii) During the year, GL sold goods amounting to Rs. 40 million to YL. The sales
were made at a mark up of 25% on cost. 30% of these goods were still in the
inventories of YL at June 30, 2008.
(iii) GL manufactures a component used by BL. During the year, GL sold these
components amounting to Rs. 20 million to BL. Transfers are made at cost plus 15%.
BL held Rs. 11.5 million of these components in inventories at June 30, 2008.
(iv)
All assets are depreciated on straight line method.
(v)
Other income includes dividend received from YL on April 15, 2008.
Page 30

(vi)
(vii)
During the year, YL paid 20% cash dividend to its ordinary shareholders.
An impairment test was carried out on June 30, 2008 for the goodwill of YL
and investments in BL, appearing in the consolidated financial statements.
(viii) The test indicated that:
goodwill of YL was impaired by 20%;
due to recent losses, the fair value of investment in BL has been

reduced to Rs.40 million.
No such impairment was required in previous years.
Required:
Prepare, in a format suitable for inclusion in the annual report, a consolidated income
statement for the year ended June 30, 2008.
(22)
Q.24 Following is the summarised trial balance of Faisal Limited (FL) and its subsidiaries,
Saqib Limited (SL) and Ayaz Industries Limited (AIL) for the year ended December 31, 2007:
FL
---------------4,920
6,240
14,460
SL
AIL
Rs. in million ---------------660
2,700
2,460
6,580
4,200
5,680
Cash and bank balances

Accounts receivable
Stocks in trade closing
Investment in subsidiaries at cost
SL
9,000
AIL
10,500
Other investments
11,100
22,500
3,480
5,940
Cost of sales
49,200
18,000
21,000
Operating expenses
3,600
2,100
5,400
Accumulated depreciation
(5,760)
(420)
(1,260)
(30,000)
(12,000)
(6,000)
Retained earnings opening
(33,780)
(4,800)
Sales
(57,600)
(16,500)
(33,800)
Accounts payable
(2,760)
(1,980)
(1,440)
Gain on sale of fixed assets
(540)
Dividend income
(1,080)
(i) On January 1, 2007, FL acquired 480 million shares of AIL from its major
shareholder for Rs. 10,500 million.
(ii) SL was incorporated on February 1, 2007. 75% of the shares were acquired by
FL at par value on the same date.
(iii) The following inter company sales were made during the year 2007:
Included in
Amount
Gross
Sales
buyers closing receivable/payable profit %
stocks in trade
at year end
on sales
Rs. in million
--------------------FL to AIL
2,400
900
20
SL to AIL
1,800
600
800
10
AIL to FL
3,600
1,200
30
FL and its subsidiaries value stock in trade at the lower of cost or net realisable value. While
valuing FLs stock in trade, the stock purchased from AIL has been written down by Rs. 100
million.
(iv) On July 1, 2007, FL sold certain plants and machineries to SL. Details of the
transaction are as follows:
Page 31
Sales value
Less: Cost of plant and machineries
Accumulated depreciation
Net book value
Gain on sale of plant
Rs. in million
144
150
(60)
90
54
The plants and machineries were purchased on January 1, 2005, and were being
depreciated on straight line method over a period of five years. SL computed
depreciation thereon using the same method based on the remaining useful life.
(v) FL billed Rs. 100 million to each subsidiary for management services provided
during the year 2007 and credited it to operating expenses. The invoices were
paid on December 15, 2007.
(vi) Details of cash dividend are as follows:
FL
AIL
Date of declaration
Nov 25, 2007
Oct 15, 2007
Dividend
Date of payment
Jan 5, 2008
Nov 20, 2007
%
20
10
Required:
Prepare consolidated balance sheet and profit and loss account of FL and its subsidiaries
for the year ended December 31, 2007. Ignore tax and corresponding figures.
(27)
Page 32
Q.25 Following is the consolidated balance sheet of Iqbal Limited as at June 30, 2007:
2007
2006
Rupees in million
ASSETS
Non-Current Assets
Tangible fixed assets
Goodwill
Current Assets
Cash and bank
Investments
Trade receivables
Inventory
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Ordinary shares of Rs. 10 each
8% preference shares of Rs. 10 each
Share premium
Revaluation reserves
Accumulated profits
Minority Interest
Liability against assets subject to finance lease

