Introduction Group financial statements are prepared to show the financial position and performance of the parent and its subsidiaries as a single economic unit. A complete set of financial statements is made up of five components, namely Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Financial Positions, Statement of Cash Flows, and Notes to Financial Statements. Transactions involving all companies within the same group are presented as a single entity. Information The Lion Group carries on business as a distributor of building materials into the country. Lion was incorporated in 2011 to distribute building materials. It diversified its activities during 2013 to include the import and distribution of water meter, and expanded its operations by the acquisition of shares in Leo in 2015 and in Tiger in 2017. Accounts for all companies are made up to 31 December. The draft income statements for Lion, Leo, Tiger and Cat for the year ended 31 December 2019 are as follows. Lion Leo Tiger Cat RM'000 RM'000 RM 000 RM'000 Revenue 45,600 24,700 22,800 610 Cost of Sales (18,050) (5,463) (5,320) Gross profit 27,550 19.237 17,480 Distribution costs (3,325) (2,137) (1,900) Administrative expenses (3,475) (950) (1,900) Finance costs (325) Profit before tax 20,425 16,150 13,680 Income tax expense (8,300) (5,390) (4,241) Profit for the year 12.125 10,760 9,439 220 The draft statements of financial position as at 31 December 2019 are as follows:- 35,483 Non-current assets Property, plant and equipment (NBV) Investments 24,273 13,063 270 Shares in Leo Shares in Tiger 6,650 3,800 9,025 Current assets Total Assets 43,966 1,568 43,701 32,095 8,883 21,946 37,098 20,983 - 200 Equity RM1 ordinary shares Retained earnings 8,000 22,638 3,000 24,075 2,000 19,898 100 300 13,063 1 0,023 10,023 Current liabilities Total Equity and Liabilities 48 48 70 43,701 37,098 21,946 470 The following information is available relating to Lion, Leo, Tiger and Cat. (1) On 1 January 2015, Lion signed the purchase agreement to acquire 2,700,000 of RM1 ordinary shares in Leo for RM6,650,000 at which date there was a credit balance on the retained earnings of Leo of RM1,425,000. No shares have been issued by Leo since Lion acquired its interest. (in) On 1 January 2017, Leo acquired 1,600,000 of RM1 ordinary shares in Tiger for RM3,800,000 at which date there was a credit balance on the retained earnings of Tiger of RM950,000. No shares have been issued by Tiger since Leo acquired its interest On 1 July 2019, Lion acquired 40,000 shares in Cat by way of a share exchange of two shares in Lion for each acquired share in Cat. The share market value of Lion's shares at the date of this share exchange was RM2.50. Lion has not yet recorded the acquisition of the investment in Cat. (iv) During 2019, Tiger had made intragroup sales to Leo of RM480,000 making a profit of 25% on cost and RM75,000 of these goods were in inventories of Leo at 31 December 2019. During 2019, Leo had made intragroup sales to Lion of RM260,000 making a profit of 20% on cost and RM90,000 of these goods were in inventories of Lion at 31 December 2019. (vi) On 1 November 2019 Lion sold warehouse equipment to Leo for RM240,000 from inventories. Leo has included this equipment in its property, plant and equipment. The equipment had been purchased on credit by Lion for RM200,000 in October 2019 and this amount is included in its current liabilities as at 31 December 2019. (vii) Leo charges depreciation on its warehouse equipment at 20% on cost. It is company policy to charge a full year's depreciation in the year of acquisition to be included in the cost of sales. (viii) An impairment test conducted at the year end did not reveal any impairment losses. (ix) It is the group's policy to value the non-controlling interest at fair value at the date of acquisition. The fair value of the non controlling interests in Leo on 1 January 2015 was RM500,000. The fair value of the 28% non-controlling interest in Tiger on 1 January 2017 was RM900,000. (X) All trading profits and losses are deemed to accrue evenly throughout the year. You are required to prepare Consolidated Statement of Comprehensive Income and Statement of Financial Position for Lion Group using the eleven (11) steps as set out below. Marks for each correct answer are indicated at the end of each question. Step Combine items like assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries. Question 9 Using format provided below, combine items like assets, liabilities, equity, income, expenses and cash flows for Lion Berhad and its subsidiaries. [12 marks] Statements of Comprehensive Income for Year Ended 31 December 2019 Lion Leo Tiger Combine Berhad Berhad Berhad RM'000 RM'000 | RM'000 RM'000 Revenue Cost of Sales Gross profit Distribution costs Administrative expenses Finance costs Profit before tax Income tax expense Profit for the year Statement of Financial Position for Year Ended 31 December 2019 Lion Berhad Leo Berhad Tiger Combine Non-current assets Berhad RM'000 RM'000 RM'000 RM'000 Property, plant and equipment (NBV) Investments Shares in Leo Shares in Tiger Current assets Total Assets Equity RM1 ordinary shares Retained earings Current liabilities Total Equity and Liabilities Step Eliminate in full intragroup income and expenses relating to transactions between entities of the group. Question 11 Using format provided below and figures from Step 7, you are required to eliminate in full intragroup income and expenses relating to transactions between entities of the group. [8 marks] Combine RM'000 Eliminate RM'000 Add RM'000 Adjusted RM'000 Revenue Cost of Sales Gross profit Distribution costs Administrative expenses Finance costs Profit before tax Income tax expense Profit for the year Profit attributable to Owners of the parent Non Controlling Interest