FINANCIAL REPORTING2

Answer ONE question only. Time allowed: 55 minutes Question 1 On 1 February 2021, PCK Bhd purchased 18 million of a total of 24 million equity shares in SGK Bhd. The acquisition was through a share exchange of two shares in PCK Bhd for every three shares in SGK Bhd. The market price of PCK Bhd's shares at 1 February 2021 was RM5.75 per share. PCK Bhd will also pay in cash on 31 January 2023 (two years after acquisition) RM2.42 per acquired share of SGK Bhd. PCK Bhd has only recorded the share exchange in its books. PCK Bhd cost of capital is 10% per annum. The summarised statement of profit or loss for the two companies for the year ended 30 September 2021 are: PCK Bhd SGK Bhd RM 000 RM9000 Revenue 150,000 78,000 Cost of sales (94.000) (51,000) Gross profit 56,000 27,000 Distribution costs (7.400) (3.000) Administrative expenses (12,500) (6,000) Finance costs (2.000) (900) Profit before tax 34.100 17.100 Income tax expense (10,400) (3.600) Profit for the period 23,700 13.500 Statements of financial position as at 30 September 2021 PCK Bhd SGK Bhd RMOO 0 RM000 Assets Non-current assets 165,80 Property, plant and equipment 87.000 Financial asset: equity investments 69,000 21,500 Current assets 77,800 44,400 312.60 Total assets 152,900 Equity and liabilities Equity Equity shares 80,000 30,000 177,70 Retained earnings 0 82,500 257,70 0 112,500 Non-current liabilities 10% loan notes 20,000 9,000 0 Current liabilities Total equity and liabilities 34,900 312.60 31,400 152.900 1 The following information is relevant: (i) The fair values of the net assets of SGK Bhd at the date of acquisition were equal to their carrying amounts with the exception of property and plant. Property and plant had fair values of RM4.1 million and RM2.4 million respectively in excess of their carrying amounts. The increase in the fair value of the property would create additional depreciation of RM200,000 in the consolidated financial statements in the post acquisition period to 30 September 2021 and the plant had a remaining life of four years (straight-line depreciation) at the date of acquisition of SGK Bhd. All depreciation is treated as part of cost of sales. The fair values have not been reflected in SGK Bhd's financial statements. (ii) Under the post-acquisition period to 30 September 2021, SGK Bhd sold goods to PCK Bhd for RM10 million. SGK Bhd made a profit of 20% on the cost of these sales. At 30 September 2021 SGK Bhd still held inventory of RM3 million (at cost to SGK Bhd) of goods purchased in the post acquisition period from PCK Bhd. (iii) An impairment test on the goodwill of SGK Bhd conducted on 30 September 2021 concluded that it should be written down by RM2 million. (iv) All items in the above statements of profit or loss are deemed to accrue evenly over the year. (v) No dividends were paid by either parent or subsidiary company, (vi) It is group policy to value the non-controlling interest at full fair value. At the date of acquisition the directors valued the non-controlling interest in SGK Bhd at RM34 million. Required: Prepare the consolidated statement of profit or loss for the PCK's Group for the year ended 30 September 2021 and the consolidated statement of financial position as at that date. [25 Marks! Answer ONE question only. Time allowed: 55 minutes Question 1 On 1 February 2021, PCK Bhd purchased 18 million of a total of 24 million equity shares in SGK Bhd. The acquisition was through a share exchange of two shares in PCK Bhd for every three shares in SGK Bhd. The market price of PCK Bhd's shares at 1 February 2021 was RM5.75 per share. PCK Bhd will also pay in cash on 31 January 2023 (two years after acquisition) RM2.42 per acquired share of SGK Bhd. PCK Bhd has only recorded the share exchange in its books. PCK Bhd cost of capital is 10% per annum. The summarised statement of profit or loss for the two companies for the year ended 30 September 2021 are: PCK Bhd SGK Bhd RM 000 RM9000 Revenue 150,000 78,000 Cost of sales (94.000) (51,000) Gross profit 56,000 27,000 Distribution costs (7.400) (3.000) Administrative expenses (12,500) (6,000) Finance costs (2.000) (900) Profit before tax 34.100 17.100 Income tax expense (10,400) (3.600) Profit for the period 23,700 13.500 Statements of financial position as at 30 September 2021 PCK Bhd SGK Bhd RMOO 0 RM000 Assets Non-current assets 165,80 Property, plant and equipment 87.000 Financial asset: equity investments 69,000 21,500 Current assets 77,800 44,400 312.60 Total assets 152,900 Equity and liabilities Equity Equity shares 80,000 30,000 177,70 Retained earnings 0 82,500 257,70 0 112,500 Non-current liabilities 10% loan notes 20,000 9,000 0 Current liabilities Total equity and liabilities 34,900 312.60 31,400 152.900 1 The following information is relevant: (i) The fair values of the net assets of SGK Bhd at the date of acquisition were equal to their carrying amounts with the exception of property and plant. Property and plant had fair values of RM4.1 million and RM2.4 million respectively in excess of their carrying amounts. The increase in the fair value of the property would create additional depreciation of RM200,000 in the consolidated financial statements in the post acquisition period to 30 September 2021 and the plant had a remaining life of four years (straight-line depreciation) at the date of acquisition of SGK Bhd. All depreciation is treated as part of cost of sales. The fair values have not been reflected in SGK Bhd's financial statements. (ii) Under the post-acquisition period to 30 September 2021, SGK Bhd sold goods to PCK Bhd for RM10 million. SGK Bhd made a profit of 20% on the cost of these sales. At 30 September 2021 SGK Bhd still held inventory of RM3 million (at cost to SGK Bhd) of goods purchased in the post acquisition period from PCK Bhd. (iii) An impairment test on the goodwill of SGK Bhd conducted on 30 September 2021 concluded that it should be written down by RM2 million. (iv) All items in the above statements of profit or loss are deemed to accrue evenly over the year. (v) No dividends were paid by either parent or subsidiary company, (vi) It is group policy to value the non-controlling interest at full fair value. At the date of acquisition the directors valued the non-controlling interest in SGK Bhd at RM34 million. Required: Prepare the consolidated statement of profit or loss for the PCK's Group for the year ended 30 September 2021 and the consolidated statement of financial position as at that date. [25 Marks