Deferred tax
Current Liabilities
Running finance
Trade payables
Income tax payable
Dividends payable
TOTAL EQUITY AND LIABILITIES
Following further information has been extracted from the records:
2,142
343
2,485
1,927
305
2,232
808
982
1,128
1,850
4,768
7,253
700
560
1,168
1,715
4,143
6,375
505
600
55
140
2,670
3,970
238
4,208
450
600
2,480
3,530
200
3,730
300
420
75
55
940
950
600
180
2,670
7,253
900
720
450
100
2,170
6,375
(i) Iqbal Limited has two subsidiaries i.e. Faiz Limited and Badar Limited.
(ii) The factory buildings of Faiz Limited and Badar Limited were revalued during the year
and the surplus arising on the revaluation was credited to a revaluation reserve account.
(iii) Certain plant and machineries belonging to Faiz Limited, acquired under finance lease
arrangement, were capitalized at Rs. 50 million.
(iv) On September 30, 2006, equipment costing Rs. 55 million carried in the books of Iqbal
Limited at Rs. 35 million as at June 30, 2006 was completely destroyed by fire.
Insurance proceed of Rs. 40 million was received on November 17, 2006. There were no
other disposals of tangible fixed assets in any of the three companies.
(v) Total depreciation in the consolidated profit and loss account amounted to Rs. 314
million which included depreciation on leased assets amounting to Rs. 38 million.
Page 33

(vi) 80% of the paid-up capital of Faiz Limited was acquired during the year for Rs. 110
million. The payment was made by issuing 5.5 million ordinary shares of Rs. 10 each at
100% premium. The net assets of Faiz Limited at the date of acquisition were as
follows:
Rs. in million
Tangible fixed assets
60
Inventories
20
Trade receivables
25
Cash
10
Trade payables
(25)
90
(vii) Provision made during the year, for current and deferred tax amounted to Rs. 200
million and Rs. 20 million respectively.
(viii) Profit allocated to minority shareholders amounted to Rs. 35 million.
(ix) The details relating to dividend paid by Iqbal Limited for the year are as follows:
Declared on
Paid on
Amount
2007
June 15, 2007
August 31, 2007
Rs. 180 million
2006
June 15, 2006
August 31, 2006
Rs. 100 million
Required:
Prepare the consolidated cash flow statement for the year ended June 30, 2007, show necessary
working.
(20)
Page 34
Q.26 GIF Holdings Limited (GIF) held 75% shares of JPG Limited (JPG) and 30% shares of
BMP Limited (BMP). Their summarized balance sheets as at June 30, 2005 are as follows:
GIF
JPG
BMP
-------Rupees in million ------Investments at cost in:
JPG Limited
450
BMP Limited
250
Other Net assets
1,690
1,000
800
2,390
1,000
800
Share capital (Rs.10 per share)
Accumulated profits
100
2,290
2,390
100
900
1,000
50
750
800

