Question 1 Pineapple Pte Ltd (Pineapple) is a new audit client. Its main business activities comprise trading of electronic products. Its financial year end is 31 May 2019. On 1 December 2018, Pineapple acquired 90% of the share capital of Strawberry Pte Ltd (Strawberry), a local competitor, for $3,500,000 in cash. The Pineapple Group would then consist of Pineapple and Strawberry. The auditor held a planning meeting with the client in March 2019 and the client has presented the pro forma consolidated schedule and consolidation adjusting entries prepared by the accountant during the meeting. The downward fair value adjustment of property, plant and equipment related to a warehouse owned by Strawberry. Pineapple and Strawberry do not trade with each other. The following is an extract of the pro forma consolidation schedule prepared by the accountant of Pineapple. As this is the first time the company has a subsidiary, this is also the first time this accountant has prepared a consolidation schedule. Extract of Pro forma consolidation schedule The contingent liability related to a legal claim by an ex-management personnel for unfair dismissal and discrimination. Pro forma Consolidation Adjusting Entries (CJE) In relation to the sale of a property by Pineapple to Strawberry. The following entries are recorded in Pineapple's book: Dr Intra-group receivable $400,000 Cr Property, plant and equipment (PPE) $200,000 Cr Profit on disposal of PPE $200,000 Additional depreciation arising from transfer of the property is $50,000, ie Strawberry depreciated the property $50,000 more than if the property is depreciated in Pineapple's book. (a) With regard to the acquisition of Strawberry by Pineapple: (i) Explain SIX audit procedures to be performed in relation to the business combination. (12 marks) (ii) Identify the FOUR misstatements in relation to the accounting for investment in subsidiary and consolidation adjustments prepared by the client. (6 marks) (b) Given the misstatements identified in (a)(ii) above, the accountant is very discouraged and is considering not preparing consolidated financial statements for the current year: (i) If Pineapple met the exemption criteria in Singapore Financial Reporting Standards (International) (SFRS(I)) 10 Consolidated Financial Statements and thus did not need to prepare consolidated financial statements, and the reason for non-preparation of consolidated financial statements is NOT adequately disclosed in the note to the financial statements, explain the implication on the audit report, including the audit opinion. (4 marks) (ii) If Pineapple did not meet the exemption criteria in SFRS(I) 10 Consolidated Financial Statements for not preparing consolidated financial statements, explain the implication on the audit opinion