FAR610: ADVANCED FINANCIAL ACCOUNTING AND REPORTING 1

TEST 2

QUESTION

Given below are the draft statements of profit or loss and other comprehensive income and statement of
changes in equity (extracted) for the year ended 30 June 2017 of Ruby Bhd and its related companies.

Statement of profit or loss and other comprehensive income for the year ended 30 June 2017

Ruby Jade Topaz Pearl

Bhd Bhd Bhd Bhd
RM’ 000 RM’000 RM’000 RM’000
Revenue 24,000 20,000 5,000 3,200
Cost of sales (10,000) (8,000) (2,400) (2,320)
14,000 12,000 2,600 880
Expenses (4,000) (4,000) (800) (400)
10,000 8,000 1,800 480
Debenture interest expense - (2,000) - -
Debenture interest income 800
Dividends from Jade 480 - - -
Profit before taxation 11,280 6,000 1,800 480
Taxation (3,166) (2,080) (400) (160)
Profit after taxation 8,114 3,920 1,400 320

Other comprehensive income

Surplus on revaluation 160 80 - -
Total comprehensive income 8,274 4,000 1,400 320

Statement of changes in equity for the year ended 30 June 2017 (extract)

Ruby Jade Topaz Pearl

Bhd Bhd Bhd Bhd
RM’ 000 RM’000 RM’000 RM’000
Retained profit as at 1 July 2016 5,120 1,480 600 400
Profit for the year 8,114 3,920 1,400 320
Dividend paid at 30 June 2017:
Ordinary dividend (2,000) (600) - (400)
Preference dividend (200)
Retained profit as at 30 June 2017 11,234 4,600 2,000 320

Additional information:

1. Ruby Bhd acquired 80% of the ordinary shares and 40% of the 10% Debentures of
Jade Bhd on 1 July 2015. As at that date, Jade Bhd had the following balances:

RM’000
Ordinary share capital 20,000
Preference share capital 4,000
10% Debentures 20,000
Retained profits 800
1
 On 1 July 2015, the fair value of a freehold land of Jade Bhd was RM2,000,000 more than
its carrying amount. During the current financial year, the fair value increase by another
RM80,000.

The fair value of a freehold land of Ruby Bhd also increase by RM160,000 in the current
financial year.

The revaluation model was adopted for the freehold land.

Goodwill on acquisition of Jade Bhd was RM1,000,000. As at 30 June 2016, the goodwill was
impaired by RM640,000. There was a further impairment loss of RM200,000 as at 30 June 2017.

During the year ending 30 June 2017, Jade Bhd sold goods valued at RM3,000,000 to Ruby Bhd.
The goods were sold at cost plus 25%. Only 50% of the goods has been sold by Ruby Bhd.

2. Ruby Bhd acquired 600,000 ordinary shares of Topaz Bhd on 1 July 2015 when the retained profit
of Topaz Bhd was RM200,000. The issued ordinary share capital of Topaz Bhd was 1,000,000
shares of RM1 each. The bargain purchase arising at the date of acquisition was RM100,000.

Subsequently, on 1 October 2016, Ruby Bhd acquired another 200,000 ordinary shares of Topaz
Bhd for RM720,000.

3. On 1 October 2016, Ruby Bhd also acquired 400,000 of the 1,000,000 ordinary shares of RM1
each of Pearl Bhd. Ruby Bhd has a significant influence over Pearl Bhd. The bargain purchase at
the date of acquisition was RM12,000.

After the date of acquisition, Ruby Bhd sold goods costing RM100,000 for RM120,000 to Pearl
Bhd. All the goods were unsold by Pearl Bhd as at 30 June 2017.