(a) GIF acquired the shares of JPG many years ago when the reserves of JPG were Rs. 500 million.
The reserves of BMP were Rs. 650 million when GIF bought its 30% holding on July 01, 2004.
(b) The following transactions have taken place from July 01, 2005 to June 30, 2006:
On January 01, 2006, GIF acquired a further 2,500,000 shares in BMP for Rs. 705
million.
On April 01, 2006 GIF sold its entire interest in JPG for Rs. 1.1 billion in cash. Tax
arising on this transaction was Rs. 83 million.
The draft results of the individual companies in the period since July 01, 2005 are as
follows:
Turnover
Profit before tax
Tax
Profit after tax
GIF
JPG
For the year ended
June 30, 2006
Rs. in million
4,000
5,400
400
320
(140)
(112)
260
208
BMP
For the six months ended
Dec. 31, 2005 June 30, 2006
Rs. in million
2,500
3,000
300
340
(105)
(119)
195
221
(c) While preparing the results for the year ended June 30, 2006, GIF have not given effect to the
disposal of its holding in JPG.
(d) Directors of GIF have indicated that costs of Rs. 70 million incurred and charged by BMP in its draft
results for the six-months ended June 30, 2006 had been incurred prior to its acquisition by GIF,
whereas they were recorded after January 1, 2006.
(e) BMP has now decided to write off a debtor balance of Rs. 40 million of which Rs. 30 million had
been outstanding since December 31, 2005. For the purpose of consolidation, Rs. 30 million will be
considered to have been written off prior to January 1, 2006.
(f) GIF is a regular supplier to BMP, and makes a pre-tax profit of 20% on sales. Sales by GIF to BMP in the
six-months ended June 30, 2006 were Rs. 800 million. Goods invoiced at Rs. 450 million were still in
BMPs stock as at June 30, 2006.
(g) Goods invoiced by GIF to BMP in June 2006 at Rs.150 million were not reflected in BMPs accounts
as at June 30, 2006 as they had not been delivered to BMP till then.
(h) The management of GIF tested the goodwill amount by comparing it with its recoverable amount and
decided to reduce its value by 2.5% at June 30, 2006.
(i) Applicable tax rate is 35%. Ignore deferred tax.
Required:
Prepare the consolidated profit and loss account of GIF Holdings Limited for the year
ended June 30, 2006 and the consolidated balance sheet as at June 30, 2006.
(22)
Page 35
Q.27 Millennium Enterprises Limited (MEL) has 80% shareholding in Century

Petroleum Limited (CPL) which it had acquired on April 1, 2003. On April 1, 2005, it
acquired whole of A Limiteds equal (50%) share in the joint venture A Limited had
with B Limited in a pipeline project. The operations of the project are jointly
controlled. The purchase was made at book value.
The balance sheets of the above entities as at March 31, 2006 are given hereunder:
Joint
MEL
CPL
Venture
Rupees in thousand
Non-current assets
416,250
153,600
63,000
Investment
160,000
12,800
--576,250
166,400
63,000
Current assets
Inventory
41,440
20,480
21,000
Accounts receivable
35,150
12,160
11,200
Bank
6,660
-9,800
83,250
32,640
42,000
Total assets
659,500
199,040
105,000
Capital and reserves
Ordinary shares of Rs.10 each
Reserves
Accumulated profits
Current liabilities
Accounts payable
Taxation
Overdraft
185,000
64,000
35,000
405,680
590,680
76,800
140,800
52,500
87,500
48,100
20,720
-68,820
659,500
43,200
11,200
3,840
58,240
199,040
14,000
3,500
-17,500
105,000

(i) CPL was acquired at a cost of Rs.120 million. Its accumulated profits at that date
were Rs. 28 million.
At the date of acquisition, i.e. April 1, 2003, CPL owned an item of plant that had a fair
value of Rs.20.0 million in excess of its book value. The plant had a remaining useful
life of five years. All plant and equipment is depreciated on the straight-line basis.
The fair value of CPLs remaining net assets and all of the Joint Ventures net assets
were equal to their book values at the relevant dates of acquisition.
(ii) On October 1, 2005 MEL purchased some equipment from the Joint Venture for a
consideration of Rs.7.0 million. It was sold at a mark up of 25% on cost. The
equipment is in use by MEL and is included in property plant and equipment and
being depreciated over a four-year life.
(iii)During the year ended March 31, 2006, the books of account of the Joint Venture
showed a profit of Rs.15.0 million.
(iv) The share of profit for the year in CPL and the Joint Venture has not yet been
recorded in the books of MEL.
(v) All inter company current account balances were settled prior to the year-end.
Required:
Prepare the consolidated balance sheet of MEL as at March 31, 2006.
(20)
Page 36
Q.28 Qudsia Limited (QL) has investments in two companies as detailed below:
Manto Limited (ML)
On 1 January 2010, QL acquired 40 million ordinary shares in ML, when its
retained earnings were Rs. 150 million.
The fair value of MLs net assets on the acquisition date was equal to their carrying
amounts.
Hali Limited (HL)
On 30 November 2012, QL acquired 16 million ordinary shares in HL, when its
retained earnings stood at Rs. 224 million.
The purchase consideration was made up of:
- Rs. 190 million in cash, paid on acquisition; and
- 4 million shares in QL. At the date of acquisition, QLs shares were being traded at
Rs. 15 per share but the price had risen to Rs. 16 per share by the time the shares
were issued on 1 January 2013.
The fair value of the net assets of HL on the date of acquisition by QL was equal to
their carrying amounts, except a building whose fair value exceeded its carrying
amount by Rs. 28 million. The building had a remaining useful life of seven years
on 30 November 2012.
The draft sumarized statements of financial position of the three companies on 31
December 2012 as shown:
QL
ML
HL
---------Rs. in million--------Assets
Investment in ML
Investment in HL
Current assets
Ordinary share capital (Rs.10 each)
Retained earnings
Current liabilities
5,000
630
190
5,480
11,300
550
400
950
500
350
850
6,000
2,900
2,400
11,300
500
100
350
950
400
240
210
850
The following additional information is available:

