A SECTION A CONSISTS OF QUESTION 1. YOU MUST ANSWER THIS QUESTION QUESTION 1 ANSWER ALL PARTS OF THIS QUESTION Extracts from the draft individual statement of profit or loss for Hastings Ltd and its one subsidiary, Clifton Ltd, for the year ended 31 December 2021 are shown below: Statements of profit or loss for the year ended 31 December 2021 Hastings Ltd Clifton Ltd Revenue Cost of sales 7,308,110 3,206,520 (3,828,080) (1,998,760) Gross profit 3,480,030 1,207,760 Distribution costs (1,362,470) (248,230) Administration expenses (1,199,520) (385,160) Other income 340,000 Profit from operations 1,258,040 574,370 Finance costs (477,210) (77,560) Profit before tax 780,830 496,810 Tax expense (190,240) (120,360) Profit for the year 590,590 376,450 Extracts from the individual statements of financial position for the year ended 31 December 2020 (the previous financial year) are shown below: Statements of financial position as at 31 December 2020 (extract) Equity Share capital (25p shares) Share premium Hastings Ltd Clifton Ltd 6,400,000 2,500,000 2,650,000 450,000 13,066,240 2,093,380 Retained earnings The following information is also relevant: (1) On 1 January 2021, Hastings Ltd gained control over Clifton Ltd by acquiring 8,000,000 ordinary shares with a nominal value of 25 pence per share. Hastings Ltd paid 3 million cash and issued 4 million ordinary shares at a market value of 35 pence per share. Hastings Ltd agreed to pay 1.2 million cash in two years time. An appropriate discount rate is 6% per annum. Hastings Ltd has recorded the interest on the deferred consideration for the year ended 31 December 2021 as a debit to cost of sales and a credit to non-current liabilities. At 1 January 2021, the fair values of the net assets of Clifton Ltd were the same as their carrying amounts. During the year Hastings Ltd sold goods to Clifton Ltd at a selling price of 300,000. Hastings Ltd sells goods at a margin of 50% and 72,000 of goods remained in inventory at the year end. Hastings Ltd measures the non-controlling interest using the proportionate share of net assets. Goodwill on acquisition has become impaired by 20,000. (2) On 1 July 2021, Clifton Ltd sold a van to Hastings Ltd for 15,000. The van was originally bought by Clifton Ltd for 14,000 on 1 July 2019 and had an estimated useful life of seven years. At the date of transfer, the van was deemed to have a remaining useful life of five years. Depreciation on the van has been recorded within distribution costs. Profit on sale of the machine has been recorded within other income. (3) On 1 April 2021, Hastings Ltd acquired 30% of the 200,000 1 ordinary shares of Woodville Ltd for 322,000, an investment which provides Hastings Ltd with significant influence. Woodville Ltd made a profit for the year ended 31 December 2021 of 86,000. At 1 April 2021, the fair values of the net assets of Woodville Ltd were the same as their carrying amounts with the exception of an item of machinery. The machine was acquired three years ago for 100,000 and had a useful life at that date of six years. At 1 April 2021, the machine had a fair value of 90,000 with a remaining useful life of four years. In November 2021, Woodville Ltd sold goods to Hastings Ltd for 28,000 and 40% of the goods remain in inventory at the year end. The goods originally cost Woodville Ltd 21,000 The investment in Woodville Ltd has become impaired by 19,000. (4) The following dividends were paid in December 2021: Hastings Ltd Clifton Ltd Woodville Ltd 1.8 pence per share 3.5 pence per share 23.0 pence per share Hastings Ltd has recorded dividends received from investments in its single entity financial statements by posting a debit to bank in the statement of financial position and a credit to other income in the statement of profit or loss. (5) Hastings Ltd has a small number of other investments, none of which require adjustments in the financial statements. (6) Profits, revenues and costs in all companies accrue evenly throughout the year. REQUIRED: (a) There is no maximum word count for this requirement. Prepare the consolidated statement of profit or loss for Hastings Ltd for the year ended 31 December 2021. [30 marks] (b) There is no maximum word count for this requirement. Prepare an extract from the consolidated statement of changes in equity for Hastings Ltd for the year ended 31 December 2021. You should prepare separate columns for: Share capital Share premium Retained earnings Non-controlling interest (c) The maximum word count for this requirement is 160 words. [6 marks] Briefly discuss why an intra-group sale of a non-current asset needs to be adjusted for within the consolidated statement of profit or loss. You should refer to (2) above as part of your answer. (d) The maximum word count for this requirement is 400 words. [4 marks] Evaluate the extent to which the equity method of accounting for associates provides information that is useful to the users of financial statements. As part of your answer you should consider the characteristics of financial information according to the conceptual framework. You should refer to (3) and (4) above as part of your answer. [10 marks]