QUESTION 2

Syrah Group (Syrah) consist of several wholly owned subsidiaries and has a financial year end of 31 December. Syrah prepares its financial statement under International Financial Reporting Standards (IFRS).

The consolidated financial statements for Syrah are still in draft form as there are a few transactions within Syrah Plcs own individual (single entity) financial statements which require review. Details of these are given on the next page.

The draft consolidated statement of profit or loss for the year ended 31 December 2019 are shown below. These have been prepared using the draft single entity financial statements for Syrah which still requires some amendment for the issues outlined on the next page.

	Syrah Group (DRAFT)
	'000
Revenue	526,000
Cost of sales and Operating costs	(390,000)
Operating Profit	136,000
Investment income	103,000
Finance costs	(10,000)
Profit before tax	229,000
Tax expense	(30,700)
Profit for the period	198,300

QUESTION 2 CONTINUES ON THE NEXT PAGE:-

Part (a):

Additional information for review for the financial statements of Syrah for the year ended 31 December 2019:

1. Defined Benefit scheme

Syrah operates a defined benefit pension scheme for its employees. Relevant information from the latest actuarial report shows the following:

	1 January 2019 000	31 December 2019 000
Fair value of plan assets	110,000	117,000
Present value of plan liabilities	106,000	125,000

Amounts relating to the pension scheme for the year ended 31 December 2019:
	000
Current service cost	7,500
Contributions payable into plan	8,000
Benefits to be paid from the plan Interest cost (gross yield on blue chip corporate bonds)	6,500 4%

The only adjustment made to the draft financial statements for the year ended 31 December 2019 has been to account for the contributions paid of 8 million. These have been accounted for as an operating expense (Employee expenses) in the profit or loss.

The draft statements therefore show no change to the balance for the net pension asset of 4 million since last year.

Syrahs policy is to present the periodic costs of providing the pension to operating costs and net interest cost to finance costs.

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2. Derivative contract

On 1 December 2019, Syrah entered into a put (sell) option for speculative purposes. There were no costs associated with this contract.

As a result of a decrease in the value of steel, the fair value of the contact has risen by 2.5 million on 31 December 2019.

No adjustments have been made in the financial statements of Syrah for this contract.

REQUIRED:

1. Prepare an amended statement of profit or loss and other comprehensive income for Syrah Plc for the period ended 31 December 2019 taking into consideration the additional information provided above.

Please clearly present all of your workings for both issues and reference these to the amendments you make to the balances in the draft statement of profit or loss.

(8 marks)

2. A Non-executive director has emails you in respect to the adjustments you have made to the financial statements in respect to the defined benefit pension plan. An extract from her email is proved below:

I have seen some adjustments have been made financial statements financial statements for the defined pension scheme provided for our employees. I have read a summary on the actuarial report to try to gain some understanding, but Im still confused.

I can see that there has been a contributions payment to the plan of 8 million, yet this is not the amount shown in the profit or loss as the expense for the period. There is also an amount recognised in other comprehensive income relating to this defined benefit plan.

Can you please explain what these amounts represent?

REQUIRED:

Using the figures calculated in part (i), explain to the non-executive director the amounts recognised in relation to the defined benefit plan within:

1. The statement of profit or loss

(3 marks) Maximum word count: 100

2. Other comprehensive income (3 marks) Maximum word count: 100

Part (b):

Syrah had acquired an 80% holding in the ordinary shares in Pinot Ltd. (Pinot) on 1 January 2011 for 132 million when the fair value of Pinots net assets was 120 million. It is Syrah groups policy to measure non-controlling interest at their share of net assets.

On 31 March 2019, Syrah sold its entire shareholding of Pinot for 200 million. As the subsidiary was sold in the year, the results of Pinot have not been included in the consolidated statements of profit or loss shown in part (a). A gain on disposal of the shares in Pinot of 68 million is instead recognised within investment income (Continuing operations).

The consolidated financial statement for the previous period (Year ended 31 December 2018) include net assets for Pinot to be 181 million (excluding goodwill).

Goodwill recognised on acquisition was 36 million and this has not been impaired.

Pinot had generated Total Comprehensive Income of 18.3 million for the year ended 31 December 2019.

You may assume that the profits of Pinot accrues evenly throughout the year.

The disposal of Pinot meets the definition of a discontinued operation within the group financial statements.

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REQUIRED:

1. Prepare the following extracts from the consolidated statement of profit or loss for Syrah group for the period ended 31 December 2019

1. Gain/loss for discontinued operations.

(6 marks)

2. Total comprehensive income attributable to the non-controlling interest.

(2 marks)

2. Explain if there is any further adjustment required to the consolidated profit or loss statement for continuing operations, relating to the disposal of shares in Pinot.