Material Part I

Advanced Financial Reporting
(AFR)
by
CA, Ranjit Kumar Yadav

(9851017253)
Institute of Chartered Accountants of Nepal

Online Course, June 2020 Examination
BUSINESS COMBINATIONS
AND
CONSOLIDATED FINANCIAL STATEMENTS
NAS 27
NAS 28
NFRS 3
NFRS 10
NFRS 11
NFRS 12
NAS 27 SEPARATE FINANCIAL STATEMENT
Applicability
This standard shall be applied in accounting for investments in subsidiaries, joint
venture and associates when an entity elects or is required by regulations to present
separate financial statements.
Definitions
a. Consolidated financial statements
They are the financial statements of a group in which the assets, liabilities, equity,
income, expenses and cash flows of the parent and its subsidiaries are presented as
those of a single economic entity.
b. Separate financial statements
They are those presented by a parent (i.e. an investor with control of a subsidiary) or an
investor with joint control of or significant influence over, an investee, in which the
investments are accounted for at cost or in accordance with NFRS 9 Financial
instruments.
Preparation of separate financial statements
AFR by CA, Ranjit Kumar Yadav Page 2

When an entity prepares separate financial statements, it shall account for investments
in subsidiaries, joint ventures and associates either:
a. at cost or
b. in accordance with NFRS 9
The entity shall apply the same accounting for each category of investments.
Where subsidiaries are classified as held for sale in accordance with NFRS 5 they
should be accounted for in accordance with NFRS 5 in the parent's separate financial
statements
An entity shall recognize a dividend from a subsidiary, a joint venture or an associate in

profit or loss in its separate financial statements when its right to receive the dividend is
established.
Disclosure
Where a parent chooses exemptions from preparing consolidated financial statements
under NAS 27 the separate financial statements must disclose:
a. The fact that the financial statements are separate financial statements; that the
exemption from consolidation has been used; the name and country of
incorporation of the entity whose consolidated financial statements that comply
with NFRSs have been published; and the address where those consolidated
financial statements are obtainable
b. A list of significant investments in subsidiaries, jointly controlled entities and

associates, including the name, country of incorporation, proportion of ownership
interest and, if different, proportion of voting power held
c. A description of the method used to account for the investments listed under (b)
When a parent prepares separate financial statements in addition to consolidated

financial statements, the separate financial statements must disclose:
a. The fact that the statements are separate financial statements and the reasons
why they have been prepared if not required by law
b. Information about investments and the method used to account for them

NAS 28 INVESTMENT IN ASSOCIATES AND
JOINT VENTURE
Associates
An associate is an entity over which the investor has significant influence.
Significant Influence
Significant influence is the power to participate in the financial and operating policy
decisions of the investee but is not control or joint control of those policies.
If an entity holds’ directly or indirectly (e.g. through subsidiaries)’ 20 percent or more of
the voting power of the investee, it is presumed that the entity has significant influence,
unless it can be clearly demonstrated that is not the case.
Controversy, if the entity holds’ directly or indirectly (e.g. through subsidiaries)’ less than
20 percent of the voting power of the investee, it is presumed that the entity does not
have significant influence, unless such influence can be clearly demonstrated.
The existence of significant influence by an entity is usually evidenced in one or more of
the following ways:
a. representation on the board of directors or equivalent governing body of the
investee;
b. participation in policy-making processes, including participation in decisions
about dividends or other distributions;
c. material transactions between the entity and its investee;
d. interchanges of managerial personnel; or
e. provision of essential technical information.
Example:
AB Ltd holds 12% of the voting shares in CD Ltd. CD Ltd’s board comprise of eight
members and two of these members are appointed by AB Ltd. Each board member has
one vote at meeting. Is CD Ltd an associate of AB Ltd?
CD Ltd is an associate of AB Ltd as significant influence is demonstrated by the

presence of directors on the board and relative voting rights at meeting.
It is presumed that entity has significant influence where it holds 20% or more of the
voting power of the investee, but it is not necessary to have 20% representation on the
board to demonstrate significant influence, as this will depend on all the facts and
circumstances. One board member may represent significant influence even if that
board member has less than 20% of the voting power. But for significant influence to

