ACCT 3041 Case Study Due Thursday November 25 @ 11:55 PM 30% of the final grade The following draft financial statements relate to Sunrise, a public limited company: SUNRISE DRAFT GROUP STATEMENTS OF FINANCIAL POSITION AT 30 JUNE 2020 2020 $m 2019 $m Assets: Non-Current Assets: Property, plant, and equipment Goodwill Investment in associate 1,315 30 270 1,615 1,005 25 290 1,320 Current Assets Inventory Trade receivables Cash at Bank and cash equivalents 650 610 50 1,310 2,925 580 530 140 1,250 2,570 Total Assets 100 Equity and liabilities Equity Share capital Share premium account Revaluation reserve Retained earnings 30 50 254 434 60 Non-controlling interest Total equity Non-current liabilities Current liabilities Total liabilities Total equity and Liabilities 85 15 145 250 495 45 540 600 1,430 2,030 2,570 494 850 1,581 2,431 2.925 SUNRISE DRAFT GROUPSTATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 $m 4,700 (3,400) 1,300 (600) (40) 20 680 (200) Revenue Cost of Sales Gross profit Distribution and administrative expenses Finance costs Share of profit in associate Profit before tax Income tax expense Profit for the year Other comprehensive income Foreign exchange difference of associate Impairment losses on property, plant and equipment offset against revaluation surplus Total comprehensive income for the year Profit attributable to Owners of the parent Non-controlling 480 (5) (95) 380 455 25 480 Total comprehensive income attributable to Owners of the parent Non-controlling interest 355 25 380 SUNRISE DRAFT STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Balance at 1 July 2019 Issue of share capital Total comprehensive income for the year Acquisition of non-controlling interest of Cloud Dividends paid (parent and non-controlling interest) Balance at 30 June 2020 Sm 540 30 380 48 (504) 494 The following relates to Sunrise: (a) Sunrise acquired a seventy percent holding in Cloud, a public limited company, on 1 July 2019. The fair values of the assets acquired were as follows: $m Property, plant, and equipment 70 Inventories and work in progress 90 160 The purchase consideration was $100 million in cash and $25 million (discounted value) deferred consideration which is payable on 1 July 2020. The difference between the discounted value of the deferred consideration ($25 million) and the amount payable ($29 million) is included in the finance costs. Sunrise wants to set up a provision for the reconstruction cost of $10 million retrospectively on the acquisition of Cloud. This provision has not yet been set up. (b) There had been no disposal of property, plant, and equipment during the year. Depreciation for the period charged in cost of sales was $60 million. (c) Current liabilities comprised of the following: 2020 $m 1,341 50 190 1,581 2019 $m 1,200 45 Trade payables Interest payable Taxation 185 1,430 (d) Non-current liabilities comprised the following: 2019 $m Deferred Consideration - purchase of Cloud Liability for the purchase of property, plant, and equipment Loans repayable Deferred tax liability Retirement benefit liability 2020 $m 29 144 621 30 26 850 555 25 20 600 (e) The retirement benefit liability comprised the following: $m Movement in year Liability at 1 July 2015 Current and past services cost charged to profit or loss Contributions paid to retirement benefits scheme Liability 30 June 2016 There was no actual gain or loss in the year. 20 13 (7) 26 (f) Goodwill was impairment tested on 30 June 2020 and any impairment was included in the financial statements for the year ended on 30 June 2020. (g) The Finance Director has set up a company, Star, through which Sunrise conducted its investment activities, Sunrise has paid $400 million to Star during the year and this has been included in dividends paid. The money was invested in a specified portfolio of investments. Ninety-five per cent of the profits and one hundred percent of the losses in the specified portfolio of investments are transferred to Sunrise. An investment manager has charge of the company's investments and own all the share capital of Star. An agreement between the investment manager and Sunrise sets out the operating guidelines and prohibits the investment manager from obtaining access to the investments for the manager's benefit. An annual transfer of the profit/loss will occur on 30 June annually and the capital will be returned in four years' time. The transfer of $400 million cash occurred on 1 January 2020, but no transfer of profit/loss has yet occurred. The statement of financial position of Star at 30 June 2020 is as follows: STAR: STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2020 Investment at fair value through profit or loss Sm 390 390 Share Capital Retained earnings 400 (10) 390 (h) It is the group's policy to value the non-controlling interest at its proportionate share of the fair value of the subsidiary's identifiable net assets. Required 1) Prepare a group cash flows from operating activities (ONLY) for the Sunrise Group for the year ended 30 June 2020 using the indirect method (20 marks) 2) Discuss the issues which determine whether STAR should be consolidated by SUNRISE in the group financial statement (20 marks) 3) Discuss briefly the importance of ethical behavior in the preparation of financial statements and whether the creation of Star could constitute unethical practice by the finance director of Sunrise (20 marks) Total marks 60 to be prorated to 30% PLEASE SHOW YOUR WORKINGS