Charm Plc (Charm) is keen to expand its global operations and purchased 75% of the ordinary share capital of Exos Inc. (Exos) on 1 June 2020 for $57.6 million. Exos is an overseas company incorporated in the United States and is the first subsidiary acquired by Charm. The group must now prepare its first set of consolidated financial statements for the year ended 31 May 2021. The finance team have not undertaken this task as they have had no experience in preparing consolidated statements and have little understanding of how to do complete this task, nor why it is necessary under IFRS Standards. Exoss financial statements are stated in their functional currency, the American Dollar ($). The balance on retained earnings of Exos on 1 June 2020 was $15.875 million. Both Charm and Exos prepare financial statements to 31 May 2021 and adopt IFRS Standards. The financial statements for Charm and Exos are included below (the financial statements for Charm include the adjustments in respect of the additional information from Task 1 and no further adjustments are required to the separate financial statements of Charm in respect of those)..
Statements of profit or loss for the year ended 31 May 2021: Charm Exos '000 $'000 Revenue 152,500 153,750 Cost of sales 91,500 95,625 Gross Profit 61,000 58,125 29,000 30,000 Operating expenses Profit for the year Other comprehensive income 32,000 28,125 -846 31,154 28,125 Statements of financial position as at 31 May 2021: Charm Exos '000 $'000 552,000 65,000 Non-current assets Property, plant and equipment Intangible assets Investments - shares in Exos 19,600 15,000 8,000 579,600 80,000 Charm Exos '000 $'000 19,000 10,000 Current assets Inventory Trade and other receivables Cash and cash equivalents 8,650 6,000 7,500 4,000 35,150 20,000 614,750 100,000 200,000 15,000 Equity Ordinary share capital Retained earnings Other reserves 240.780 44,000 11,250 452,030 59,000 Non-current liabilities 134,520 29,000 Current liabilities 28,200 12,000 614,750 100,000 ADDITIONAL INFORMATION: (0) The fair value of the recognised net assets of Exos were the same as their carrying amounts at the date of acquisition except for an item of plant with a fair value of $10 million above its carrying amount. The remaining useful life of the plant from the date of acquisition was ten years. (ii) It is the policy of Charm to value the non-controlling interests at the proportion of net assets of the subsidiary company at the date of acquisition (iii) There is no impairment of goodwill at 31 May 2021. (iv) Charm purchased a specialist machine on 1 May 2021 from a supplier in Portugal for 100,000 on credit. The terms and conditions of the purchase allowed Charm a 90 day credit period and this had not been paid by the year-end. The purchase was correctly recognised in property, plant and equipment and trade payables using the spot rate on 1 May 2021. Having reviewed the work of the finance team when preparing the separate financial statements of Charm, you note that although an adjustment for depreciation of this equipment for the month of May has been correctly applied, no further adjustments in relation to this transaction have been completed. (v) Exchange rates are as follows: (v) Exchange rates are as follows: $1.1 7.2:1 1 June 2020 31 May 2021 Average rate for the period 8.0:1 7.5:1 1:1 1:0.85 1 May 2021 31 May 2021 1:0.80 REQUIRED: 0 Prepare the consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position for the Charm Group incorporating the financial statements of Exos Inc. NOTE: To aid the training and development of the junior members of staff in the finance team ensure that you clearly present your workings and reference these appropriately to the amounts included in the consolidated financial statements where relevant. You may include some brief notes to your workings to add clarity where you feel it necessary (ii) As this is the first time the Charm group must prepare consolidated statements you wish not only to train the finance team in how to prepare consolidated accounts, but also to ensure they understand their purpose. Construct some brief notes which explains the purpose of preparing consolidated financial statements. Statements of profit or loss for the year ended 31 May 2021: Charm Exos '000 $'000 Revenue 152,500 153,750 Cost of sales 91,500 95,625 Gross Profit 61,000 58,125 29,000 30,000 Operating expenses Profit for the year Other comprehensive income 32,000 28,125 -846 31,154 28,125 Statements of financial position as at 31 May 2021: Charm Exos '000 $'000 552,000 65,000 Non-current assets Property, plant and equipment Intangible assets Investments - shares in Exos 19,600 15,000 8,000 579,600 80,000 Charm Exos '000 $'000 19,000 10,000 Current assets Inventory Trade and other receivables Cash and cash equivalents 8,650 6,000 7,500 4,000 35,150 20,000 614,750 100,000 200,000 15,000 Equity Ordinary share capital Retained earnings Other reserves 240.780 44,000 11,250 452,030 59,000 Non-current liabilities 134,520 29,000 Current liabilities 28,200 12,000 614,750 100,000 ADDITIONAL INFORMATION: (0) The fair value of the recognised net assets of Exos were the same as their carrying amounts at the date of acquisition except for an item of plant with a fair value of $10 million above its carrying amount. The remaining useful life of the plant from the date of acquisition was ten years. (ii) It is the policy of Charm to value the non-controlling interests at the proportion of net assets of the subsidiary company at the date of acquisition (iii) There is no impairment of goodwill at 31 May 2021. (iv) Charm purchased a specialist machine on 1 May 2021 from a supplier in Portugal for 100,000 on credit. The terms and conditions of the purchase allowed Charm a 90 day credit period and this had not been paid by the year-end. The purchase was correctly recognised in property, plant and equipment and trade payables using the spot rate on 1 May 2021. Having reviewed the work of the finance team when preparing the separate financial statements of Charm, you note that although an adjustment for depreciation of this equipment for the month of May has been correctly applied, no further adjustments in relation to this transaction have been completed. (v) Exchange rates are as follows: (v) Exchange rates are as follows: $1.1 7.2:1 1 June 2020 31 May 2021 Average rate for the period 8.0:1 7.5:1 1:1 1:0.85 1 May 2021 31 May 2021 1:0.80 REQUIRED: 0 Prepare the consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position for the Charm Group incorporating the financial statements of Exos Inc. NOTE: To aid the training and development of the junior members of staff in the finance team ensure that you clearly present your workings and reference these appropriately to the amounts included in the consolidated financial statements where relevant. You may include some brief notes to your workings to add clarity where you feel it necessary (ii) As this is the first time the Charm group must prepare consolidated statements you wish not only to train the finance team in how to prepare consolidated accounts, but also to ensure they understand their purpose. Construct some brief notes which explains the purpose of preparing consolidated financial statements