exist it would be necessary to show based on specific facts and circumstances that this
is the case, as significant influence would not be presumed.
Example:
X Ltd creates a separate legal entity in which it holds less than 20% of the voting
interests but however controls that entity through contracts that ensures that decision-
making power and the distribution of profits and losses lies with X Ltd.
In such cases, the investor is able to exercise significant influence over its investee.
Joint Venture
A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement.
A joint arrangement is an arrangement of which two or more parties have joint control.
Joint control is the contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require the unanimous consent
of the parties sharing control.
Accounting for investment in associates and joint venture in consolidated financial statements
Investment in associates or joint venture should be accounted for using the equity
method in the consolidated financial statements, except exemptions in this NAS.
Exemptions from applying equity method:
a. the investment in associates or joint venture is classified as held for sale; or
b. if the entity (investor) is a parent that is exempt from preparing consolidated
financial statement as per NFRS 10; or
c. if the following conditions are satisfied:
i. the entity (investor) is a wholly owned subsidiary or it is a partially owned
subsidiary of another entity and its other owners, including those not
otherwise entitled to vote, have been informed about, and do not object to,
the investor not applying the equity method.
ii. the entity’s (investor) securities are not publicly traded.
iii. the entity (investor) is not in the process of issuing securities in the public.
iv. the ultimate or intermediate parent publishes consolidated financial
statements that comply with NFRS.
d. when investment in associates or joint venture is held by venture capital
organization, mutual fund, unit trust or similar entities, the entity may elect to
measure the investment at fair value through profit or loss in accordance with
NFRS 9.
Accounting for investment in associates and joint venture in separate financial statements
An investment in an associate or a joint venture should be accounted for in the entity’s
separate financial statements either-

a. at cost; or
b. as per NFRS 9.
Equity Method
The equity method is a method of accounting whereby the investment is initially
recorded at cost and adjusted thereafter for the post-acquisition change in the investor's
share of net assets of the investee. The profit or loss of the investor includes the
investor's share of the profit or loss of the investee and the investor’s other
comprehensive income includes its share of the investee’s other comprehensive income.
Initial Recognition
At cost
Reporting at subsequent reporting date

Cost of the investment in the associates or joint venture
Add: share in post acquisition profit
Less: amount paid out as dividend
Less: amount written off the investment
Consolidated statement of profit or loss

Under equity method of accounting, the associate’s or joint venture’s sales revenue,
cost of sales and so on are not consolidated with those of group. Instead the group
share in profit after tax of associate or joint venture is added to the group profit.
Upstream and downstream transactions

Gain and losses resulting from upstream and downstream transactions between an
entity (including its consolidated subsidiaries) and its associate or joint venture are
eliminated to the extent of the investor’s interest in the associate or joint venture.
'Upstream' transactions are, for example, sales of assets from an associate to the
investor. 'Downstream' transactions are, for example, sales of assets from the investor
to an associate.
Losses of associates and joint venture

When the equity method is being used and the investor's share of losses of the
associate equals or exceeds its interest in the associate, the investor should discontinue
including its share of further losses. The investment is reported at zero value.
After the investor's interest is reduced to zero, additional losses are provided for, and a
liability is recognized, only to the extent that the entity has incurred legal or constructive
obligation or made payments on behalf of the associate or joint venture.

If the associate or joint venture subsequently reports profits, the entity resumes
recognizing its share of those profits only after its share of the profits equals the share
of losses not recognized.
Impairment losses
After application of the equity method, including recognizing the associate’s or joint
venture’s losses, the entity applies NAS 39 to determine whether it is necessary to
recognize any additional impairment loss (reversal) with respect to its net investment in
associate or joint venture.
The entire carrying amount of the investment is tested for impairment in accordance
with NAS 36 as a single asset, by comparing its recoverable amount with its carrying
amount.
Recoverable amount is assessed as higher of value in use and fair value less costs to
sell.
Value in use of the investment in associate or joint venture can be estimated as either:
a. its share of present value of the estimated future cash flows expected to be
generated by the associate or joint venture, including the cash flows from the
operations of the associate or joint venture and the proceeds from the ultimate
disposal of the investment; or
b. the present value of the estimated future cash flows expected to arise from
dividends to be received from the investment and from its ultimate disposal.
Using appropriate assumptions, both methods give the same result.
The recoverable amount of an investment in an associate or a joint venture should be

