VERY URGENT PLS HELP URGENTLY

1. Question on Consolidation - Semester one Below are the draft financial statements of Hark Ltd (Hark) and its investment Sock Ltd (Sock) for the accounting year ended 31 December 2019. Draft Statements of Financial Position as at 31 December 2019 Hark Sock Non-current assets 000s 000s Property, plant and Equipment 10,600 6,100 Investment in Sock Ltd. (Cash paid) 1,400 12,000 6.100 Current assets: Inventory 1,200 2,100 Trade Receivables 800 700 Bank 80 300 Total Current Assets 2,080 3,100 Total Assets 14,080 9,200 3,000 Equity and Liabilities 1 Ordinary shares Other reserves Retained Earnings 2,000 2.600 6,560 11,160 900 4,220 7,220 1,000 Non-Current Liabilities: Loans Current Liabilities: Trade payables Tax Total Equity and Liabilities 1,200 820 14,080 900 80 9,200 Draft Income statements for the year ended 31 December 2019 Sales Cost of sales Gross profit Expenses Profit before Tax Taxation Profit for year Hark 000s 12,500 (6,800) 5,700 (1.600) 4,100 (820) 3.280 Sock 000s 3,000 (2,100) 900 (500) 400 (80) 320 Question 1 continued overleaf PTO Page 2 of 9 Question 1 continued Additional information: i. Hark prepares consolidated financial statements based on International Financial Reporting Standards, using the full goodwill method of IFRS 3. ii. Hark acquired an 80% share in Sock some years ago, when retained earnings of Sock was 3.1 million, and Sock's share capital and other reserves were the same as reported on 31 December 2019. Consideration comprised cash of 1.4m and an exchange of shares on the basis of 1 share in Hark for events held by Sock's shareholders. Hark's shares had a market value of 7.00 at this time. Hark has not yet accounted for this share exchange in the above draft financial statements. The fair value of the Non-controlling interest at the date of acquisition was 1.0m, and the fair value of Sock's net assets were represented by the carrying values shown in its financial statements apart from land which had a fair value which was 200,000 higher. iii. Goodwill was impaired for the first time on 31 December 2019 by 100,000. iv. Inter-group sales from Sock to Hark in the year ended 31 December 2019 are 2 million, on which Sock made a gross profit of 25%. Of these goods, 300,000 (at the selling price from Sock to Hark) are still in Hark's closing inventory amount at 31 December 2019. Required: a) Prepare a consolidated income statement for the year ended 31 December 2019. Show all your workings. (6 marks) b) Prepare a consolidated statement of financial position at 31 December 2019. Show all your workings. (15 marks) c) Explain what is meant by reporting the "substance of a transaction, and why this is important to the method used in consolidating Sock into the group financial statements. (4 marks) (Total 25 marks) 1. Question on Consolidation - Semester one Below are the draft financial statements of Hark Ltd (Hark) and its investment Sock Ltd (Sock) for the accounting year ended 31 December 2019. Draft Statements of Financial Position as at 31 December 2019 Hark Sock Non-current assets 000s 000s Property, plant and Equipment 10,600 6,100 Investment in Sock Ltd. (Cash paid) 1,400 12,000 6.100 Current assets: Inventory 1,200 2,100 Trade Receivables 800 700 Bank 80 300 Total Current Assets 2,080 3,100 Total Assets 14,080 9,200 3,000 Equity and Liabilities 1 Ordinary shares Other reserves Retained Earnings 2,000 2.600 6,560 11,160 900 4,220 7,220 1,000 Non-Current Liabilities: Loans Current Liabilities: Trade payables Tax Total Equity and Liabilities 1,200 820 14,080 900 80 9,200 Draft Income statements for the year ended 31 December 2019 Sales Cost of sales Gross profit Expenses Profit before Tax Taxation Profit for year Hark 000s 12,500 (6,800) 5,700 (1.600) 4,100 (820) 3.280 Sock 000s 3,000 (2,100) 900 (500) 400 (80) 320 Question 1 continued overleaf PTO Page 2 of 9 Question 1 continued Additional information: i. Hark prepares consolidated financial statements based on International Financial Reporting Standards, using the full goodwill method of IFRS 3. ii. Hark acquired an 80% share in Sock some years ago, when retained earnings of Sock was 3.1 million, and Sock's share capital and other reserves were the same as reported on 31 December 2019. Consideration comprised cash of 1.4m and an exchange of shares on the basis of 1 share in Hark for events held by Sock's shareholders. Hark's shares had a market value of 7.00 at this time. Hark has not yet accounted for this share exchange in the above draft financial statements. The fair value of the Non-controlling interest at the date of acquisition was 1.0m, and the fair value of Sock's net assets were represented by the carrying values shown in its financial statements apart from land which had a fair value which was 200,000 higher. iii. Goodwill was impaired for the first time on 31 December 2019 by 100,000. iv. Inter-group sales from Sock to Hark in the year ended 31 December 2019 are 2 million, on which Sock made a gross profit of 25%. Of these goods, 300,000 (at the selling price from Sock to Hark) are still in Hark's closing inventory amount at 31 December 2019. Required: a) Prepare a consolidated income statement for the year ended 31 December 2019. Show all your workings. (6 marks) b) Prepare a consolidated statement of financial position at 31 December 2019. Show all your workings. (15 marks) c) Explain what is meant by reporting the "substance of a transaction, and why this is important to the method used in consolidating Sock into the group financial statements. (4 marks) (Total 25 marks)