Question
Consolidated Financial Statements Oak plc acquired 70% of Elm Ltds equity shares for 300,000 on 1 January 2018. At the date of acquisition Elm Ltd
Consolidated Financial Statements
Oak plc acquired 70% of Elm Ltds equity shares for 300,000 on 1 January 2018. At the date of acquisition Elm Ltd had retained earnings of 190,000.
The two companies financial statements are presented as follows as at 31 December 2018:
Statements of Financial Position as at 31 December 2018
Oak plc | Elm Ltd | |
'000 | '000 | |
Assets | ||
Non-current assets | ||
Property, plant and equipment | 1,940 | 200 |
Investment Elm Ltd | 300 | ____ |
2,240 | 200 | |
Current assets | ||
Inventories | 400 | 220 |
Trade receivables | 450 | 240 |
Cash and bank | 270 | - |
1320 | 260 | |
Total assets | 3,360 | 660 |
Equity and liabilities | ||
Equity | ||
Share capital, 1 | 2,000 | 100 |
Retained earnings | 500 | 240 |
Revaluation surplus | 20 | ___ |
2,520 | 340 | |
Noncurrent liabilities | ||
Convertible loan stock 8% | 500 | |
Current liabilities | ||
Overdraft | - | 65 |
Trade payables | 250 | 230 |
Tax payable | 90 | 25 |
740 | 320 | |
Total equity and liabilities | 3,360 | 660 |
Statements of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2018
Oak plc | Elm Ltd | |
'000 | '000 | |
Sales revenue | 5,000 | 1,000 |
Cost of sales | 2,900 | 600 |
Gross profit | 2,100 | 400 |
Other expenses | 1,710 | 325 |
Profit before interest and tax | 390 | |
Interest expense | 30 | |
Profit before tax | 360 | 75 |
Income tax expense | 90 | 25 |
Profit for the year | 270 | 50 |
Other comprehensive income: | ||
Gain on revaluation of property | 20 | |
Total comprehensive income for the year | 290 |
Additional information:
- In mid-December 2018 Oak plc sold goods to Elm Ltd on credit and sent an invoice for 200,000. Elm Ltd received the goods and the invoice but has not yet paid for the goods. The goods had cost Oak plc 150,000. All the goods are in Elms inventory.
- On the date of acquisition the fair value of one item (land) in Elms property, plant and equipment exceeded its carrying amount by 50,000. This valuation has not been reflected in the books of Elm Ltd.
- It is the group policy to value the non-controlling interest at acquisition at fair value. The fair value of the non-controlling interest in Elm Ltd at the date of acquisition was 70,000.
- Goodwill has suffered no impairment.
- Elm Ltd has issued no shares since the acquisition.
- Elm Ltd has not declared or paid any dividends in 2018.
- There are no depreciation consequences of the fair value adjustment (as the underlying item was land).
- The loan stock is convertible into a total of 400,000 shares in 2024. Oaks income tax rate is 25%.
REQUIRED:
- Prepare the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2018 and the statement of financial position as at 31 December 2018 for Oak plc group. NB! It is essential that you show all your workings.
- Explain why intra-group transactions and balances are eliminated in consolidation. Use the relevant examples from the statements that you have prepared in Requirement 1 to illustrate your explanation.
- Calculate consolidated basic and diluted EPS. Explain the importance of EPS for the existing and potential shareholders of listed companies and discuss why it is necessary to show also diluted EPS.
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