assessed for each associate or joint venture separately.
Q.No. 1:
Q Ltd manufactures shoes for a leading retailer P Ltd. P Ltd provides all designs for the
shoes and participates in scheduling, timing and quantity of the production. The majority
(i.e. 90%) of Q Ltd’s sales are made to the retailer P Ltd. P Ltd has 10% shareholding in
the Q Ltd. It acquired this interest many years ago at the start of their relationship.
Required:
Does significant influence exist?
Q.No. 2:
X Ltd owns 15% of the voting rights of Y Ltd, and the remainder are widely dispersed
among the public.
X Ltd also is the only supplier of crucial raw materials to Y Ltd, further it provides certain
expertise guidance regarding the maintenance of Y Ltd’s factory.

Required:
Discuss the relationship between X Ltd and Y Ltd.
Q.No. 3:
Entity X and entity Y, operate in the same industry, but in different geographical regions.
Entity X acquires a 10% shareholding in entity Y as a part of a strategic agreement. A
new production process is key to serve a fundamental change in the strategic decision
of entity Y. The terms of agreement provide for entity Y to start a new production
process under the supervision of two managers from entity X. The managers seconded
from entity X, one of whom is on entity X’s board, will oversee the selection and
recruitment of new staff, the purchase of new equipment, the training of the workforce
and the negotiation of new purchase contracts of raw materials. The two managers will
report directly to entity Y’s board as well as to entity X’s. Analyse.
Q.No. 4:
Soul Ltd has 18% interest in God Ltd. Soul Ltd manufactures mobile telephone handsets
using technology developed by God Ltd. God Ltd licenses the technology to Soul Ltd
and updates the license agreement for new technology on a regular basis. The
handsets are sold by Soul Ltd and represent substantially Soul Ltd’s entire sale.
Analyse.
Q.No. 5:
P Co, a company with subsidiaries, acquires 25,000 of the 100,000 Rs.1 ordinary shares
in A Co for Rs.60,000 on 1 January 2008. In the year to 31 December 2008, A Co earns
profits after tax of Rs.24,000, from which it pays a dividend of Rs.6,000. How will A Co's
results be accounted for in the individual and consolidated accounts of P Co for the year
ended 31 December 2008?
Q.No. 6:
Entity P acquired 40% of the equity shares in Entity A during Year 1 at a cost of Rs.
128,000 when the fair value of the net assets of Entity A was Rs. 250,000.
Since that time, the investment in the associate has been impaired by Rs. 8,000. Since
acquisition of the investment, there has been no change in the issued share capital of
Entity A, nor in its share premium reserve or revaluation reserve.
On 31 December Year 5, the net assets of Entity A were Rs. 400,000. In the year to 31
December Year 5, the profits of Entity A after tax were Rs. 50,000.
What figures would be included for the associate in the financial statements of Entity P
for the year to 31 December Year 5?
Q.No. 7:
The following statement of profit or loss relates to the P Co group, consisting of the
parent company, an 80% owned subsidiary (S Co) and an associate (A Co) in which the
group has a 30% interest.

P Co S Co A Co
Rs.’000 Rs.’000 Rs.’000
Sales revenue 600 800 300
Cost of sales (370) (400) (120)
Gross profit 230 400 180
Administrative expenses (110) (180) (80)
120 220 100
Interest receivable 30 - -
150 220 100
Interest payable - (20) -
150 200 100
Income tax expense (55) (90) (43)
Profit for the year 95 110 57
You are required to prepare consolidated statement of profit or loss of the group.
Q.No. 8:
On 1 January 2016 the net tangible assets of A Co amount to Rs.220,000, financed by
100,000 Rs.1 ordinary shares and revenue reserves of Rs.120,000. P Co, a company
with subsidiaries, acquires 30,000 of the shares in A Co for Rs.75,000. During the year
ended 31 December 2016 A Co's profit after tax is Rs.30,000, from which dividends of
Rs.12,000 are paid. Show how P Co's investment in A Co would appear in the
consolidated statement of financial position at 31 December 2016.
Q.No. 9:
Set out below are the draft accounts of Parent Co and its subsidiaries and of Associate
Co. Parent Co acquired 40% of the equity capital of Associate Co three years ago when
the latter's reserves stood at Rs.40,000.
Summarized statement of financial position

