Q1. GUI

Q1 Alpha, a parent with one subsidiary, Beta, is preparing the consolidated statement of financial position as at 30 September 20X5. The following exhibits, available on the left-hand side of the screen, provide information relevant to the question: 1. Financial statement extracts - statements of financial position (SOFP) of Alpha and Beta at 30 September 20X5. 2. Alpha's investment in Beta - details of Alpha's investment in Beta which are relevant to the question. 3. Intra-group trading - details of intra-group trading. 4. Impairment review - details of Alpha's impairment review of the investment in Beta including goodwill. 5. Retirement plan - details of Alpha's defined benefit retirement plan. This information should be used to answer the question requirement within the response option provided. Aloha! 3000 Beta Assets Non-current assets Procery blant angement Investments in sout instruments Exhibits 2 and 4 170.000 SIANA 60.000 Current assets Inventories Trade recevables Cash and cash equivalents 1 30.0001 PA 30.000 2000 250 Total assets 100 000 Equity and liabilities Share capta 1 shares Fatinadaming louer components of Tataluit 80.000 35.000 ALADA unong ADA aza Non-current liabilities Longa borowing 'Deferred Pensioni Total non-current liabilities 15.000 19.000 000001 20.000 50.000 100.000 30.000 Current liabilities Trade and Texte Total current liabilities TO. COD 397000 0.0001 Totallies 1000 SH TULAT CUTETI HIDULRS Total liabilities Total equity and liabilities 260.000 120.000 100.000 240.000 On 1 October 20X4, Alpha acquired 60 million shares in Beta and gained control of Beta. Alpha made a cash payment of $175 million to the former shareholders of Beta on 1 October 20X4. Alpha incurred acquisition costs of $5 million and has presented the total costs of $180 million as investments in equity instruments. A condition of the purchase agreement was that Alpha would make a further cash payment to the former shareholders of Beta on 30 September 20X7. The amount of this further cash payment depends on the performance of Beta in the three-year period from 1 October 20X4 to 30 September 20X7. On 1 October 20X4, the fair value of this conditional payment was $60 million. Because the performance of Beta in the year ended 30 September 2005 was below expectations, the fair value of the conditional payment had reduced to $50 million by 30 September 20X5. Alpha has not made any entries in its own financial statements in respect of this conditional payment. On 1 October 20X4, Beta had retained earnings of $80 million and other components of equity of $45 million On 1 October 20X4, the fair values of Beta's identifiable assets and liabilities were the same as their carrying amounts in the individual financial statements of Beta with the exception of property, plant and equipment which had a carrying amount of $150 million and a fair value of $205 million. On 1 October 20X4, the useful life of this property, plant and equipment was five years. The fair value adjustments should be regarded as temporary differences for the purposes of computing deferred tax. The relevant rate of income tax to use for this purpose is 20%. The directors of Alpha measured the non-controlling interest in Beta at its fair value at the date of acquisition. On 1 October 20X4, the fair value of the non-controlling interest was $65 million. Since 1 October 20X4, Beta has been supplying Alpha with a product. Beta earns a margin of 25% on this product. On 30 September 2005, the inventories of Alpha included $20 million in respect of the product. There were no outstanding intra-group balances at 30 September 20X5. Alpha undertook an impairment review of its investment in Beta at 30 September 20X5. Beta comprises three cash generating units for impairment review purposes. Relevant details are as follows: Cash generating Percentage of net Recoverable amount of CGU unit (CGU) assets and goodwill at 30 September 20X5 % $'000 A 40 100,000 B 35 110,000 25 80,000 Alnha has established a defined benefit retirement plan for its current and former employees Alpha has established a defined benefit retirement plan for its current and former employees. Beta has not established such a plan. The statement of financial position of Alpha in Exhibit 1 shows the net defined benefit pension liability at 30 September 20X4. During the year ended 30 September 20X5, Alpha made a payment of $30 million to the plan. When making this payment, Alpha debited retained earnings and credited cash. This is the only accounting entry which has been made in relation to the plan for the year to 30 September 20X5. The current service cost for the year ended 30 September 20X5 was $25 million. The net interest cost on the pension liability for the vear ended 30 September 20X5 was $2.5 million Using the information in Exhibits 1 -5, prepare the consolidated statement of financial position of Alpha at 30 September 20X5. Note: Unless specifically referred to in the exhibits you should ignore deferred tax. Q2. Alpha currently has investments in two other entities, Beta (Note 1) and Gamma (Note 2). The draft statements of financial position of Alpha and Beta at 30 September 2018 were as follows: Alpha Beta $'000 $'000 Assets Non-current assets: Property, plant and equipment (Notes 1and 5) 775,000 380,000 Investments (Notes 1-3) 410,000 Nil 1,185,000 380,000 Current assets: Inventories (Note 4) 150,000 95,000 Trade receivables (Note 4) 100,000 80,000 Cash and cash equivalents 18,000 15,000 268,000 190,000 Total assets 1,453,000 570,000 ---- Equity and liabilities Equity Share capital ($1 shares) 520,000 160,000 Retained earnings 693,000 200,000 Total equity 1,213,000 360,000 Non-current liabilities: Long-term borrowings 100,000 80,000 Deferred tax 60,000 45,000 -- Total non-current liabilities 160,000 125,000 Current liabilities: Trade and other payables 60,000 55,000 Short-term borrowings 20,000 