Section A THIS ONE question is compulsory and MUST be attempted

1 (a) The following draft statements of financial position relate to Diamond, Spade and Club, all public listed entities,
as at 31 March 2017.
Diamond Spade Club
$m $m $m
Assets
Non-current assets
Property, plant and equipment 1,062 1,210 1,265
Investments in subsidiaries
Spade 1,140
Club 928
Investment in Heart 68
Other financial assets 190

3,388 1,210 1,265
Current assets: 885 782 224

Total assets 4,273 1,992 1,489

Equity and liabilities
Equity share capital ($1 each) 1,650 720 700
Retained earnings 1,180 880 364
Other components of equity 128 78 59

Total equity 2,958 1,678 1,123

Non-current liabilities 1,143 189 172
Current liabilities 172 125 194

Total liabilities 1,315 314 366

Total equity and liabilities 4,273 1,992 1,489

The following information is relevant to the preparation of the group financial statements:
1. On 1 April 2016, Diamond acquired 70% of the equity interests of Spade paying cash of $1,140 million.
At 1 April 2016, the retained earnings and other components of equity of Spade were $780 million and
$64 million respectively.
The fair value of the identifiable net assets of Spade at 1 April 2016 was $1,600 million. It is group policy
to value non-controlling interests at fair value and, at the date of acquisition, this was $485 million. The
excess in fair value of the identifiable net assets is due to non-depreciable land.
2. On 1 April 2015, Diamond acquired 40% of the equity interests of Club for cash consideration of
$420 million. At this date the carrying amount and fair value of the identifiable net assets of Club was
$1,032 million. Diamond treated Club as an associate and equity accounted for Club up to 31 March 2016.
On 1 April 2016, Diamond took control of Club, acquiring a further 45% interest for cash of $500 million
and added this amount to the carrying amount of its investment in Club. On 1 April 2016, the retained
earnings and other components of equity of Club were $293 million and $59 million respectively and the
fair value of the identifiable net assets was $1,062 million. The difference between the carrying amounts
and the fair values was in relation to plant with a remaining useful life of five years. The share prices of
Diamond and Club were $5 and $160 respectively on 1 April 2016. The fair value of the original 40%
holding and the fair value of the non-controlling interest should both be estimated using the market value of
the shares.
3. Diamond has owned a 25% equity interest in Heart for a number of years. Heart had profits for the year
ended 31 March 2017 of $20 million which can be assumed to have accrued evenly. Heart does not have
any other comprehensive income. On 30 September 2016, Diamond sold a 10% equity interest for cash of
$42 million. Diamond was unsure of how to treat the disposal and so has deducted the proceeds from the

3 [P.T.O.
 carrying amount of the investment at 1 April 2016 which was $110 million (calculated using the equity
accounting method). The fair value of the remaining 15% shareholding was estimated to be $65 million at
30 September 2016 and $67 million at 31 March 2017. Diamond no longer exercises significant influence
and has designated the remaining shareholding as fair value through other comprehensive income.
4. Goodwill has been reviewed for impairment and no impairment was deemed necessary.
5. On 1 April 2015, Diamond acquired $50 million of 6% listed bonds at their nominal value. Diamond may
sell or hold bonds to maturity and so, based on this business model, has designated the bonds as fair value
through other comprehensive income. The effective rate of interest on the bonds is also 6%. The bonds had
a fair value of $42 million at 31 March 2016 and were correctly treated in the financial statements of that
year.
On 31 March 2017, Diamond received the coupon interest of $3 million, which was recorded within interest
received, and then sold the bonds on the same day for $35 million. The disposal proceeds were substantially
below the fair value of the bonds which was $38 million at 31 March 2017. A $7 million loss on disposal
was charged against profits. Diamond has an option to repurchase the bonds at any time up to 31 December
2018 for $36 million. The fair value is expected to increase in the future and it is highly likely that Diamond
will exercise this option.
6. Diamond operates a defined benefit pension scheme. On 31 March 2017, the company announced that it
was to close down a business division and agreed to pay each of its 150 staff a cash payment of $50,000
to compensate them for loss of pension arising from wage inflation. It is estimated that the closure will
reduce the present value of the pension obligation by $58 million. Diamond is unsure of how to deal with
the settlement and curtailment and has not yet recorded anything within its financial statements.
7. On 1 April 2016, Diamond acquired a manufacturing unit under an eight-year finance lease. The lease
rentals have been recorded correctly in the financial statements of Diamond. However, Diamond could not
operate effectively from the unit until alterations to its structure costing $66 million were completed. The
manufacturing unit was ready for use on 31 March 2017. The alteration costs of $66 million were charged
to administration expenses. The lease requires Diamond to restore the unit to its original condition at the
end of the lease term. Diamond estimates that this will cost a further $5 million. Market interest rates are
currently 6%.
Note: The following discount factors may be relevant:
Periods 6%
7 0665
8 0627