Parent & Associates Co
Subsidiaries
Rs.’000 Rs.’000
Tangible non-current assets 220 170
Investment in Associate at cost 60 -
Loan to Associate Co 20 -
Current assets 100 50
Loan from Parent Co - (20)
400 200
Share capital (Rs.1 shares) 250 100
Retained earnings 150 100
400 200

Summarized statement of profit or loss
Parent & Associates Co
Subsidiaries
Rs.’000 Rs.’000
Profit before tax 95 80
Income tax expense 35 30
Net profit for the year 60 50
Required
You are required to prepare the summarized consolidated accounts of Parent Co.
Notes
1. Assume that the associate's assets/liabilities are stated at fair value.
2. Assume that there are no non-controlling interests in the subsidiary companies.
Q.No. 10:
Entity P acquired 30% of the equity shares of Entity A several years ago at a cost of Rs.
275,000.
As at 31 December Year 6 Entity A had made profits of Rs. 380,000 since the date of
acquisition.
In the year to 31 December Year 6, the reported profits after tax of Entity A were Rs.
100,000.
In the year to 31 December Year 6, Entity P sold goods to Entity A for Rs. 180,000 at a
mark-up of 20% on cost.
Goods which had cost Entity A Rs. 60,000 were still held as inventory by Entity A at the
year-end.
a) Calculate the unrealised profit adjustment and state the double entry.
b) Calculate the investment in associate balance that would be included in Entity
P’s statement of fiancial position as at 31 December Year 6.
c) Calculate the amount that would appear as a share of profit of associate in Entity
P’s statement of profit or loss for the year ending 31 December Year 6.
Q.No. 11:
The statements of financial position of J Co. and its investee, P Co and S Co at 31st
December 2015 are shown below:
J Co P Co S Co
Rs.000 Rs.000 Rs.000
Non-current assets
Freehold property 1,950 1,250 500
Plant and machinery 795 375 285
Investments 1,500 -- --

4,245 1,625 785
Current assets
Inventory 575 300 265
Trade receivables 330 290 370
Cash 50 120 20
955 710 655
Total assets 5,200 2,335 1,440
Equity and liabilities
Equity
Share capital of Rs.1 2,000 1,000 750
Retained earnings 1,460 885 390
3,460 1,885 1,140
Non-current liabilities
12% Loan stock 500 100 --
Trade payables 680 350 300
Bank overdraft 560 -- --
1,240 350 300
Total equity and liabilities 5,200 2,335 1,440
Additional information:
(a) J Co acquired 600,000 ordinary shares in P Co on 1 January 2010 for
Rs.1,000,000 when the retained earnings of P Co were Rs.200,000.
(b) At the date of acquisition of P Co, the fair value of its freehold property was
considered to be Rs.400,000 greater than its value in P Co's statement of
financial position. P Co had acquired the property in January 2000 and the
buildings element (comprising 50% of the total value) is depreciated on cost over
50 years.
(c) J Co acquired 225,000 ordinary shares in S Co on 1 January 2014 for Rs.500,000
when the retained earnings of S Co were Rs.150,000.
(d) P Co manufactures a component used by both J Co and S Co. Transfers are
made by P Co at cost plus 25%. J Co held Rs.100,000 inventory of these
components at 31 December 2015. In the same period J Co sold goods to S Co
of which S Co had Rs.80,000 in inventory at 31 December 2015. J Co had marked
these goods up by 25%.
(e) The goodwill in P Co is impaired and should be fully written off. An impairment
loss of Rs.92,000 is to be recognised on the investment in S Co.
(f) Non-controlling interest is valued at full fair value. P Co shares were trading at
Rs.1.60 just prior to the acquisition by J Co.
Required:
Prepare, in a format suitable for inclusion in the annual report of the J Group, the
consolidated statement of financial position at 31 December 2015.
Q.No. 12:

