QUESTION 3 (25 MARKS) On June 2016, Panda acquired 80% of the equity share capital of Singa. The consideration consisted of two elements: a share exchange of every three shares in Panda for every five shares in Singa and the issue of RM100 6% loan note for every 500 shares acquired in Singa. The share issue has not yet been recorded by Panda, but the issue of the loan notes has been recorded. At the date of acquisition, shares in Panda had a market value of RM5 each and the shares of Singa had a stock market price of RM3.50 each. Below are the summarized of draft financial statements of both companies. Statements of Profit or Loss and Other Comprehensive Income for year ended 30 September 2016 Turnover Cost of sales Gross Profit Distribution costs Administrative expenses Finance Costs Profit before tax Income tax expense Profit for the year Other comprehensive income: Gain on revaluation of land Total comprehensive income Panda RM'000 92,500 (70,500) 22,000 (2,500) (5,500) (100) 13,900 (3,900) 10,000 Singa RM7000 45,000 (36,000) 9,000 (1,200) (2,400) nil 5,400 (1,500) 3,900 500 10,500 nil 3,900 Panda RM'000 Singa RM'000 Non-current assets Property, plant and equipment Investments 13,900 nil 25,500 1,800 27,300 12,500 39,800 Current assets Total assets 13,900 2,400 16,300 5,000 Equity Ordinary share RMI each Land revaluation reserve - 30.9.2016 (note (1) Other equity reserve - 30.9.2015 (note (4) Retained earnings 12,000 2,000 500 12,300 26,800 mil Dil 4,500 9,500 Non-current liabilities 6% loan notes Current liabilities Total equity and liabilities 3,000 10,000 39,800 nil 6,800 16,300 The following information is relevant: 1. At the date of acquisition, the fair values of Singa's assets were equal to their carrying amounts with the exception of its property. This had a fair value of RM1.2 million below its carrying amount. This would lead to a reduction of the depreciation charge (in cost of sales) of RM50,000 in the post-acquisition period. Singa has not incorporated this value change into its entity financial statements. Panda's group policy is to revalue all properties to current value at each year end. On 30 September 2016, the value of Singa's property was unchanged from its value at acquisition, but the land element of Panda's property had increase in value by RM500,000 as shown in other comprehensive income. 2. Sales from Singa to Panda throughout the year ended 30 September 2016 had consistently been RM1 million per month. Singa made a mark-up on cost of 25% on these sales. Panda had RM2 million (at cost to Panda) of inventory that had been supplied in the post-acquisition period by Singa as at 30 September 2016. 3. Panda had a trade payable balance owing to Singa of RM350,000 as at 30 September 2016. This agreed with the corresponding receivable in Singa's book. 4. Panda's investments include some investments in equity instruments that have increased by RM300,000 during the year. The other reserve relates to these investments and is based on their value as at 30 September 2015. There were no acquisitions or disposals of any of these investments during the year ended 30 September 2016. Panda made an irrevocable election at initial recognition of these instruments to recognize all changes in fair value through other comprehensive income. 5. Panda's policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, Singa's share price at that date can be deemed to be representative of the fair value of the share held by the non-controlling interest. 6. There has been no impairment of consolidated goodwill. Required: Prepare the Consolidated Statement of Financial Position of Panda as at 30 September 2016. (25 marks)