Required:
Prepare the consolidated statement of financial position of the Diamond Group as at 31 March 2017 in
accordance with International Financial Reporting Standards. (35 marks)

4
 Answer to June 2017 Question 1 - Diamond
Property, plant and equipment [1,062 + 1,210 + 1,265 + 36 + 8 + 6.6 + 3.3] 3,590.9
Goodwill [W2] 79.0

q
Financial Assets [190 + 65 +2 + 42 - 4] 295.0

a
Current Assets [885 + 782 + 224] 1,891.0
5,855.9

Equity share capital 1,650.0

H
Retained earnings [W4] 1,337.6
Other components of equity [W4] 135.8

l
Non-controlling Interest [W3] 697.6

u
Non-current liabilities [1,143 + 189 + 172 +35 - 5.8 + 3.3] 1,536.5
Current liabilities [172 + 125 + 194 + 7.5] 498.5

d
5,855.9

b
[W1] Net Assets Spade (70%) Club (85%)
At Acq At BS At Acq At BS
Equity share capital 720.00 720.00 700.00 700.0
Retained earnings 780.00 880.00 293.00 364.0

A
Other components of equity 64.00 78.00 59.00 59.0
FV Adjustment - PPE 36.00 36.00 10.00 8.0
1,600.00 1,714.00 1,062.00 1,131.0

a
Post-acq profits 114.00 69.0
Parent (70%) NCI (30%) Parent (85%) NCI (15%)

z
79.80 34.20 58.65 10.4
[W2] Goodwill
Cost 1,140.00 948.00
FV of NCI 485.00 168.00

m
1,625.00 1,116.00
Less: FV of net assets acquired (1,600.00) (1,062.00)

a
25.00 54.00

[W3] NCI
FV of NCI 485.00 168.00

H
Share of Profit 34.20 10.35
519.20 178.35

[W4] RE OCE
Diamond 1,180.00 128.00
Spade 70.00 9.80
Club 58.65 -
A (2.) 20.00 -
A (3.) (3.00) 2.00
A (5.) 7.00 (4.00)
A (6.) (1.70) -
A (7.) 6.60 -
1,337.55 135.80
 2. Investment in Club 20.00
Retained Earnings 20.00
Note: CA of 428 (928 - 500) has been remeasure to its FV of 448 (700x40%x1.6) with gain taken to PnL.

3. Financial Asset 65.00

q
Retained Earnings 3.00
Invesment in Heart (Associate) 68.00

a
Note: CA of 68 has been remeasure to its FV of 65 with loss taken to Retained earnings.

Financial Asset 2.00

OCE 2.00

H
5. Financial Asset 42.00

l
Retained Earnings 7.00
Financial Liability (NCL) 35.00

u
Note: In case of sale and buyback agreement with fixed price, the risk and rewards are not transferred
therefore the asset shall not be derecognised instead shall be treated as a separate financial

d
liability

OCI 4.00

b
Financial Asset 4.00

6. Retained Earnings 1.70

A
NCL 5.80
CL 7.50

a
7. PPE 6.60
Retained Earnings 6.60

z
PPE 3.30
NCL 3.30

a m
H
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Disclaimer:

The above answer is not any official answer it is just an estimated answer for students to check how well
they have attempted in the exam. The answer may differ with the answer published later by ACCA.