P purchased a 60% holding in S on 1 January 2010 for Rs.6.1m when the retained
earnings of S were Rs.3.6m and a 30% holding in A on 1 July 2011 for Rs.4.7m when its
retained earnings were Rs.6.2m.
At 31 December 2014 the statement of financial positions of P, S and A were as follows:
P S A
Rs.’000 Rs.’000 Rs.’000
Property, plant and equipment 42,100 15,800 16,100
Investments in S and A (at cost) 10,800 - -
52,900 15,800 16,100
Current assets 7,900 3,700 5,600
60,800 19,500 21,700
Share capital 3,000 2,400 2,800
Retained earnings 41,600 10,600 9,200
44,600 13,000 12,000
Liabilities 16,200 6,500 9,700
60,800 19,500 21,700
An impairment test conducted at the year-end revealed cumulative impairment losses of

Rs.0.7m in respect of the investment in A, of which Rs. 0.2m relates to the current year.
This loss is not reflected in P's separate financial statements as the investment is not
impaired below its original cost. No impairment losses were found to be necessary on
the investment in S.
During the year A sold goods to P for Rs.3m at a profit margin of 20%. Rs.1m of these
goods remained in P's inventories at the year end.
Required
Prepare the consolidated statement of financial position of the Group as at 31
December 2014.
Q.No. 13:
P purchased a 60% holding in S on 1 January 2010 for Rs.6.1m when the retained
earnings of S were Rs.3.6m and a 30% holding in A on 1 July 2011 for Rs.4.7m when its
retained earnings were Rs.6.2m.
The statement of profit or loss of P, S and A for the year ending 31st December 2014
were as follows:
P S A
Rs.’000 Rs.’000 Rs.’000
Revenue 24,800 7,200 9,600
Cost of sales (17,100) (2,800) (5,800)
Gross profit 11,300 4,400 3,800
Expenses (4,400) (1,800) (1,600)
Finance income 100 - 100
Finance costs (400) (200) (300)

Profit before tax 6,600 2,400 2,000
Income tax expense (2,100) (700) (600)
Profit for the period 4,500 1,700 1,400
Required
Prepare the consolidated statement of profit or loss for the P Group for the year ended
31 December 2014.
NFRS 11 JOINT ARRANGEMENT
Applicability
This NFRS shall be applied by all entities that are a party to a joint arrangement.

Joint arrangement
A joint arrangement is an agreement of which two or more parties have joint control. A
joint arrangement has the following characteristics:
a. The parties are bound by a contractual arrangement; and
b. The contractual arrangement gives two or more of those parties joint control of
the arrangement.
A joint arrangement is either a joint operation or joint venture. Joint arrangement should
be classified whether it is a joint operation or joint venture. The classification depends
upon the rights and obligations of the parties to the arrangement.
Joint Control
Joint control is the contractually agreed sharing of control of an arrangement, which
exits only when decision about the relevant activities require the unanimous consent of
the parties sharing control
Example:
Two parties A and B agree in their contractual arrangement to establish an arrangement.
Each has 50% of the voting rights. The contract specifies that at least 51% of the voting
rights are required to make decisions with respect to the relevant activities.
In this case, A and B have agreed that they have joint control of the arrangement as all
the relevant decisions can be made only when both A and B agree.
Example:
An arrangement has three parties: Om has 50% of the voting rights in the arrangement
and Jay and Jagdish each have 25%. The contractual arrangement between Om, Jay
and Jagdish specifies that at least 75% of the voting rights are required to make
decisions about the relevant activities of the arrangement.
In this case, Om can block any decision, it does not (solely) control the arrangement
because it needs the arrangement of either Jay or Jagdish. Om, Jay and Jagdish
collectively control the arrangement. However, there is more than one combination of
parties that can agree to reach 75% of the voting rights (i.e. either Om and Jay or Om
and Jagdish).
Joint operation
A joint operation is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets and obligations for the liabilities relating to the
arrangement. Those parties are called joint operators.
Joint venture

A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement. Those parties are called
joint venturers.
Guidance on classification of a joint arrangement

