Subject: Advanced corporate reporting

Topic: Consolidation

Question 6 On 1 April 2020. Pina-Colada acquired 60% of the equity share capital of Smirnoff in a share exchange of two shares in Pina-Colada for three shares in Smirnoff. The issue of shares has not yet been recorded by Pina-Colada. At the date of acquisition shares in Pina-Colada had a market value of RM6 each Below are the summarised draft financial statements of both companies. Income Statement for the year ended 31 March 2021 Pina-Colada RM000 Revenue 85,000 Cost of sales (63,000) Gross Profit 22,000 Distribution costs (2.000) Administration exp (6,000) Finance cost (300) Profit before tax 13,700 Income tax expenses (4,700) Profit for the year 9,000 Smimoff RM000 42,000 (32,000) 10,000 (2,000) (3,200) (400) 4,400 (1.400) 3,000 Statement of Financial Position as at 31 March 2021 Pina-Colada RM000 Non Current Assets Property, Plant and Equipment 40,600 Smirnoff RM000 12,600 Current Assets 16,000 56,600 6,600 19,200 Equities & Liabilities Equity Shares of RM1 each Retained Earnings 10,000 35,400 45,500 4.000 6,500 10,500 Non Current Liabilities 10% Debentures 3,000 4,000 Current Liabilities 8,200 56,600 4,700 19,200 (11) The following information is relevant: (1) At the date of acquisition, the fair values of Smimoff assets were equal to their carrying amounts with the exception of an item of plant, which had a fair value of RM2 million in excess of its carrying amount. It had remaining life of five years at that date (straight-line depreciation is used]. Sophistic has not adjusted the carrying amount of its plant as a result of the fair value exercise. Sales from Smirnoff to Pina Colada in the post acquisition period were RM8 million. Smirnoff made a mark up on cost of 40% on these sales. Sophistic cost of sale was RM5-2 million 30% of this inventory remained at 31 March 2021. Smirnoff trade receivables at 31 March 2021 include RM600,000 due from Pina- Colada which did not agree with Pina-Colada's corresponding trade payable. This was due to cash in transit of RM200,000 from Pina-Colada to Smimoff. Both companies have positive bank balances. (iv) Consolidated goodwill was impaired 10% at 31 March 2021. Required: a) Prepare a consolidated Financial Statement for Pina-colada as at 31 March 2021. b) Prepare a consolidated income statement for Pina-colada for the year ended 31 March 2021 ) (111)