Question 5 The summarised statement of financial position of three companies showed the following positions as at 31 December 2019: Biotech Bhd Pharma Bhd Alpha Bhd RM RM RM ASSETS Non-Current Assets Property, plant and equipment 374,000 280,000 225,000 Investment in Pharma Bhd 240,000 Investment in Alpha Bhd 68,000 682,000 280,000 225,000 Current Assets 105,000 60,000 24,500 Inventories Trade and other receivables 29,780 202,000 20,000 75,000 15,000 Bank 5,000 Inter-company account 22.000 327,000 172,000 59,280 Total Assets 1.009.000 452.000 284,280 EQUITY AND LIABILITIES Capital and Reserves Ordinary shares Capital General reserves Retained earnings 450,000 150,000 100,000 31,000 58,400 110.000 266,000 716,000 260,000 189,400 4 BACP309/03 150,000 94,880 Current Liabilities Trade and other payables Inter-company account Taxation Dividends payable 180,000 18,000 65,000 42.000 30,000 293,000 192,000 94,880 Total Equity and Liabilities 1,009,000 452.000 284,280 Additional information: . Income accrues evenly throughout the period. . . . . Biotech Bhd acquired 80% of the equity share capital of Pharma Bhd for a cash consideration of RM240,000 on the 1st of January 2019. The retained earnings of Pharma Bhd was RM70,000 on the date of acquisition. Non-controlling interest is measured as a proportion of the net assets on the day of acquisition. At the date of acquisition, the fair value of Pharma Bhd's assets were equal to their carrying amounts with the exception of an item of plant which had a fair value that was RM55,000 higher than the carrying amount. This plant was not adjusted in the standalone accounts of Pharma Bhd. The plant had an estimated useful life of five years at that date of acquisition (the straight-line method of depreciation is used and depreciation is charged on a monthly basis) On the 1 July 2019 Biotech Bhd sold 20% of the equity share capital of Pharma Bhd for a cash consideration of RM60,000. Biotech Bhd maintained control of Pharma Bhd. No entry has been made for this transaction. Biotech Bhd acquired 25,000 ordinary shares in Alpha Bhd on the 1 January 2017 at RM1. This allowed Biotech Bhd to exercise significant influence over Alpha Bhd's business. When Biotech Bhd purchased its shares in Alpha Bhd, the balance on Alpha Bhd's General Reserves RM29,000 and Retained Earnings were RM40,600. During the year ending 31 December 2019, Alpha Bhd. sold goods to Biotech Bhd forRM50,000 (sales price). Alpha Bhd. made a mark-up of 25% on cost. Of these goods, 40% were still in inventory at year end. As at 31 December 2019, the difference on the inter-company accounts (between Biotech Bhd and Pharma Bhd relates to cash in transit. No dividends were declared by either Pharma Bhd or Alpha Bhd during the year ended 31 December 2019. Goodwill on acquisition is capitalised in the Consolidated Statement of Financial Position and is assessed annually for impairment. The impairment of goodwill for the year ended 31 December 2019 is assessed at RM4,000. . . 5 BACP309/03 Required: a. Prepare the Consolidated Statement of Financial Position for the Biotech Bhd's Group as at 31 December 2019. (20 marks) b. () Discuss the three conditions that prove control according to MFRS10 : Consolidated Financial Statements. (ii) Discuss whether it is possible for an entity to exercise control if it holds less than 50% of another entity. If so, suggest three examples that might indicate that a parent has control over a subsidiary. (10 marks) Question 5 The summarised statement of financial position of three companies showed the following positions as at 31 December 2019: Biotech Bhd Pharma Bhd Alpha Bhd RM RM RM ASSETS Non-Current Assets Property, plant and equipment 374,000 280,000 225,000 Investment in Pharma Bhd 240,000 Investment in Alpha Bhd 68,000 682,000 280,000 225,000 Current Assets 105,000 60,000 24,500 Inventories Trade and other receivables 29,780 202,000 20,000 75,000 15,000 Bank 5,000 Inter-company account 22.000 327,000 172,000 59,280 Total Assets 1.009.000 452.000 284,280 EQUITY AND LIABILITIES Capital and Reserves Ordinary shares Capital General reserves Retained earnings 450,000 150,000 100,000 31,000 58,400 110.000 266,000 716,000 260,000 189,400 4 BACP309/03 150,000 94,880 Current Liabilities Trade and other payables Inter-company account Taxation Dividends payable 180,000 18,000 65,000 42.000 30,000 293,000 192,000 94,880 Total Equity and Liabilities 1,009,000 452.000 284,280 Additional information: . Income accrues evenly throughout the period. . . . . Biotech Bhd acquired 80% of the equity share capital of Pharma Bhd for a cash consideration of RM240,000 on the 1st of January 2019. The retained earnings of Pharma Bhd was RM70,000 on the date of acquisition. Non-controlling interest is measured as a proportion of the net assets on the day of acquisition. At the date of acquisition, the fair value of Pharma Bhd's assets were equal to their carrying amounts with the exception of an item of plant which had a fair value that was RM55,000 higher than the carrying amount. This plant was not adjusted in the standalone accounts of Pharma Bhd. The plant had an estimated useful life of five years at that date of acquisition (the straight-line method of depreciation is used and depreciation is charged on a monthly basis) On the 1 July 2019 Biotech Bhd sold 20% of the equity share capital of Pharma Bhd for a cash consideration of RM60,000. Biotech Bhd maintained control of Pharma Bhd. No entry has been made for this transaction. Biotech Bhd acquired 25,000 ordinary shares in Alpha Bhd on the 1 January 2017 at RM1. This allowed Biotech Bhd to exercise significant influence over Alpha Bhd's business. When Biotech Bhd purchased its shares in Alpha Bhd, the balance on Alpha Bhd's General Reserves RM29,000 and Retained Earnings were RM40,600. During the year ending 31 December 2019, Alpha Bhd. sold goods to Biotech Bhd forRM50,000 (sales price). Alpha Bhd. made a mark-up of 25% on cost. Of these goods, 40% were still in inventory at year end. As at 31 December 2019, the difference on the inter-company accounts (between Biotech Bhd and Pharma Bhd relates to cash in transit. No dividends were declared by either Pharma Bhd or Alpha Bhd during the year ended 31 December 2019. Goodwill on acquisition is capitalised in the Consolidated Statement of Financial Position and is assessed annually for impairment. The impairment of goodwill for the year ended 31 December 2019 is assessed at RM4,000. . . 5 BACP309/03 Required: a. Prepare the Consolidated Statement of Financial Position for the Biotech Bhd's Group as at 31 December 2019. (20 marks) b. () Discuss the three conditions that prove control according to MFRS10 : Consolidated Financial Statements. (ii) Discuss whether it is possible for an entity to exercise control if it holds less than 50% of another entity. If so, suggest three examples that might indicate that a parent has control over a subsidiary. (10 marks)