Fox Bhd RM'000 120,000 Question 1 (60 marks) Statements of Financial Position as at 31 March 2020 Quick Bhd Brown Bhd Assets RM'000 RM 000 Non-current assets Tangible Assets 300,500 260,000 Investments 345,000 645,500 260,000 Current assets Inventories 500,000 392, 100 Current a/c: Brown & Fox 50,000 Trade receivables 26,000 25,000 Bank 35,000 50,000 Total Assets 1.256.500 727.100 120,000 10,000 10,000 20,000 160.000 Equities and Liabilities Equity Ordinary shares at RM1 each Revaluation reserves Retained earnings 200,000 100,000 500,000 200,000 131,500 370,000 20,000 Non-current Liabilities 10% Preference Shares at RM1 each 50,000 47,100 20,000 275,000 40,000 Current Liabilities Trade payables Bank Overdraft Current a/c: Quick Other liabilities Total Equities and Liabilities 110,000 1.256,500 40,000 20,000 727.100 5,000 15,000 160,000 Statements of Changes in Retained Earnings for the year ended 31 March 2020 Quick Bhd Brown Bhd Fox Bhd RM'000 70,000 111,500 (50,000 131,500 RM'000 130,000 240,000 Balance at 1 April 2019 Profit for the period Less: Dividends paid Balance at 31 March 2020 RM'000 15.000 15,000 (10,000) 20,000 370,000 7 Statements of Comprehensive Income for the year ended 31 March 2020 Quick Bhd Brown Bhd Fox Bhd RM'000 RM000 RM000 Revenue 450,000 400,000 195,600 Cost of sales (300,000) (120,020) (150,000) Gross profit 150,000 279,980 45,600 Operating expenses (14,000) (24,000) (24,600) Profit on disposal of fixed asset 20 Finance costs (1,500) (5,000) Interest Income 2,000 Dividend income 3,000 Profit before tax 139,500 251,000 21,000 Income tax expense (28,000) (11,000) (6,000) Profit for the period 111,500 240,000 15,000 The following information is relevant to the preparation of the group financial statements of Quick Group: i) On 1st June 2019, Quick Bhd acquired 140 million ordinary shares in Brown Ltd at RM2 per share when the retained earnings were RM170 million. On 1 April 2019, Quick Bhd acquired 30 million shares in Fox paying RM1.5 for each share when retained earnings were RM15 million. ii) On 1 April 2019, Quick purchased 40% of the preference shares of Brown for a par value of RM20 million. The preference shares of Brown are redeemable on 31 March 2025 and recognised as a liability in the financial statements under MFRS 132 Financial Instruments: Presentation and Disclosure. They were originally issued at par on 1 April 2017. A 10% preference dividend is declared and paid on 31 March every year. Both companies have correctly reflected this dividenr in their financial statements. iii) A fair value exercise was carried out for the buildings of Brown at the date of acquisition. The fair value of buildings was RM3,600,000 greater than book value. On 1st June 2019, the buildings had an estimated useful life of 20 years. The above revaluation has been not reflected in Brown's own financial statements. iv) On 30 March 2020, Brown sent a payment of RM5,000,000 to Quick. This payment was received and recorded by Quick on 2 April 2020. v) In February 2020, Quick Bhd sold goods to Brown Bhd at a margin of 25% for RM25 million. Brown Bhd held half of these goods in inventory at 31st March, 2020. vi) Quick Bhd charged Brown Bhd an administration charge of RM10,000 per month. The charges are included in the turnover of Quick Bhd and the other operating expenses of Brown Bhd vii) On 31 March 2020, Brown Bhd sold a Motor Vehicle to Quick Bhd for RM50,000 when book value was RM30,000. The motor vehicle had a useful life of 5 years remaining viii) The goodwill arising on consolidation of Brown is considered to be impaired by RM5 million at 31 March 2020. ix) The directors of Quick Bhd and Fox Bhd paid ordinary dividends of 10 cents per share on 31 March 2020. x) It is group policy to value the non-controlling interest using the proportion of net assets method xi) Assume that revenue, expenses and profits accrue evenly throughout the year. Required: a) Prepare a consolidated statement of comprehensive income for Quick Bhd and its group companies for the year to 31 March 2020. (25 marks) b) Prepare a consolidated statement of financial position for Quick Bhd and its group companies as at 31 March 2020. (35 marks) Question 2 (40 marks) a) When a parent company acquires a subsidiary, the purchase consideration can be in cash, loan stock, ordinary shares, some form of convertible security or any combination of these. What are the implications to the parent company and its shareholders if the purchase consideration is paid in the form of convertible loan stock? (Max word count: 150 words) (10 marks) b) Goodwill is considered an intangible asset and is tested annually for impairment. Discuss why goodwill is not amortised like other intangible assets and why the accounting standards does not allow the write-off of purchased goodwill to reserves. (Max word count: 200 words) (10 marks) c) Identify the accounting concepts underlying the preparation of group accounts if the acquisition method is used and what useful information do they provide to the users of published financial statements. (Max word count: 250 words) (10 marks) d) Fair value is a concept underlying the preparation of group accounts for external financial reporting. Discuss if and under what circumstances deferred tax should be provided on the revaluations of fixed assets to their fair value. (Max word count: 200 words). (10 marks) Fox