ACCT 3041 Case Study Due Thursday November 25 @ 11:55 PM 30% of the final grade The following draft financial statements relate to Sunrise, a public limited company: SUNRISE DRAFT GROUP STATEMENTS OF FINANCIAL POSITION AT 30 JUNE 2020 2020 $m 2019 $m Assets: Non-Current Assets: Property, plant, and equipment Goodwill Investment in associate 1,315 30 270 1,615 1,005 25 290 1,320 Current Assets Inventory Trade receivables Cash at Bank and cash equivalents 650 610 50 1,310 2,925 580 530 140 1,250 2,570 Total Assets 100 Equity and liabilities Equity Share capital Share premium account Revaluation reserve Retained earnings 30 50 254 434 60 Non-controlling interest Total equity Non-current liabilities Current liabilities Total liabilities Total equity and Liabilities 85 15 145 250 495 45 540 600 1,430 2,030 2,570 494 850 1,581 2,431 2.925 SUNRISE DRAFT GROUPSTATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 $m 4,700 (3,400) 1,300 (600) (40) 20 680 (200) Revenue Cost of Sales Gross profit Distribution and administrative expenses Finance costs Share of profit in associate Profit before tax Income tax expense Profit for the year Other comprehensive income Foreign exchange difference of associate Impairment losses on property, plant and equipment offset against revaluation surplus Total comprehensive income for the year Profit attributable to Owners of the parent Non-controlling 480 (5) (95) 380 455 25 480 Total comprehensive income attributable to Owners of the parent Non-controlling interest 355 25 380 SUNRISE DRAFT STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Balance at 1 July 2019 Issue of share capital Total comprehensive income for the year Acquisition of non-controlling interest of Cloud Dividends paid (parent and non-controlling interest) Balance at 30 June 2020 Sm 540 30 380 48 (504) 494 The following relates to Sunrise: (a) Sunrise acquired a seventy percent holding in Cloud, a public limited company, on 1 July 2019. The fair values of the assets acquired were as follows: $m Property, plant, and equipment 70 Inventories and work in progress 90 160 The purchase consideration was $100 million in cash and $25 million (discounted value) deferred consideration which is payable on 1 July 2020. The difference between the discounted value of the deferred consideration ($25 million) and the amount payable ($29 million) is included in the finance costs. Sunrise wants to set up a provision for the reconstruction cost of $10 million retrospectively on the acquisition of Cloud. This provision has not yet been set up. (b) There had been no disposal of property, plant, and equipment during the year. Depreciation for the period charged in cost of sales was $60 million. (c) Current liabilities comprised of the following: 2020 $m 1,341 50 190 1,581 2019 $m 1,200 45 Trade payables Interest payable Taxation 185 1,430 (d) Non-current liabilities comprised the following: 2019 $m Deferred Consideration - purchase of Cloud Liability for the purchase of property, plant, and equipment Loans repayable Deferred tax liability Retirement benefit liability 2020 $m 29 144 621 30 26 850 555 25 20 600 (e) The retirement benefit liability comprised the following: $m Movement in year Liability at 1 July 2015 Current and past services cost charged to profit or loss Contributions paid to retirement benefits scheme Liability 30 June 2016 There was no actual gain or loss in the year. 20 13 (7) 26 (f) Goodwill was impairment tested on 30 June 2020 and any impairment was included in the financial statements for the year ended on 30 June 2020. (g) The Finance Director has set up a company, Star, through which Sunrise conducted its investment activities, Sunrise has paid $400 million to Star during the year and this has been included in dividends paid. The money was invested in a specified portfolio of investments. Ninety-five per cent of the profits and one hundred percent of the losses in the specified portfolio of investments are transferred to Sunrise. An investment manager has charge of the company's investments and own all the share capital of Star. An agreement between the investment manager and Sunrise sets out the operating guidelines and prohibits the investment manager from obtaining access to the investments for the manager's benefit. An annual transfer of the profit/loss will occur on 30 June annually and the capital will be returned in four years' time. The transfer of $400 million cash occurred on 1 January 2020, but no transfer of profit/loss has yet occurred. The statement of financial position of Star at 30 June 2020 is as follows: STAR: STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2020 Investment at fair value through profit or loss Sm 390 390 Share Capital Retained earnings 400 (10) 390 (h) It is the group's policy to value the non-controlling interest at its proportionate share of the fair value of the subsidiary's identifiable net assets. Required 1) Prepare a group cash flows from operating activities (ONLY) for the Sunrise Group for the year ended 30 June 2020 using the indirect method (20 marks) 2) Discuss the issues which determine whether STAR should be consolidated by SUNRISE in the group financial statement (20 marks) 3) Discuss briefly the importance of ethical behavior in the preparation of financial statements and whether the creation of Star could constitute unethical practice by the finance director of Sunrise (20 marks) Total marks 60 to be prorated to 30% PLEASE SHOW YOUR WORKINGS