Introduction Group financial statements are prepared to show the financial position and performance of the parent and its subsidiaries as a single economic unit. A complete set of financial statements is made up of five components, namely Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Financial Positions, Statement of Cash Flows, and Notes to Financial Statements. Transactions involving all companies within the same group are presented as a single entity. Information The Lion Group carries on business as a distributor of building materials into the country. Lion was incorporated in 2011 to distribute building materials. It diversified its activities during 2013 to include the import and distribution of water meter, and expanded its operations by the acquisition of shares in Leo in 2015 and in Tiger in 2017. Accounts for all companies are made up to 31 December. The draft income statements for Lion, Leo, Tiger and Cat for the year ended 31 December 2019 are as follows. Lion Leo Tiger Cat RM'000 RM'000 RM 000 RM'000 Revenue 45,600 24,700 22,800 610 Cost of Sales (18,050) (5,463) (5,320) Gross profit 27,550 19.237 17,480 Distribution costs (3,325) (2,137) (1,900) Administrative expenses (3,475) (950) (1,900) Finance costs (325) Profit before tax 20,425 16,150 13,680 Income tax expense (8,300) (5,390) (4,241) Profit for the year 12.125 10,760 9,439 220 The draft statements of financial position as at 31 December 2019 are as follows:- 35,483 Non-current assets Property, plant and equipment (NBV) Investments 24,273 13,063 270 Shares in Leo Shares in Tiger 6,650 3,800 9,025 Current assets Total Assets 43,966 1,568 43,701 32,095 8,883 21,946 37,098 20,983 - 200 Equity RM1 ordinary shares Retained earnings 8,000 22,638 3,000 24,075 2,000 19,898 100 300 13,063 1 0,023 10,023 Current liabilities Total Equity and Liabilities 48 48 70 43,701 37,098 21,946 470 The following information is available relating to Lion, Leo, Tiger and Cat. (1) On 1 January 2015, Lion signed the purchase agreement to acquire 2,700,000 of RM1 ordinary shares in Leo for RM6,650,000 at which date there was a credit balance on the retained earnings of Leo of RM1,425,000. No shares have been issued by Leo since Lion acquired its interest. (in) On 1 January 2017, Leo acquired 1,600,000 of RM1 ordinary shares in Tiger for RM3,800,000 at which date there was a credit balance on the retained earnings of Tiger of RM950,000. No shares have been issued by Tiger since Leo acquired its interest On 1 July 2019, Lion acquired 40,000 shares in Cat by way of a share exchange of two shares in Lion for each acquired share in Cat. The share market value of Lion's shares at the date of this share exchange was RM2.50. Lion has not yet recorded the acquisition of the investment in Cat. (iv) During 2019, Tiger had made intragroup sales to Leo of RM480,000 making a profit of 25% on cost and RM75,000 of these goods were in inventories of Leo at 31 December 2019. During 2019, Leo had made intragroup sales to Lion of RM260,000 making a profit of 20% on cost and RM90,000 of these goods were in inventories of Lion at 31 December 2019. (vi) On 1 November 2019 Lion sold warehouse equipment to Leo for RM240,000 from inventories. Leo has included this equipment in its property, plant and equipment. The equipment had been purchased on credit by Lion for RM200,000 in October 2019 and this amount is included in its current liabilities as at 31 December 2019. (vii) Leo charges depreciation on its warehouse equipment at 20% on cost. It is company policy to charge a full year's depreciation in the year of acquisition to be included in the cost of sales. (viii) An impairment test conducted at the year end did not reveal any impairment losses. (ix) It is the group's policy to value the non-controlling interest at fair value at the date of acquisition. The fair value of the non controlling interests in Leo on 1 January 2015 was RM500,000. The fair value of the 28% non-controlling interest in Tiger on 1 January 2017 was RM900,000. (X) All trading profits and losses are deemed to accrue evenly throughout the year. You are required to prepare Consolidated Statement of Comprehensive Income and Statement of Financial Position for Lion Group using the eleven (11) steps as set out below. Marks for each correct answer are indicated at the end of each question. Step Combine items like assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries. Question 9 Using format provided below, combine items like assets, liabilities, equity, income, expenses and cash flows for Lion Berhad and its subsidiaries. [12 marks] Statements of Comprehensive Income for Year Ended 31 December 2019 Lion Leo Tiger Combine Berhad Berhad Berhad RM'000 RM'000 | RM'000 RM'000 Revenue Cost of Sales Gross profit Distribution costs Administrative expenses Finance costs Profit before tax Income tax expense Profit for the year Statement of Financial Position for Year Ended 31 December 2019 Lion Berhad Leo Berhad Tiger Combine Non-current assets Berhad RM'000 RM'000 RM'000 RM'000 Property, plant and equipment (NBV) Investments Shares in Leo Shares in Tiger Current assets Total Assets Equity RM1 ordinary shares Retained earings Current liabilities Total Equity and Liabilities Step Eliminate in full intragroup income and expenses relating to transactions between entities of the group. Question 11 Using format provided below and figures from Step 7, you are required to eliminate in full intragroup income and expenses relating to transactions between entities of the group. [8 marks] Combine RM'000 Eliminate RM'000 Add RM'000 Adjusted RM'000 Revenue Cost of Sales Gross profit Distribution costs Administrative expenses Finance costs Profit before tax Income tax expense Profit for the year Profit attributable to Owners of the parent Non Controlling Interest