Bhd RM'000 120,000 Question 1 (60 marks) Statements of Financial Position as at 31 March 2020 Quick Bhd Brown Bhd Assets RM'000 RM 000 Non-current assets Tangible Assets 300,500 260,000 Investments 345,000 645,500 260,000 Current assets Inventories 500,000 392, 100 Current a/c: Brown & Fox 50,000 Trade receivables 26,000 25,000 Bank 35,000 50,000 Total Assets 1.256.500 727.100 120,000 10,000 10,000 20,000 160.000 Equities and Liabilities Equity Ordinary shares at RM1 each Revaluation reserves Retained earnings 200,000 100,000 500,000 200,000 131,500 370,000 20,000 Non-current Liabilities 10% Preference Shares at RM1 each 50,000 47,100 20,000 275,000 40,000 Current Liabilities Trade payables Bank Overdraft Current a/c: Quick Other liabilities Total Equities and Liabilities 110,000 1.256,500 40,000 20,000 727.100 5,000 15,000 160,000 Statements of Changes in Retained Earnings for the year ended 31 March 2020 Quick Bhd Brown Bhd Fox Bhd RM'000 70,000 111,500 (50,000 131,500 RM'000 130,000 240,000 Balance at 1 April 2019 Profit for the period Less: Dividends paid Balance at 31 March 2020 RM'000 15.000 15,000 (10,000) 20,000 370,000 7 Statements of Comprehensive Income for the year ended 31 March 2020 Quick Bhd Brown Bhd Fox Bhd RM'000 RM000 RM000 Revenue 450,000 400,000 195,600 Cost of sales (300,000) (120,020) (150,000) Gross profit 150,000 279,980 45,600 Operating expenses (14,000) (24,000) (24,600) Profit on disposal of fixed asset 20 Finance costs (1,500) (5,000) Interest Income 2,000 Dividend income 3,000 Profit before tax 139,500 251,000 21,000 Income tax expense (28,000) (11,000) (6,000) Profit for the period 111,500 240,000 15,000 The following information is relevant to the preparation of the group financial statements of Quick Group: i) On 1st June 2019, Quick Bhd acquired 140 million ordinary shares in Brown Ltd at RM2 per share when the retained earnings were RM170 million. On 1 April 2019, Quick Bhd acquired 30 million shares in Fox paying RM1.5 for each share when retained earnings were RM15 million. ii) On 1 April 2019, Quick purchased 40% of the preference shares of Brown for a par value of RM20 million. The preference shares of Brown are redeemable on 31 March 2025 and recognised as a liability in the financial statements under MFRS 132 Financial Instruments: Presentation and Disclosure. They were originally issued at par on 1 April 2017. A 10% preference dividend is declared and paid on 31 March every year. Both companies have correctly reflected this dividenr in their financial statements. iii) A fair value exercise was carried out for the buildings of Brown at the date of acquisition. The fair value of buildings was RM3,600,000 greater than book value. On 1st June 2019, the buildings had an estimated useful life of 20 years. The above revaluation has been not reflected in Brown's own financial statements. iv) On 30 March 2020, Brown sent a payment of RM5,000,000 to Quick. This payment was received and recorded by Quick on 2 April 2020. v) In February 2020, Quick Bhd sold goods to Brown Bhd at a margin of 25% for RM25 million. Brown Bhd held half of these goods in inventory at 31st March, 2020. vi) Quick Bhd charged Brown Bhd an administration charge of RM10,000 per month. The charges are included in the turnover of Quick Bhd and the other operating expenses of Brown Bhd vii) On 31 March 2020, Brown Bhd sold a Motor Vehicle to Quick Bhd for RM50,000 when book value was RM30,000. The motor vehicle had a useful life of 5 years remaining viii) The goodwill arising on consolidation of Brown is considered to be impaired by RM5 million at 31 March 2020. ix) The directors of Quick Bhd and Fox Bhd paid ordinary dividends of 10 cents per share on 31 March 2020. x) It is group policy to value the non-controlling interest using the proportion of net assets method xi) Assume that revenue, expenses and profits accrue evenly throughout the year. Required: a) Prepare a consolidated statement of comprehensive income for Quick Bhd and its group companies for the year to 31 March 2020. (25 marks) b) Prepare a consolidated statement of financial position for Quick Bhd and its group companies as at 31 March 2020. (35 marks) Question 2 (40 marks) a) When a parent company acquires a subsidiary, the purchase consideration can be in cash, loan stock, ordinary shares, some form of convertible security or any combination of these. What are the implications to the parent company and its shareholders if the purchase consideration is paid in the form of convertible loan stock? (Max word count: 150 words) (10 marks) b) Goodwill is considered an intangible asset and is tested annually for impairment. Discuss why goodwill is not amortised like other intangible assets and why the accounting standards does not allow the write-off of purchased goodwill to reserves. (Max word count: 200 words) (10 marks) c) Identify the accounting concepts underlying the preparation of group accounts if the acquisition method is used and what useful information do they provide to the users of published financial statements. (Max word count: 250 words) (10 marks) d) Fair value is a concept underlying the preparation of group accounts for external financial reporting. Discuss if and under what circumstances deferred tax should be provided on the revaluations of fixed assets to their fair value. (Max word count: 200 words). (10 marks)