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JANUARY 2016, QUESTION 2 The summarised draft statements of financial position of Hay plc and Ewe Limited at 31 December 2015 are presented below. Hay ple Ewe Limited {"000 000 ASSETS Non-current Assets Property, plant and equipment 20.900 11.500 Investment in Ewe Limited 12.750 33,650 11,500 Current Assets Inventory 10.900 6,500 Trade receivables 4.200 2.500 Total assets 48.750 29.500 EQUITY AND LIABILITIES 1 ordinary shares 11.000 4.000 Share premium 7,500 Retained earnings at 31 December 2014 7.000 6,000 Profit for the year ended 31 December 2015 9.250 2.900 34.750 12.900 Non-current Liabilities 6.000 2.300 Current Liabilities Total equity and liabilities 48.750 20500 8000 $.300 Additional Information 1. On 1 January 2015, Hay plc acquired 3,000,000 l ordinary shares in Ewe Limited by exchanging one share in Hay ple for every two shares in Ewe Limited plus 1.25 per acquired Ewe Limited share in cash. The market price of each Hay ple share at the date of acquisition was 6, and the market price of each Ewe Limited share at the date of acquisition was 3.25. 2. Hay plc has a policy of valuing non-controlling interests at fair value at the date of acquisition. For this purpose, the share price of Ewe Limited at this date should be used. Impairment tests on 31 December 2015 concluded that goodwill had not been impaired. 3. On 1 January 2015, Hay ple sold an item of plant to Ewe Limited at its agreed fair value of 5,000,000. Its carrying amount prior to the sale was 4,000,000. The estimated remaining life of the plant at the date of sale was four years. 4. During the year ended 31 December 2015. Ewe Limited sold goods to Hay ple for 5,400,000. Ewe Limited had marked up these goods by 50% on cost. Hay ple had a third of the goods still in its inventory at 31 December 2015. There were no intra-group payables receivables at 31 December 2015 Requirement Prepare the consolidated statement of financial position for Hay ple as at 31 December 2015. Total 25 Marks 1 Steps to Answering Question: Step 1: Calculate the percentage ownership and non-controlling interest (NCT) (Check that you can equate the cost of the investment shown on the statement of financial position of Hay ple with the information in Note 1.] Step 2: Calculate goodwill - see Notes 1 and 2. Note the NCI at the date of acquisition is calculated using the fair value (new) method. Remember therefore that the NCI will receive their share of the goodwill. Step 3: Deal with intercompany sale of plant in Note 3. Two adjustments are required: (i) Remove unrealised profit (URP); and (ii) Adjust depreciation. Note that the sale is from the Parent (Hay plc) to the Subsidiary (Ewe Limited). Step 4: Deal with intercompany sale of goods in Note 4. Adjust for the URP. Note that the sale is from the Subsidiary to the Parent. Step 5: Calculate NCI at the reporting date. Remember to adjust NCI for: (i) their share of the goodwill (Step 2); (ii) depreciation (Step 3); and URP (Step 4). Step 6: Calculate consolidated retained earnings (don't forget about the impact of the depreciation and URP adjustments on retained earnings). Step 7: Prepare the consolidated statement of financial position JANUARY 2016, QUESTION 2 The summarised draft statements of financial position of Hay ple and Ewe Limited at 31 December 2015 are presented below. Hay plc Ewe Limited 000 000 ASSETS Non-current Assets Property, plant and equipment 20,900 11,500 Investment in Ewe Limited 12,750 33,650 11,500 Current Assets Inventory 10,900 6,500 Trade receivables 4,200 2,500 Total assets 48,750 20,500 EQUITY AND LIABILITIES 1 ordinary shares 11,000 4,000 Share premium 7,500 Retained carnings at 31 December 2014 7,000 6,000 Profit for the year ended 31 December 2015 9.250 2.900 34,750 12,900 Non-current Liabilities 6,000 2,300 Current Liabilities 8,000 5,300 Total equity and liabilities 48,750 20,500 Additional Information 1. On 1 January 2015, Hay ple acquired 3,000,000 l ordinary shares in Ewe Limited by exchanging one share in Hay plc for every two shares in Ewe Limited plus 1.25 per acquired Ewe Limited share in cash. The market price of each Hay plc share at the date of acquisition was 6, and the market price of each Ewe Limited share at the date of acquisition was 3.25. 2. Hay ple has a policy of valuing non-controlling interests at fair value at the date of acquisition. For this purpose, the share price of Ewe Limited at this date should be used. Impairment tests on 31 December 2015 concluded that goodwill had not been impaired. 3. On 1 January 2015, Hay plc sold an item of plant to Ewe Limited at its agreed fair value of 5,000,000. Its carrying amount prior to the sale was 4,000,000. The estimated remaining life of the plant at the date of sale was four years. 4. During the year ended 31 December 2015, Ewe Limited sold goods to Hay plc for 5,400 ,000. Ewe Limited had marked up these goods by 50% on cost. Hay ple had a third of the goods still in its inventory at 31 December 2015. There were no intra-group payables/receivables at 31 December 2015. Requirement Prepare the consolidated statement of financial position for Hay plc as at 31 December 2015. Total 25 Marks