Financial reporting

are: Assets Nil Section A Question 1 On 1 January 2021, PD Bhd acquired 60% of SV Bhd's equity shares (which consists of 25 million equity shares) by means of a share exchange of one new share in PD Bhd for every four acquired shares in SV Bhd. In addition, PD Bhd will make a cash payment of RM4,660,935, deferred until 1 January 2024. PD Bhd has not recorded any of the purchase consideration. The market value of PD Bhd's shares at 1 January 2021 was RM4.60 each. The cost of capital is 8%. Before acquisition of SV Bhd, PD Bhd's share capital consists of 50 million equity shares. On 1 May 2021, PD Bhd acquired 6 million shares in AZ Bhd (which consists of 20 million equity shares) paying RM1.80 per share. The immediate cash payment has been recorded in PD's financial statements. The summarised statements of financial position of the two companies as at 31 October 2021 PD Bhd SV Bhd AZ Bhd RM 000 RM000 RM 000 Non-current assets Property, plant and equipment (notes (0) 49,600 29,200 25,500 Financial asset: equity investments (notes (1) 10,800 4.200 60,400 33.400 25,500 Current assets Inventories (note (ii)) 19,200 10,200 3,900 Trade receivables (note (iii)) 13.900 9,600 7.200 Bank 2.800 Nil 2.500 Total assets 96,300 53.200 39,100 Equity and liabilities Equity Equity shares 40,000 25,000 15,000 Retained earnings/losses) - at 1 November 2020 19,200 (2,000) 5,500 - for year ended 31 October 2021 9.500 8.100 5.000 68,700 31,100 25,500 Non-current liabilities 10% loan notes 10,000 Nil Nil Current liabilities Trade payables (note (iii) 17,600 13,900 13,600 Bank overdraft nil 8.200 Nil Total equity and liabilities 96,300 53,200 39.100 The following information is relevant: (1) A fair value exercise on 1 January 2021 concluded that the carrying amount of SV Bhd's net assets are equal to their fair values with the following exceptions: Carrying amount Fair value RM"000 RM"000 Plant with a remaining life of eight years 8.400 13.600 Financial assets: equity investment 2.000 2.800 SV Bhd owned a trade secret in manufacturing its products. SV Bhd has not accounted for this asset. At the date of acquisition, specialist valuer estimated that the trade secret was worth RM1.8 million and had estimated remaining life of 4 years. All the depreciation or amortisation should be charged to cost of sales () Each month since acquisition, PD Bhd's sales to SV Bhd were consistently RM900,000. PD Bhd had marked these up by 20% on cost. SV Bhd still keep one quarter of these goods in inventories at 31 October 2021. During post-acquisition period, PD Bhd sold goods to AZ Bhd for RM1.2 million at a profit of 20% on selling price. Three quarter of these goods were still in the inventory of AZ Bhd at 31 October 2021 (iii) SV Bhd's current account balance with PD Bhd at 31 October 2021 was RM1.8 million, which did not agree with PD Bhd's equivalent receivable due to a payment of RM1.200.000 made by SV Bhd on 28 October 2021, which was not received by PD Bhd until 3 November 2021. (iv) PD Bhd's policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, a share price for SV Bhd of RM1.38 cach is representative of the fair value of the shares held by the non-controlling interest. (v) There were no impairment losses within the group during the year ended 31 October 2021. However, the investment in AZ Bhd was impaired by RM500,000. (vi) Assume profit or loss accrued evenly throughout the year. Required: (a) Calculate the goodwill arising on the acquisition of SV Bhd at ! January 2021. (6.5 marks) (b) Calculate the investment in AV Bhd at 31 October 2021 using equity method (3.5 marks) (c) Calculate the consolidated retained earnings for PD group at 31 October 2021. (7 marks) (d) Calculate the non-controlling interest at 31 October 2021. (1.5 marks) (e) Extract the consolidated statement of financial position for PD group as at 31 October 2021 in terms of its non-current assets, current assets and current liabilities. (6.5 marks) ( The summarised statements of profit or loss for the three companies for the year ended 31 October 2021: PD Bhd SV Bhd AZ Bhd RM000 RM000 RM000 Revenue 66,000 59.200 43,800 Cost of sales -26,400 -37.900 -28,470 Gross profit 39,600 21,300 15,330 Operating expenses -25.400 -10,640 -8,760 Finance cost -1,000 Profit before tax 13,200 10,660 6,570 Tax expenses -3.700 -2.560 -1.570 Profit for the year 9.500 8.100 5,000 Page 2 of 3 Nil Nil Extract the consolidated statement of profit or loss for PD group for the year ended 31 October 2021 in terms of its revenue and cost of sales, operating expenses, finance charge and share of associate's profit. (8 marks) (9) An associate is an entity in which an investor has significant influence over the investee. Which TWO of the following indicate the presence of significant influence? (1) The investor owns 330,000 of the 1,500,000 equity voting shares of the investee. (ii) The investor has representation on the board of directors of the investee. (iii) The investor is able to insist that all of the sales of the investee are made to a subsidiary of the investor. (iv) The investor controls the votes of a majority of the board members. (2 marks) [35 