Question 2 [15 Marks]

In accordance with IAS 37 'Provisions, Contingent Assets & Contingent Liabilities' Define provisions and contingent liabilities and briefly explain how IAS 37 improves consistency in financial reporting. [15 Marks]

Question 3 [20 Marks]

Tea & Coffee

The income statement for tea and coffee for the year ended 31 December 2019 are presented below: -

Tea

Coffee

MUR

MUR

'000'

'000'

Revenue

2,250

1,050

Cost of Sales

(1,162.5)

(555)

Gross Profit

1,087.5

495

Administrative expenses

(400)

(177.5)

Distribution expenses

(75.5)

(25)

Operating Profit

612

292.5

Finance Costs

(90)

(52.5)

Profit before tax

522

240

Taxation

(144)

(67.5)

Profit for the year

378

172.5

The following notes are relevant to the presentation of the consolidated financial statements:

(i)Tea purchased 70% of the ordinary share capital in Coffee on 1 April 2019.

(ii)During the year ended 31 December 2019, Coffee sold goods to Tea for MUR 225,000 making a mark-up on cost 20%. Half of these goods are still in inventory at year end.

(iii)Impairment of goodwill for the year ended 31 December is MUR 50,000.

(iv)At the date of acquisition, the fair values of Coffee's assets were equal to their carrying amounts with the exception of a plant. This had a fair value of MUR 30,000 above its carrying amount and a remaining life of the asset is 10 years at that date. All depreciation is included in cost of sales.

Required:

Prepare a consolidated income statement for Tea group for the year ended 31 December 2020. [20 Marks]