QUESTION 1 Meddy Bhd, a public listed company was an importer and a distributer of beauty and health products in Malaysia. On 1 April 2017, it diversified its operations by acquiring 80% of 500,000 ordinary shares and 20% of 200,000 5% non-redeemable preference shares of Yanny Bhd, a company in Ipoh, Perak. Yanny Bhd has not issued any new shares since the date of acquisition Given below are the Statement of Profit or Loss of Meddy Bhd and its subsidiary Yanny Bhd, for the year ended 31 December 2017. Meddy Bhd RM 682,520 (321,120) 361,400 15,000 Yanny Bhd RM 250,470 (111,450) 139,020 Revenue Cost of sales Gross profit Investment income includes dividend income from Yanny Bhd) Other income Operating and administrative expenses Selling and distribution expenses Interest expense Profit before tax Taxation Profit after tax 52,400 (98,170) (21,480) (5,800) 303.350 (80,555) 222,795 20,140 (59,760) (11,190) (2,890) 85,320 (23,030) 62,290 Retained profit on 1 January 2017 Ordinary dividend paid Preference dividend paid 2,580, 100 20,000 35,000 980,860 10,000 10,000 Additional information: 1. On the acquisition date, all the identifiable assets and liabilities of Yanny Bhd were at fair value except for an increase in the fair value of a building by RM420,000. The remaining useful life of the building as at the acquisition date was 20 years. As at year end, the fair value of the building has yet to be adjusted. 2. As at 31 December 2017, a land of Meddy Bhd was revalued which resulted in a surplus of RM23,000. No accounting entries has been made in the book of Meddy Bhd. 3. During the year, Yanny Bhd purchased goods from Meddy Bhd invoiced at RM50,200 of which 20% remain unsold at the year end. Meddy Bhd invoiced its goods at cost plus 25%. 4. Goodwill on consolidation as at acquisition date was RM20,600. The goodwill was impaired by 5% as at 31 December 2017. 5. 6. 20% of other income of Meddy Bhd were management and consultancy fees derived from Yanny Bhd. These expenses were included in the operating and administrative expenses of Yanny Bhd. During the year, Meddy Bhd sold an equipment with a carrying value of RM320,000 to Yanny Bhd for RM330,000. The remaining useful life of the equipment on that date was five years. The equipment was still being used by Yanny Bhd as at 31 December 2017. The gain on disposal of the equipment was recorded in other income of Meddy Bhd's book. 7. 8. The group's policy is to charge full year depreciation in the year of purchase and none in the year of disposal. Meddy Bhd and Yanny Bhd paid their ordinary dividends in December 2017 and on 1 March 2017 respectively. At year end, both companies also paid dividends on their preference shares. Meddy Bhd had recognised its dividends from Yanny Bhd. 9. It is Meddy Bhd's policy to value all the non-controlling interests in its subsidiary at the proportionate share of the fair value of the net assets at the date of acquisition. 10. All profits and losses are deemed to accrue evenly throughout the year. Required: Explain briefly the recognition and measurement of goodwill on consolidation in the consolidated financial statement. a. b. Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2017 for Meddy Bhd's group. C. Prepare the Consolidated Statement of Changes in Equity (extract) for the year ended 31 December 2017 for group's retained profits and non-controlling interest