Marks are: Assets Nil Section A Question 1 On 1 January 2021, PD Bhd acquired 60% of SV Bhd's equity shares (which consists of 25 million equity shares) by means of a share exchange of one new share in PD Bhd for every four acquired shares in SV Bhd. In addition, PD Bhd will make a cash payment of RM4,660,935, deferred until 1 January 2024. PD Bhd has not recorded any of the purchase consideration. The market value of PD Bhd's shares at 1 January 2021 was RM4.60 each. The cost of capital is 8%. Before acquisition of SV Bhd, PD Bhd's share capital consists of 50 million equity shares. On 1 May 2021, PD Bhd acquired 6 million shares in AZ Bhd (which consists of 20 million equity shares) paying RM1.80 per share. The immediate cash payment has been recorded in PD's financial statements. The summarised statements of financial position of the two companies as at 31 October 2021 PD Bhd SV Bhd AZ Bhd RM 000 RM000 RM 000 Non-current assets Property, plant and equipment (notes (0) 49,600 29,200 25,500 Financial asset: equity investments (notes (1) 10,800 4.200 60,400 33.400 25,500 Current assets Inventories (note (ii)) 19,200 10,200 3,900 Trade receivables (note (iii)) 13.900 9,600 7.200 Bank 2.800 Nil 2.500 Total assets 96,300 53.200 39,100 Equity and liabilities Equity Equity shares 40,000 25,000 15,000 Retained earnings/losses) - at 1 November 2020 19,200 (2,000) 5,500 - for year ended 31 October 2021 9.500 8.100 5.000 68,700 31,100 25,500 Non-current liabilities 10% loan notes 10,000 Nil Nil Current liabilities Trade payables (note (iii) 17,600 13,900 13,600 Bank overdraft nil 8.200 Nil Total equity and liabilities 96,300 53,200 39.100 The following information is relevant: (1) A fair value exercise on 1 January 2021 concluded that the carrying amount of SV Bhd's net assets are equal to their fair values with the following exceptions: Carrying amount Fair value RM"000 RM"000 Plant with a remaining life of eight years 8.400 13.600 Financial assets: equity investment 2.000 2.800 SV Bhd owned a trade secret in manufacturing its products. SV Bhd has not accounted for this asset. At the date of acquisition, specialist valuer estimated that the trade secret was worth RM1.8 million and had estimated remaining life of 4 years. All the depreciation or amortisation should be charged to cost of sales () Each month since acquisition, PD Bhd's sales to SV Bhd were consistently RM900,000. PD Bhd had marked these up by 20% on cost. SV Bhd still keep one quarter of these goods in inventories at 31 October 2021. During post-acquisition period, PD Bhd sold goods to AZ Bhd for RM1.2 million at a profit of 20% on selling price. Three quarter of these goods were still in the inventory of AZ Bhd at 31 October 2021 (iii) SV Bhd's current account balance with PD Bhd at 31 October 2021 was RM1.8 million, which did not agree with PD Bhd's equivalent receivable due to a payment of RM1.200.000 made by SV Bhd on 28 October 2021, which was not received by PD Bhd until 3 November 2021. (iv) PD Bhd's policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, a share price for SV Bhd of RM1.38 cach is representative of the fair value of the shares held by the non-controlling interest. (v) There were no impairment losses within the group during the year ended 31 October 2021. However, the investment in AZ Bhd was impaired by RM500,000. (vi) Assume profit or loss accrued evenly throughout the year. Required: (a) Calculate the goodwill arising on the acquisition of SV Bhd at ! January 2021. (6.5 marks) (b) Calculate the investment in AV Bhd at 31 October 2021 using equity method (3.5 marks) (c) Calculate the consolidated retained earnings for PD group at 31 October 2021. (7 marks) (d) Calculate the non-controlling interest at 31 October 2021. (1.5 marks) (e) Extract the consolidated statement of financial position for PD group as at 31 October 2021 in terms of its non-current assets, current assets and current liabilities. (6.5 marks) ( The summarised statements of profit or loss for the three companies for the year ended 31 October 2021: PD Bhd SV Bhd AZ Bhd RM000 RM000 RM000 Revenue 66,000 59.200 43,800 Cost of sales -26,400 -37.900 -28,470 Gross profit 39,600 21,300 15,330 Operating expenses -25.400 -10,640 -8,760 Finance cost -1,000 Profit before tax 13,200 10,660 6,570 Tax expenses -3.700 -2.560 -1.570 Profit for the year 9.500 8.100 5,000 Page 2 of 3 Nil Nil Extract the consolidated statement of profit or loss for PD group for the year ended 31 October 2021 in terms of its revenue and cost of sales, operating expenses, finance charge and share of associate's profit. (8 marks) (9) An associate is an entity in which an investor has significant influence over the investee. Which TWO of the following indicate the presence of significant influence? (1) The investor owns 330,000 of the 1,500,000 equity voting shares of the investee. (ii) The investor has representation on the board of directors of the investee. (iii) The investor is able to insist that all of the sales of the investee are made to a subsidiary of the investor. (iv) The investor controls the votes of a majority of the board members. (2 marks) [35 Marks