The classification of joint arrangements requires the parties to assess their rights and
obligations arising from the arrangement. When making that assessment, an entity shall
consider the following:
a. the structure of the joint arrangement
b. when the joint arrangement is structured thorough a separate vehicle:
i. the legal form of the separate vehicle
ii. the terms of the contractual arrangement
iii. when relevant, other facts and circumstances.
Structure of the joint arrangement

a. Joint arrangement not structured through a separate vehicle
A joint arrangement that is not structured through a separate vehicle is a joint operation.
b. Joint arrangement structured through a separate vehicle
A joint arrangement in which the assets and liabilities relating to the arrangement are
held in a separate vehicle can be either a joint venture or joint operation.
When the parties have structured a joint arrangement in a separate vehicle, the parties
need to assess whether the legal form of the separate vehicle, the terms of the
contractual arrangement and, when relevant, any other facts and circumstances give
them:
a. rights to the assets, and obligations for the liabilities, relating to the arrangement
(should be classified as a joint operation); or
b. rights to the net assets of the arrangement (should be classified as joint venture).
Legal form of separate vehicle

When the legal form of the separate vehicle gives the parties rights to the assets, and
obligations for the liabilities, relating to the arrangement is joint operation.
Terms of the contractual arrangement
When the terms of the contractual arrangement specify that the parties have rights to
the assets, and obligations for the liabilities, relating to the arrangement is joint
operation.
Other facts and circumstances
When the parties designed the arrangement so that:

a. its activities primarily aim to provide the parties with an output (i.e. the parties
have rights to substantially all of the economic benefits of the assets held in the
separate vehicle; and
b. it depends on the parties on a continuous basis setting the liabilities relating to
the activity conducted through the arrangement
is joint operation.
Example:
Assume that two parties structure a joint arrangement in an incorporated entity. Each
party has a 50% ownership interest in the incorporated entity. The incorporation enables
the separation of the entity from its owners and as a consequences the assets and
liabilities held in the entity are the assets and liabilities or the incorporated entity.
In such a case, the assessment of the rights and obligations conferred upon the parties
by the legal form of the separate vehicle indicates that the parties have rights to the net
assets of the arrangement and should be classified as joint venture.
Consolidated financial statements of parties to a joint arrangement

Joint operators
A joint operator shall recognize in relation to its interest in a joint operation:
a. its assets, including its share of any assets held jointly;
b. its liabilities, including its share of any liabilities incurred jointly;
c. its revenue from sale of its share of the output arising from the joint operation;
d. its share of the revenue from the sale of the output by the joint operation; and
e. its expenses, including its share of any expenses incurred jointly.
Assets, liabilities, revenues and expenses relating to its interest in a joint operation shall
be accounted for in accordance with NFRS applicable to the particular assets, liabilities,
revenues and expenses.
A party that participates in but does not have joint control of a joint operation shall
account form its interest in the arrangement same as above (as joint operators) if that
party has rights to assets and obligations for the liabilities of the joint arrangement. If
does not have rights to assets and obligations for the liabilities of the joint arrangement,
it shall account for its interest in the joint operation in accordance with the NFRS
applicable to that interest. (Paragraph 23)
Joint venturers
A joint venture shall recognize its interest in a joint venture as an investment and shall
account for that investment using equity method in accordance with NAS 28 investment
in associates and joint ventures unless the entity is exempted from applying the equity
method as specified in NAS 28.

A party that participates in but does not have joint control of a joint venture shall account
for its interest in the arrangement in accordance with NFRS 9 Financial Instruments. But
if it has a significant influence over the joint venture, shall be accounted for in
accordance with NAS 28 investment in associates and joint ventures. (Paragraph 25)
Separate financial statements

