Extracts from the financial statements of AB, CD and EF are presented below.

Additional information: 

1. AB acquired 80 per cent of the ordinary share capital of CD for $620,000 on 1 January 20X1 when the retained reserves of CD were $420,000. CD has 200,000 $1 ordinary shares in issue and there have been no share issues since the acquisition date. The group policy is to measure the non-controlling interest at fair value at the date of acquisition. The fair value of the non-controlling interest at 1 January 20X1 was $180,000.

2.  On 1 January 20X1, the fair value of CD’s net assets was the same as their book value with the exception of depreciable property, the fair value of which was $60,000 higher than its book value. The property had a remaining useful life of 15 years at the date of acquisition. Depreciation on property is charged to cost of sales.

3.  Goodwill on the acquisition of CD was impaired for the first time by 25 per cent in the year to 31 December 20X3. An impairment review conducted at 31 December 20X4 indicated a further impairment of 10 per cent of the remaining carrying value of goodwill. Impairment losses on goodwill are charged to group operating expenses.

4.  AB acquired 40 per cent of the ordinary share capital of EF on 1 July 20X2, when the equity was $435,000.

Required: 

(a) Prepare for the AB Group for the year ended 31 December 20X4: 

(i) A consolidated statement of profit or loss and other comprehensive income 

(ii) A consolidated statement of changes in equity.

(b) AB purchased a further 10 per cent of the ordinary share capital of CD on 1 January 20X5 for $120,000. 

(i) Explain how the acquisition of this additional investment will be accounted for in the consolidated financial statements of the AB Group for the year to 31 December 20X5.

(ii) Calculate the debit or credit that will be made to the consolidated retained reserves of the AB Group for the year to 31 December 20X5 in respect of this additional 10 per cent share purchase.

(c) AB purchased a further 20 per cent of the ordinary share capital of EF on 1 January 20X5.

Explain how the acquisition of the additional investment in EF will be accounted for in the consolidated financial statements of the AB Group for the year to 31 December 20X5.

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Statements for the year ended 31 December 20X4 of profit or loss and other comprehensive income Revenue Cost of sales Gross profit Operating expenses Investment income Finance costs Profit before tax Income tax expense Profit for the year Other comprehensive income: Revaluation of property, net of tax Other comprehensive income for the year, net of tax Total comprehensive income Statements of changes in equity for the year ended 31 December 20X4 Equity at 1 January 20X4 Total comprehensive income for the year Dividends Equity at 31 December 20X4 AB $000 1,200 (810) 390 (100) 290 50 (45) 295 (80) 215 60 60 275 AB $000 1,700 275 (100) 1,875 CD $000 $000 290 (110) 180 (40) 140 (10) 130 (30) 100 20 20 120 CD $000 840 120 (50) EF 910 8888 ada saa, s@a® 5 (80) EF