Pipefish Limited is a company incorporated in Hong Kong. Its main business is the sales of frozen and canned pipefish. To expand its business, Pipefish Limited acquired 90% of the issued shares of Stingfish Limited on January 2, 2014. On acquisition date, the issued share capital and retained profits of Stingfish Limited were $25,000,000 and $12,000,000, respectively. The purchase consideration paid by Pipefish Limited was $35,000,000. Pipefish Limited has a policy of accounting for non-controlling interest using net assets approach. At the date of acquisition, the carrying amounts of all identifiable asset and liabilities of Stingfish Limited were equal to their fair value, except for a machine owned by Stingfish Limited. The fair value of the machine was $500,000 in excess of its carrying amount. The machine had a remaining useful life of 5 years. This revaluation was not reflected in the books of Stingfish Limited. In relation to the acquisition of Stingfish Limited, the consolidated goodwill was not impaired at December 31, 2016. Pipefish Limited also acquired 40% of the issued shares of Archerfish Limited for $3,500,000 when the retained profits of Archerfish Limited was $3,000,000 on January 5, 2015. There has been no change in the issued share capital of Archerfish Limited since the acquisition by Pipefish Limited. No goodwill was recorded in the acquisition of Archerfish Limited. Archerfish Limited paid dividend of $800,000 on December 15, 2016. Pipefish Limited, Stingfish Limited and Archerfish Limited adopted historical cost model to account for their non-current assets and depreciated their non-current assets on a straight-line basis. The depreciation expense was included in other operating expenses. Pipefish Limited, Stingfish Limited and Archerfish Limited have their year end at December 31. Additional information: 1. During 2016, Stingfish Limited sold goods to Pipefish Limited with a total value Page 2 of 12 CT RAF (1702) co @*NOU 1 67% 16:22 #2020-06-25 15.... E a of $800,000. The goods were invoiced a cost plus 20%. The value of sold goods in the hands of Pipefish Limited at year end was $300,000 Archerfish Limited sold goods to Pipefish Limited during 2016. The selling price and the cost of sales were $900,000 and $500,000, respectively. At year end, the percentage of unsold goods in the books of Pipefish Limited was 60% 3. During 2016, Pipefish Limited sold goods to Archerfish Limited. The selling price invoiced by Pipefish Limited to Archerfish Limited was $500,000 with a cost plus 25% 40% of the goods were in the inventory record of Archerfish Limited at year end. Draft statements of profit or loss of Pipefish Limited, Stingfish Limited and Archerfish Limited for the year ended December 31, 2016 were as follows: Revenue Cost of sales Gross profit Other income Stingfish Limited S'000 12,000 (5,000) 7,000 Archerfish Limited $'000 15,000 (7.000) 8,000 Pipefish Limited S'000 18.000 (9,000) 9,000 320 9,320 (400) renos (500) (100) 100 8,320 (200) 8,120 Distribution cost Administration expenses Other operating expenses Profit before taxation Taxation Profit for the year 7.000 (300) (400) (500) 5.800 (300) 5.500 8,000 (400) (600) (300) 6,700 (100) 6,600 Page 3 of 12 ACT B407F (1702) *NO DE ...11 36 21 67% 9 16:22 #F32020-06-25 15.... IE Draft statements of financial position of Pipefish Limited, Stingfish Limited and Archerfish Limited as at December 31, 2016 were as follows: Pipefish Limited $'000 Stingfish Archerfish Limited Limited S'000 S'000 27,000 9,500 Non-current assets Property, plant and equipment Investment in Stingfish Limited Investment in Archerfish Limited Long-term loan to Pipefish Limited 8,500 35,000 3,500 600 Current assets Inventories Cash Total assets 8.500 8.920 64,420 8,000 9,800 44,800 4.800 3,800 18,700 Share capital Retained profits Total equity 28,000 34,120 62,120 25,000 18,500 43,500 5.000 12,800 17,800 600 Long-term loan from Archerfish Limited 700 200 Accounts payable Tax payable Total liabilities Total equity and liabilities 800 900 2.300 64,420 900 400 1,300 44.800 900 18,700 On May 31, 2017, Pipefish Limited and Goldfish Limited established a new company, Jawfish Limited, to undertake the delivery service for the products sold by Pipefish Limited and Goldfish Limited. According to the agreement, Pipefish Limited and Goldfish Limited each holds 50% of the voting rights and has the joint control of Jawfish Limited. In addition, Pipefish Limited and Goldfish Limited have the right to the net assets of Jawfish Limited. Besides offering delivery service for Pipefish Limited and Goldfish Limited, Jawfish Limited can also provide delivery service for other companies Page 4 of 12 ACT B407F (1702) 600 AND 4G.11 36 21 67% 16:22 2020-06-25 15.... E 2 Required: Question 1 (35 mark) (6) Prepare the consolidated journal entries (without narratives) to arrive at the opening consolidated financial statements at January 1, 2016 and for the year ended December 31, 2016 for Pipefish Group (23 marks) (b) Prepare the consolidated statement December 31, 2016 financial position for Pipefish Group as at (12 marks) Question 2 (15 marks) Explain the type of investment in Archerfish Limited and Jawfish Limited and discuss the differences and similarities in the accounting treatments to account for the investments in Archerfish Limited and Jawfish Limited in the consolidated financial statements of Pipefish Group in accordance with the relevant financial reporting standards. END OF SECTIONAL Page 5 of 12 ACT B407F (1702) Pipefish Limited is a company incorporated in Hong Kong. Its main business is the sales of frozen and canned pipefish. To expand its business, Pipefish Limited acquired 90% of the issued shares of Stingfish Limited on January 2, 2014. On acquisition date, the issued share capital and retained profits of Stingfish Limited were $25,000,000 and $12,000,000, respectively. The purchase consideration paid by Pipefish Limited was $35,000,000. Pipefish Limited has a policy of accounting for non-controlling interest using net assets approach. At the date of acquisition, the carrying amounts of all identifiable asset and liabilities of Stingfish Limited were equal to their fair value, except for a machine owned by Stingfish Limited. The fair value of the machine was $500,000 in excess of its carrying amount. The machine had a remaining useful life of 5 years. This revaluation was not reflected in the books of Stingfish Limited. In relation to the acquisition of Stingfish Limited, the consolidated goodwill was not impaired at December 31, 2016. Pipefish Limited also acquired 40% of the issued shares of Archerfish Limited for $3,500,000 when the retained profits of Archerfish Limited was $3,000,000 on January 5, 2015. There has been no change in the issued share capital of Archerfish Limited since the acquisition by Pipefish Limited. No goodwill was recorded in the acquisition of Archerfish Limited. Archerfish Limited paid dividend of $800,000 on December 15, 2016. Pipefish Limited, Stingfish Limited and Archerfish Limited adopted historical cost model to account for their non-current assets and depreciated their non-current assets on a straight-line basis. The depreciation expense was included in other operating expenses. Pipefish Limited, Stingfish Limited and Archerfish Limited have their year end at December 31. Additional information: 1. During 2016, Stingfish Limited sold goods to Pipefish Limited with a total value Page 2 of 12 CT RAF (1702) co @*NOU 1 67% 16:22 #2020-06-25 15.... E a of $800,000. The goods were invoiced a cost plus 20%. The value of sold goods in the hands of Pipefish Limited at year end was $300,000 Archerfish Limited sold goods to Pipefish Limited during 2016. The selling price and the cost of sales were $900,000 and $500,000, respectively. At year end, the percentage of unsold goods in the books of Pipefish Limited was 60% 3. During 2016, Pipefish Limited sold goods to Archerfish Limited. The selling price invoiced by Pipefish Limited to Archerfish Limited was $500,000 with a cost plus 25% 40% of the goods were in the inventory record of Archerfish Limited at year end. Draft statements of profit or loss of Pipefish Limited, Stingfish Limited and Archerfish Limited for the year ended December 31, 2016 were as follows: Revenue Cost of sales Gross profit Other income Stingfish Limited S'000 12,000 (5,000) 7,000 Archerfish Limited $'000 15,000 (7.000) 8,000 Pipefish Limited S'000 18.000 (9,000) 9,000 320 9,320 (400) renos (500) (100) 100 8,320 (200) 8,120 Distribution cost Administration expenses Other operating expenses Profit before taxation Taxation Profit for the year 7.000 (300) (400) (500) 5.800 (300) 5.500 8,000 (400) (600) (300) 6,700 (100) 6,600 Page 3 of 12 ACT B407F (1702) *NO DE ...11 36 21 67% 9 16:22 #F32020-06-25 15.... IE Draft statements of financial position of Pipefish Limited, Stingfish Limited and Archerfish Limited as at December 31, 2016 were as follows: Pipefish Limited $'000 Stingfish Archerfish Limited Limited S'000 S'000 27,000 9,500 Non-current assets Property, plant and equipment Investment in Stingfish Limited Investment in Archerfish Limited Long-term loan to Pipefish Limited 8,500 35,000 3,500 600 Current assets Inventories Cash Total assets 8.500 8.920 64,420 8,000 9,800 44,800 4.800 3,800 18,700 Share capital Retained profits Total equity 28,000 34,120 62,120 25,000 18,500 43,500 5.000 12,800 17,800 600 Long-term loan from Archerfish Limited 700 200 Accounts payable Tax payable Total liabilities Total equity and liabilities 800 900 2.300 64,420 900 400 1,300 44.800 900 18,700 On May 31, 2017, Pipefish Limited and Goldfish Limited established a new company, Jawfish Limited, to undertake the delivery service for the products sold by Pipefish Limited and Goldfish Limited. According to the agreement, Pipefish Limited and Goldfish Limited each holds 50% of the voting rights and has the joint control of Jawfish Limited. In addition, Pipefish Limited and Goldfish Limited have the right to the net assets of Jawfish Limited. Besides offering delivery service for Pipefish Limited and Goldfish Limited, Jawfish Limited can also provide delivery service for other companies Page 4 of 12 ACT B407F (1702) 600 AND 4G.11 36 21 67% 16:22 2020-06-25 15.... E 2 Required: Question 1 (35 mark) (6) Prepare the consolidated journal entries (without narratives) to arrive at the opening consolidated financial statements at January 1, 2016 and for the year ended December 31, 2016 for Pipefish Group (23 marks) (b) Prepare the consolidated statement December 31, 2016 financial position for Pipefish Group as at (12 marks) Question 2 (15 marks) Explain the type of investment in Archerfish Limited and Jawfish Limited and discuss the differences and similarities in the accounting treatments to account for the investments in Archerfish Limited and Jawfish Limited in the consolidated financial statements of Pipefish Group in accordance with the relevant financial reporting standards. END OF SECTIONAL Page 5 of 12 ACT B407F (1702)