SECTION A: COMPULSORY QUESTION

Question $1$

On $1$ October $2020,$ Vanguard Ltd acquired $75\%$ of Jupiter Ltd$\text{'}$s equity shares

by means of share exchange of two new shares in Vanguard Ltd for every five

acquired shares in Jupiter. In addition, Vanguard issued to the shareholders

of Jupiter a $10010\%$ loan note for every $1,000$ shares it acquired in Jupiter.

Vanguard has not recorded any of the purchase consideration, although it

does have other $10\%$ loan notes already in issue.

The market value of Vanguard's shares at $1$ October $2020$ was $2$ each. The

summarised statements of financial position of the two companies as at $31$

March $2021$ are:

See Next Page

The following information is relevant:

At the date of acquisition $(1$ October $2020),$ Jupiter has a negative balance on

revenue reserves of $6$ million. Also at the date of acquisition, Vanguard

conducted a fair value exercise on Jupiter's net assets which were equal to their

carrying amount $($including Jupiter's financial assets equity investment$)$ with

the exception of an item of plant which had a fair value of $3$ million below its

carrying amount. The plant had a remaining economic life of three years at $1$

October $2020$ and depreciation is charged on a straight$-$line basis

Each month since acquisition, Vanguard's sales to Jupiter were consistently $4\mathrm{.}6$

million. Vanguards had marked these up by $15\%$ on cost$.$ Jupiter had one month's

supply $(4\mathrm{.}6$ million$)$ of these goods in inventory at $31$ March $2021.$ Vanguard's

normal mark$-$up $($to third party customers$)$ is $40\%.$

Jupiter's trade payable balance with Vanguard at $31$ March $2021$ was $2\mathrm{.}8$

million, which did not agree with Vanguard's equivalent trade receivable due

to a payment of $900,000$ made by Jupiter on $28$ March $2021.$ It was not received

by Vanguard until $3$ April $2021.$

There was no impairment loss within the group during the year ended $31$ March

Required:

$($a$)$ Produce the consolidated statement of financial position for Vanguard Group

as at $31$ March $2021$ consistent with international accounting standards.

$[22$ marks$]$

$($b$)$ Vanguard has a strategy of buying struggling businesses, reversing their

decline and then selling them on at a profit within a short period of time.

Vanguard is hoping to do this with Jupiter. As an adviser to a prospective

purchase of Jupiter, explain any concerns you would raise about basing an

investment decision on all the information available.

the inter$-$company trading

$[7$ marks$]$

$($c$)$ Appraise the need for consolidated financial statements, and discuss why

equity accounting was not the appropriate treatment for Jupiter in the

consolidated financial statements.

provide the better picture of the consolidated group and give an

overview of group's financial statement for investors and other

entities

the consolidate financial statements are able to demonstrate the

health of the business as a whole and the impact of each

subsidiary in group to the parent company

$[6$ marks$]$

$[$Total $35$ marks$]$

See Next Page