Question 3 Pratt plc acquired 80% of Swanson Inc on 1 July 2019. Swanson Inc is based overseas, in a country that uses the Pawnee dollar (PS) as its local currency. The statements of profit or loss for Pratt plc and Swanson Inc are shown below. Statement of profit or loss for the year ended 31 December 2019 Pratt Swanson E000 PS000 Revenue 364,000 422,080 Cost of sales (268,000) (307,600) Gross profit 96,000 114,480 Operating expenses (63,560) (70,630) Profit from operations 32.440 43,850 Investment income 5.200 Finance costs (8.600) (1.500) Profit before tax 21,040 42,350 Taxation (4.800) (12,710) Profit for the year 16,240 29,640 The following information is relevant: 0 Pratt plc paid 120 million for 80% of Swanson Inc's P$400 million share capital. At this date Swanson Inc had retained earnings of P$182 million. (1) Swanson Inc's properties had a carrying amount of P$78 million at 1 July 2019. The fair value of these were assessed as P$110 million at 1 July 2019, with a remaining useful life of 20 years. Depreciation is charged to cost of sales. (i) Pratt plc operates a defined benefit pension scheme for its employees. At 1 January 2019 the scheme showed assets of 24.3 million and an obligation of 26.5 million. No entries have been made in respect of the current period. The relevant information is as follows: Service cost: 1.2 million Contributions paid 900,000 Benefits paid 400,000 Discount rate: 6% Fair value of assets at 31 December 2019: 24.2 million Present value of obligation at 31 December 2019: 28.4 million (iv) Pratt plc measures the non-controlling interest using the proportionate method. Swanson Inc paid a dividend of P$8.25 million on 31 December 2019. (vi) Relevant exchange rates are as follows: 1 July 2019: P$5:1 31 December 2019: P$4.4:1 Average rate: PS4.8:1 Requirement: (a) Calculate the goodwill arising on the acquisition of Swanson Inc at 1 July 2019, and the figure to be included in the consolidated statement of financial position as at 31 December 2019. (8 marks) (b) Prepare the statement of profit or loss and other comprehensive income for the Pratt group for the year ended 31 December 2019. (22 marks) () Explain the difference between the pension scheme operated by Pratt plc and a defined contribution scheme. (3 marks) Total: (33 marks) Question 3 Pratt plc acquired 80% of Swanson Inc on 1 July 2019. Swanson Inc is based overseas, in a country that uses the Pawnee dollar (PS) as its local currency. The statements of profit or loss for Pratt plc and Swanson Inc are shown below. Statement of profit or loss for the year ended 31 December 2019 Pratt Swanson E000 PS000 Revenue 364,000 422,080 Cost of sales (268,000) (307,600) Gross profit 96,000 114,480 Operating expenses (63,560) (70,630) Profit from operations 32.440 43,850 Investment income 5.200 Finance costs (8.600) (1.500) Profit before tax 21,040 42,350 Taxation (4.800) (12,710) Profit for the year 16,240 29,640 The following information is relevant: 0 Pratt plc paid 120 million for 80% of Swanson Inc's P$400 million share capital. At this date Swanson Inc had retained earnings of P$182 million. (1) Swanson Inc's properties had a carrying amount of P$78 million at 1 July 2019. The fair value of these were assessed as P$110 million at 1 July 2019, with a remaining useful life of 20 years. Depreciation is charged to cost of sales. (i) Pratt plc operates a defined benefit pension scheme for its employees. At 1 January 2019 the scheme showed assets of 24.3 million and an obligation of 26.5 million. No entries have been made in respect of the current period. The relevant information is as follows: Service cost: 1.2 million Contributions paid 900,000 Benefits paid 400,000 Discount rate: 6% Fair value of assets at 31 December 2019: 24.2 million Present value of obligation at 31 December 2019: 28.4 million (iv) Pratt plc measures the non-controlling interest using the proportionate method. Swanson Inc paid a dividend of P$8.25 million on 31 December 2019. (vi) Relevant exchange rates are as follows: 1 July 2019: P$5:1 31 December 2019: P$4.4:1 Average rate: PS4.8:1 Requirement: (a) Calculate the goodwill arising on the acquisition of Swanson Inc at 1 July 2019, and the figure to be included in the consolidated statement of financial position as at 31 December 2019. (8 marks) (b) Prepare the statement of profit or loss and other comprehensive income for the Pratt group for the year ended 31 December 2019. (22 marks) () Explain the difference between the pension scheme operated by Pratt plc and a defined contribution scheme. (3 marks) Total: (33 marks)