(i) QL considers ML as a cash-generating unit (CGU). As on 31 December 2012, the
recoverable amount of the CGU was estimated at Rs. 700 million.
(ii) QL values the non-controlling interest at its proportionate share of the fair value of the
subsidiarys net identifiable assets.
(iii) On 1 October 2012, ML sold a machine to QL for Rs. 24 million. The machine had
been purchased on 1 October 2010 for Rs. 26 million. The machine was originally
assessed as having a useful life of ten years and that estimate has not changed.
(iv) In December 2012, QL sold goods to HL at cost plus 30%. The amount invoiced was
Rs. 52 million. These goods remained unsold at year end and the invoiced amount was
also paid subsequent to the year end.
Required:
Prepare a consolidated statement of financial position for QL as on 31 December 2012 in
accordance with the requirements of International Financial Reporting Standards.
(20)
Page 37
Q.29 Chughtai Limited (CL) has 75% share holdings in John Limited (JL) which is
registered and operates in a foreign country. JL's functional currency is RAM. The following
information has been extracted from JL's statement of changes in equity for the year ended
31 December 2012:
Subscribed and
Unappropriated
paid-up capital
profit
---------RAMs in million--------Balance as on 1 January 2012
50
85
Final dividend for the year ended 31 December 2011
- Cash dividend at 10%
(5)
- Bonus shares at 20%
10
(10)
Profit after tax for the year ended 31 December 2012
40
Balance as on 31 December 2012
60
110
Other relevant information is as under:
(i)
CL's profit after tax for the year ended 31 December 2012 amounted to Rs. 700 million
which includes a cash dividend of Rs. 41 million received from JL.
(ii) On acquisition, JLs goodwill amounted to RAMs 30 million. However, an
impairment test carried out as at 31 December 2012 revealed that the goodwill has
been impaired by RAMs 6 million.
(iii) CL values the non-controlling interest on acquisition at fair value.
(iv) JL has not issued any ordinary shares after acquisition by CL, except for the bonus
issue as mentioned above.
(v) The following exchange rates are relevant to the financial statements:
31-Dec-2011
31-Dec-2012
------------------ Rs. to 1 RAM
10.00
11.00
Average for 2012

-----------------10.20
Required:
Prepare the relevant extracts from the consolidated statement of comprehensive income of CL
for the year ended 31 December 2012 in accordance with the requirements of International
Financial Reporting Standards.
(16)
Page 38
Q.30 Global Air Limited (GAL) owns 100% equity in Moon (Private) Limited (MPL). On 1
July 2013, GAL decided to dispose of 90% equity in MPL. It is expected that the sale will be
finalised by 30 June 2014 at an estimated sale price of Rs. 140 million with an estimated cost
to sell of Rs. 3.5 million. Relevant information pertaining to MPL is as under:
(i)
Assets and liabilities as of 30 June 2013:

Non-current assets
Current assets
Liabilities
(ii)
(iii)
(iv)
Rs. in million
195.00
50.00
90.00
It is estimated that MPL's trade debtors amounting to Rs. 6 million will not be
recovered; whereas provisions included in the liabilities amounting to Rs. 8 million are
no more required.
MPL's net loss after tax for the nine months period ended 30 June 2013 was Rs. 30
million.
During the period 1 July 2013 to 30 September 2013, liabilities amounting to Rs. 26
million were paid and current assets of Rs. 18 million were recovered.
Goodwill of MPL as per the consolidated statement of financial position of GAL as at 30

