Question # 2. (10+10)

On 1 October 2015 Wahid Sons, a publicly listed company, acquired a 60% controlling interest in Majid Brothers paying Rs.9 per share in cash. Prior to the acquisition Wahid Sons had been experiencing difficulties with the supply of components that it used in its manufacturing process. Majid Brothers is one of Wahid Sonss main suppliers and the acquisition was motivated by the need to secure supplies. In order to finance an increase in the production capacity of Majid Brothers, Wahid Sons made a non-dated loan at the date of acquisition of Rs.4 million to Majid Brothers that carried an actual and effective interest rate of 10% per annum. The interest to 31 March 2016 on this loan has been paid by Majid Brothers and accounted for by both companies. The summarised draft financial statements of the companies are:

INCOME STATEMENTS FOR THE YEAR ENDED 31 MARCH 2016 Amount in 000 Rs.

Wahid Sons Majid Brothers

Pre-acquisition Post-acquisition

Revenue 98,000 24,000 35,200

Cost of sales (76,000) (18,000) (31,000)

Gross profit 22,000 6000 4,200

Operating expenses (11,800) (1,200) (8,000)

Interest income 350 0 0

Finance costs (420) 0 (200)

Profit/(loss) before tax 10,130 4,800 (4,000)

Income tax (expense)/relief (4200) (1,200) 1,000

Profit/(loss) for the year 5,930 3,600 (3,000)

STATEMENTS OF FINANCIAL POSITION AS AT 31 MARCH 2016 Amount in 000 Rs.

Wahid Sons Majid Brothers

Non-current assets

Property, plant and equipment 18,400 9,500

Investments (including loan to Majid Brothers) 16,000 0

Current assets 18,000 7,200

Total assets 52,400 16,700

Equity and liabilities

Non-current liabilities

7% Bank loan 6,000 0

10% loan from Wahid Sons 0 4,000

Current liabilities 11,400 3,900

Ordinary shares of Rs.1 each 10,000 2,000

Share premium 5,000 500

Retained earnings 20,000 6,300

Total equity and liabilities 52,400 16,700

The following information is relevant: (i) At the date of acquisition, the fair values of Majid Brotherss property, plant and equipment were Rs.12 million in excess of their carrying amounts. This will have the effect of creating an additional depreciation charge (to cost of sales) of Rs.300,000 in the consolidated financial statements for the year ended 31 March 2016. Majid Brothers has not adjusted its assets to fair value. (ii) In the post-acquisition period Majid Brotherss sales to Wahid Sons were Rs.30 million on which Majid Brothers had made a consistent profit of 5% of the selling price. Of these goods, Rs.4 million (at selling price to Wahid Sons) were still in the inventory of Wahid Sons at 31 March 2016. Prior to its acquisition Majid Brothers made all its sales at a uniform gross profit margin. (iii) Included in Wahid Sonss current liabilities is Rs.1 million owing to Majid Brothers. This agreed with Majid Brotherss receivables ledger balance for Wahid Sons at the year end. (iv) An impairment review of the consolidated goodwill at 31 March 2016 revealed that its current value was Rs.375,000 less than its carrying amount. (v) Neither company paid a dividend in the year to 31 March 2016. (vi) It is group policy to value the non-controlling interest at acquisition at full (or fair) value. Just prior to acquisition by Wahid Sons, Majid Brothers's shares were trading at Rs.7.

Required: A-Prepare the consolidated income statement for the year ended 31 March by 2016 B-And also prepare the consolidated statement of financial position (Balance Sheet) at that date.