4. All profits and losses are deemed to accrue evenly throughout the year.

5. The group’s policy is to measure non-controlling interest at fair value of the net assets of the
subsidiary.

Required:

a. Calculate the gain or loss on subsequent acquisition of ordinary shares in Topaz Bhd
(3 marks)

b. Prepare the consolidated statement of profit or loss and other comprehensive income for the year
ended 30 June 2017.
(19 marks)

c. Prepare the consolidated statement of changes in equity (extract) for the year ended 30 June 2017,
showing the group retained profit and non-controlling interest.
(13 marks)

d. Explain the effect on the consolidated statement of profit or loss and other comprehensive income,
if Ruby Bhd acquired another 20% of the ordinary shares of Pearl Bhd on 1 April 2017.
(5 marks)

(Total: 40 marks)

2
 SOLUTION:

a. Gain or loss on second acquisition

RM’000 RM’000
Cost of investment 720√
Fair value of net assets:
Share capital 1,000√
Retained profit [600 + (1,400 x 3/12) 950√√√
1,950 x 20% √ (390)
Loss (equity) 330

(6 x ½ = 3 marks)

b. Ruby Bhd Group

Consolidated Statement of Profit or Loss and other Comprehensive Income for the year
ended 30 June 2017
]RM’000
Revenue [(24,000 + 20,000 + 5,000)√ - 3,000√] 46,000
Cost of Sales [(10,000+ 8,000 + 2,400 )√ - 3,000√ + URP300√ √] (17,700)
Gross profit 28,300
Expenses (4,000+4,000+800)√ (8,800)
Impairment of goodwill √ (200)
Debenture interest (2,000-800) √√ (1,200)
Share of profits from Pearl Bhd [(320x9/12) √√-URP20√] x 40% √ + 12√ BP 100
Profit before taxation 18,200
Taxation (3,166 + 2,080 + 400)√ (5,646)
Profit after tax 12,554

Other comprehensive income

Surplus on revaluation of freehold land (80√ + 160√) 240
Total comprehensive income 12,794

Profit after tax attributable to:

Equity holders of parent √ 11,320
Non-controlling interest √ (W1)1,234
12,554
Total comprehensive income attributable to√:
Equity holders of parent [11,320+ 160√ + (80 x 80%)√√] 11,544
Non-controlling interest [ 1,234+ (80 x 20 %)√√] 1,250
12,794

W1: Computation of NCI

RM’000 RM’000
Jade Bhd
3
 PAT 3,920√
URP- inventory (300)√ √
Preference dividend (200) √ @ 100% √ = 200
3,420 @ 20% √ = 684
884

Topaz Bhd
PAT: (1,400 x 3/12 x 40%) 140√√√
(1,400 x 9/12 x 20%) 210 √√√
350
1,234

(38√ x ½ = 19 marks)

c.
Ruby Bhd Group
Consolidated Statement of Changes in Equity for
the year ended 30 June 2017
GRP NCI
RM’ 000 RM’ 000
Balance b/f (W2) 5,364 (W3) 9,336
Profit for the year √ 11,320 1,234
Loss on second (330) √ -
acquisition√
Reduction in NCI √ - (390) √
ARR (80 x 20%) - 16 √
Ordinary dividend (2,000) √ (W4) (120)
Preference dividend - (200) √
14,354 9,876

RM’000 RM’000
W2: RP b/f

Ruby Bhd:Bal b/f 5,120√

Impairment of goodwill (640) √
Bargain purchase 100 √
4,580
Jade Bhd: Bal b/f 1,480√
Less: Pre-acq profit (800)√
680 x 80%√ 544

Topaz Bhd: Bal b/f 600√

Less: Pre-acq profit (200) √
400x60%√ 240
5,364

W3: NCI b/f

4
 Jade Bhd (1/7/16)
OSC 20,000√
RP 1,480√
ARR 2,000√
23,480 x20%√ 4,696
Preference Shares 4,000 x 100%√ 4,000
8,696
Topaz Bhd
OSC 1,000 √
RP 600 √
1,600 x 40%√ 640
9,336

W4: Ordinary dividend

Jade Bhd 600 x 20% 120√

(26√ x 1/2 = 13 marks)

c. If Ruby Bhd acquired another 20% of the ordinary shares in Pearl Bhd, the total shares
acquired will be 60% (40% + 20%), and Pearl Bhd is a subsidiary of Ruby Bhd. Pearl Bhd will
be consolidated√ for 3 months √ and equity accounted for 6 months√. The gain or loss on virtual
sale of investment will be accounted for in the CSOPL√. Goodwill or bargain purchase need to
be calculated, once Pearl Bhd become a subsidiary. A bargain purchase or impairment of
goodwill will be disclosed in CSOPL. √

(5 x 1 = 5 marks)

(Total: 40 marks)