September 2012 amounted to Rs. 15 million.
GAL had incurred expenses amounting to Rs. 1.5 million, for disposal of the equity upto 30
September 2013.
Required:
Prepare relevant extracts from the consolidated statements of financial position and
comprehensive income of GAL for the year ended 30 September 2013, in accordance with
IFRS.
(12)
Page 39
Q.31 Following are the draft balance sheets (summarized) of Delta Limited (DL), a listed
company, and its subsidiaries, Gamma Limited (GL) and Sigma Limited (SL) as at 31
December 2013:
DL
GL
SL
--------- Rupees in million --------10,000
6,100
5,400
9,675
2,800
6,325
7,100
3,100
26,000
16,000
8,500
Non-current assets
Investment (at cost)
Current assets
9,000
7,500
6,000
3,500
26,000
Share capital (Rs. 100

each) Retained earnings
Current liabilities
7,000
2,790
3,000
3,210
16,000
3,000
3,100
1,000
1,400
8,500
(i) Investments
Investment
by
DL in GL
DL in SL
GL in SL
Investment
date
No. of shares
(in million)
Cost
(Rs. in million)
1-Jan-2008
1-Jul-2009
1-Jul-2013
52.50
9.00
14.00
7,500
2,175
2,800
Retained earnings
on acquisition
(Rs. in million)
2,500
1,400
3,010
On 1 July 2013, the fair value of SLs shares was Rs. 200 per share.
(ii) On the date of acquisition by DL, the fair value of GLs net assets was equal to their book
value, except a piece of land whose fair value was Rs. 150 million as against its cost of Rs.
120 million. The said land was sold for Rs. 170 million in 2013.
(iii) On 1 January 2013, DL issued 2.5 million 10% convertible term-finance certificates
(TFCs) of Rs. 100 each. The TFCs are redeemable on 31 December 2015 at par. Each
TFC is convertible into one ordinary share at the option of the certificate holder at any
time prior to maturity. On the date of issue, the prevailing market interest rate for similar
debt without conversion option was 12% per annum. The TFCs are appearing in the draft
financial statements at their par value.
Interest payable annually on 31 December each year has been paid and accounted for in the
financial statements.
(iv) The companies settled their inter-company balances on 31 December 2013. However, a
cheque of Rs. 20 million received from SL on 31 December 2013 was credited to DL's
bank account on 5 January 2014.
(v) DL values non-controlling interest at its proportionate share of the fair value of the
subsidiaries' identifiable net assets.
Required:
Prepare a consolidated statement of financial position as at 31 December 2013 in
accordance with the requirements of the International Financial Reporting Standards.
(20)
Page 40
Q.32 Parent Company Limited (PCL) is a listed company and owns 80% and 75% equity in LS
Limited and FS Limited respectively. FS is registered and operates in a foreign country and its
functional currency is CU. Summarised statements of financial position as at 30 June 2014 and
other information relating to the group companies are as under:
Page 41
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Consolidation Questions Bank

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

The following information is relevant:

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

The following information is relevant:

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

Note: a statement of changes in equity is not required.

Profit before tax

Profit for the year

Total comprehensive income

Statements of financial position as at 30 September 2010

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

Total comprehensive income

The following information is relevant:

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

The following mark allocation is provided as guidance for this requirement:

The following information is relevant:

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

a) Calculate the consolidated goodwill at the date of acquisition of Greca.

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

The following information is relevant:

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

The following information is relevant:

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

The following information is relevant:

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

Calculate the goodwill arising on the acquisition of Salva at 1 April 2009;

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

The following information is relevant:

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

(vi) Ignore deferred tax.

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

Statements of financial position as at 30 September 2013

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

The market value of Paradigms shares at 1 October 2012 was $2 each.

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

entity financial statements.

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)

Consolidation Questions Bank

The following information is relevant:

By: Khalid Mehmood, FCA, PhD Scholar (Accounting)