FR&A Revision Group Q2 - Hake, Snake, Ache PDF

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BMAN21020 Semester 1 Topic 4: Consolidated FS Revision Q2: Hake Hake plc (Hake) has been expanding its operations and over the past few years has made the following investments: Snake Ltd (Snake) On 1st April 2008 (3 years ago) Hake acquired 2.4 million of the ordinary shares in Snake (a leading supplier of its raw materials) for £500,000 in cash and a share-for-share exchange on the basis of 2 of its ordinary shares for 5 in Snake (i.e.: “2 for 5”). The share exchange has been accounted for by Hake in its financial statements. At the date of acquisition, the profit and loss reserve of Snake stood at £380,000. Hake performed a fair value review of Snake’s assets and liabilities at acquisition, and identified a piece of plant in Snake’s financial statements that it considered was undervalued by £380,000. The depreciation policy for plant is 25% straight line for both Snake and Hake. At the date of acquisition, the fair value non-controlling interest in Snake was ascertained to be £2.2 million. Hake accounts for goodwill according to IFRS 3. The resulting goodwill from the acquisition has been reviewed annually, and because of a downturn in the economy there have been two impairments: the first on 31st March 2009 (for £42,000) and the second in the current accounting period (for £70,000). Ache Ltd (Ache) Hake acquired a 35% participating interest in the ordinary shares of Ache a few years ago, when the profit and loss reserve of Ache stood at £90,000. Again, due to a decline in the economy, Hake has impaired its investment in Ache: once at 31st March 2010 (for £9,850) and again at 31st March 2011, leaving the investment in Ache at a value of £300,000 at the end of 31st March 2011. Other information 1. During the year ended 31st March 2011, Hake supplied goods to Snake with a sales value of £1.2million. Hake applied a 20% gross profit margin to these sales. By 31st March 2011 Shake had sold on the majority of these purchases, leaving a figure of £300,000 in its inventory. 2. Hake has yet to account for the proposed dividends from Snake. The Draft financial Statements of the companies are shown on the next page. Required: 1. Prepare a Consolidated statement of Changes in Equity for the year ended 31st March 2011 2. Prepare a Consolidated Income Statement for the year ended 31st March 2011 To enable you to do the above, you should prepare workings for the following: (i) Investment in Associate including any impairment adjustments (ii) Fair value adjustments at acquisition and subsequent depreciation adjustments (iii) PURP (iv) Dividends receivable from S (to H, and to NCI) (v) Group Profit and loss reserves: brought forward and carried forward (vi) Non-controlling interests: share of goodwill (vii) Non-controlling interests: brought forward and carried forward (viii) Non-controlling interests: share of profit in the year

FR&A REVISION Group Q2 - Hake, Snake, Ache

Draft Income Statements for the year ended 31st March 2011 Turnover Cost of sales Gross Profit Operating expenses Operating Profit Tax Profit after tax Dividends: - to ordinary Shareholders - to preference Shareholders Retained Profit Brought forward Carried forward

Draft Statements of Financial Position as at 31st March 2011

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Hake £'000 6,500 4,520 1,980 1,560 420 126 294

Snake £'000 2,250 1,750 500 260 240 72 168

Ache £'000 190 160 30 40 (10) (3) (7)

220 74 1,100 1,174

70 70 28 550 578

(7) 88 81

Hake £'000 3,479 3,572 330 7,381 600 15 16 631

£'000 Non-current assets: Tangible Investment in Snake Ltd Investment in Ache Ltd Current Assets: - inventory - trade receivables - bank Current Liabilities: - trade payables - tax - dividends Net current assets Debentures Net Assets Share capital and Reserves Ordinary shares (£1 nominal value) Share premium reserve Preference Shares (£1 nominal value) Profit and Loss reserve

220 126 220 566

Snake £'000 £'000 6,040

Ache £'000 £'000 993

6,040

993

150 80 60 290

20 30 50 100

40 72 140 252

15 (3) 12

65 (1,200) 6,246

38 (500) 5,578

88 1,081

2,960 2,112 1,174 6,246

4,000 1,000 578 5,578

1,000 81 1,081...