30,000 Total current liabilities 80,000 85,000 Total liabilities 240,000 210,000 Total equity and liabilities 1,453,000 570,000 Note 1 - Alpha's investment in Beta On 1 October 2011, Alpha acquired 120 million shares in Beta and gained control of Beta on that date. The acquisition was financed by a cash payment by Alpha of $144 discounting calculations is 10% and the relevant discount factor is 0.826. Alpha correctly accounted for the payments made to the former shareholders of Beta in its own financial statements. The cost of investment figure in the financial statements of Alpha was rounded to the nearest $ million. Alpha incurred due diligence costs of $1 million relating to the acquisition of Beta and included these costs in the carrying amount of its investment in Beta. On 1 October 2011, the individual financial statements of Beta showed retained earnings of $80 million. 4 The directors of Alpha carried out a fair value exercise to measure the identifiable assets and liabilities of Beta at 1 October 2011. The following matters emerged: - Property which had a carrying amount of $120 million (land component $40 million) had an estimated fair value of $160 million (land component $60 million). The buildings component of the property had an estimated remaining useful life of 40 years at 1 October 2011. - Plant and equipment having a carrying amount of $120 million had an estimated fair value of $130 million. The estimated remaining useful life of this plant at 1 October 2011 was two years. The fair value adjustments have not been reflected in the individual financial statements of Beta. In the consolidated financial statements, the fair value adjustments will be regarded as temporary differences for the purposes of computing deferred tax. The rate of deferred tax to apply to temporary differences is 20%. On 1 October 2011, the directors of Alpha initially measured the non-controlling interest in Beta at its fair value on that date. On 1 October 2011, the fair value of an equity share in Beta (which can be used to measure the fair value of the non-controlling interest) was $1.70. No impairments of the goodwill on acquisition of Beta have been evident up to and including 30 September 2018. Note 2 Alpha's investment in September 2018. Note 2 - Alpha's investment in Gamma On 1 October 2015, Alpha acquired 36 million shares in Gamma by means of a cash payment of $145 million. Gamma's issued share capital at that date was 120 million shares. On 1 October 2015 and 30 September 2018, the individual financial statements of Gamma showed retained earnings of $45 million and $65 million respectively. Since 1 October 2015, no other investor has owned more than 2% of the shares of Gamma. Note 3 Alpha's investment in Delta On 1 October 2012, Alpha issued 80 million of its own shares in exchange for an 80% shareholding in Delta. Delta has an issued share capital of 100 million shares. The fair value of an equity share in Alpha on that date was $1.40. The fair values of the net assets of Delta at 1 October 2012 were the same as their carrying amounts. On 1 October 2012, the directors of Alpha initially measured the non-controlling interest in Delta at its fair value on that date. On 1 October 2012, the fair value of an equity share in Delta (which can be used to measure the fair value of the non-controlling interest) was $1.10. The individual financial statements of Delta showed net assets at the following amounts: - $110 million on 1 October 2012. - $170 million on 30 September 2017. In the year ended 30 September 2018, the individual financial statements of Delta showed a profit of $24 million. On 31 March 2018, Delta paid a dividend of $9 million. On 30 June 2018, Alpha disposed of its shareholding in Delta for cash proceeds of $180 million. The individual financial statements of Alpha recognised the correct profit on disposal of its shareholding in Delta. No impairment of the goodwill on acquisition of Delta had been necessary between 1 October 2012 and 30 June 2018. Note 4 - Intra-group trading Alpha supplies a 9 u necessary between 1 October 2012 and 30 June 2018. Note 4 - Intra-group trading Alpha supplies a component to Beta at a mark-up of 25% on its production cost. The trade receivables of Alpha at 30 September 2018 include $10 million receivable from Beta in respect of sales of the component. Beta paid Alpha $10 million to clear the outstanding balance on 29 September 2018. Alpha received and recorded this amount on 3 October 2018. On 30 September 2018, the inventories of Beta included $15 million in respect of components purchased from Alpha. All such inventory is measured at original cost to Beta. Note 5 - Property lease On 1 October 2017, Alpha began to lease a property under a 10-year lease. The annual rate of interest implicit in the lease was 5%. The lease rentals payable by Alpha were $10 million, payable annually in arrears. The lease does not transfer ownership of the property to Alpha at the end of the lease term. The lease contains no option for Alpha to purchase the property at the end of the lease term. On 1 October 2017, Alpha incurred direct costs of $4 million in arranging this lease. The only accounting entries made by Alpha in respect of this lease were to charge $14 million to the statement of profit or loss. Using a discount rate of 5%, the cumulative present value of $1 payable annually in arrears for ten years is $7.72. 5 [P.T.O. Required: (a) Compute the profit or loss on disposal of the investment in Delta which would be shown in the consolidated statement of profit or loss of Alpha for the year ended 30 September 2018 (b) Prepare the consolidated statement of financial position of Alpha at 30 September 2018. You need only consider the deferred tax implications of any adjustments you make where the question specifically refers to deferred tax. Note: You should show all workings to the nearest $'000