In its separate financial statements, a joint operator or joint venture shall account for its
interest in”
a. a joint operation same as accounting in consolidated financial statements
b. a joint venture in accordance with NAS 27 Separate financial statements.
In its separate financial statements, a party that participate in, but does not have joint
control of a joint arrangement shall account for its interest in:
a. a joint operation in accordance with paragraph 23
b. a joint venture in accordance with NFRS 9 and if the entity has significant
influence over joint venture than as per NAS 27.
Q.No. 14:
Assume that three parties establish an arrangement: A has 50% of the voting rights in
the arrangement, B has 30% and C has 20%. The contractual arrangement between A,
B and C specifies that at least 75% of the voting rights are required to make decisions
about the relevant activities of the arrangement.
Required:
Do A, B and C has joint control over the joint arrangement?
Q.No. 15:
Entity C and entity D operates in a telecommunication industry and entered into a joint
arrangement in order to combine their 4G access networks. The purpose of this
arrangement is to reduce operating cost for both parties, make capital infrastructure
savings and obtain economies of scale from jointly managing and maintaining a
consolidated network.
All significant decisions about strategic investing and financing activities are decided by
a simple majority of the voting rights. Entity C and entity D each have one vote in the
decision making process.
Required:
Discuss whether it is a joint arrangement or not.

Q.No. 16:
NFG Ltd is owned by numerous shareholders with the following holdings:
a. shareholder N owns 51%.
b. shareholder F owns 30%
c. the rest of the share were widely held by other investors, altogether 19%.
NFG Ltd’s articles of association require a 75% majority to approve decisions about any
of the entity’s relevant activities. They also outline that each shareholder is entitled to
vote in proportion to its respective ownership interest.
Required:
Is NFG Ltd jointly controlled?
Q.No. 17:
Entities P and Q set up a joint venture company, entity PQ by signing a joint operating
agreement. Both investors delegate one director to entity PQ’s board of directors. Both
directors have to agree unanimously on the decisions on the annual budget. The joint
operating agreement also sets up an operating committee and specifies power
delegated by the board of directors to the committee. The operating committee has the
main operational decision making responsibility. Decisions are made by simple majority
in this committee. Only entity P can appoint members to the operating committee.
Required:
Discuss if entity PQ is a joint arrangement or not.
Q.No. 18:
Hari and Ram enter into a contractual arrangement to buy a two storied music store,
which they will lease to other parties. Hari will be responsible for leasing first floor and
Ram will be responsible for leasing second floor. They can make all decisions related to
their respective floors and keep all of the income with respect to their floors. Ground
floor will be jointly managed – all decisions with respect to ground floor must be
unanimously agreed between Hari and Ram.
Required:
Discuss the applicability of NFRS 11.
Q.No. 19:
P and Q form a joint arrangement PQ (classified as joint operation). P and Q each own
50% of the capital in PQ. However, the contractual terms of the joint arrangement state
that P has the rights to all of machinery and the obligation to pay bank loan in PQ. P
and Q have rights to all other assets in PQ and obligations for all other liabilities in PQ in
proportion of their capital share (i.e. 50%).
PQ’s Balance sheet is as follows:

Liabilities Rs. Assets Rs.
Capital 150,000 Machinery 250,000
Bank Loan 75,000 Cash 50,000
Other Loan 75,000
300,000 300,000
What would you record in P’s financial statements to account for its rights and
obligations in PQ?
Q.No. 20:
AB Ltd and BC Ltd establishes a joint arrangement through a separate vehicle PQR, but
the legal form of the separate vehicle does not confer separation between the parties
and the separate vehicle itself. Thus, both the partiers have rights to the assets and
obligations for the liabilities of PQR. As neither the contractual terms nor the other facts
and circumstances indicate otherwise, it is concluded that the arrangement is a joint
operation and not a joint venture.
Both the parties own 50% of the equity interest in PQR. However, the contractual terms
of the joint arrangement state that AB Ltd has the rights to all Building No.1 owned by
PQR and the obligation to pay all of the debts owned by PQR to a lender XYZ. AB Ltd
and BC Ltd have rights to all other assets in PQR and obligations for all other liabilities
of PQR in proportion of their equity interest (i.e. 50% each).
PQR’s Balance Sheet is as follows:
Liabilities Rs. Assets Rs.
Debt owed to XYZ 240 Cash 40
Employee benefit plan obligation 100 Building 1 240
Equity 140 Building 2 200
480 480
How should AB Ltd present its interest in PQR in its financial statements?
Q.No. 21:
Two real estate companies (the parties) set up a separate vehicle (entity X) for the
purpose of acquiring and operating a shopping centre. The contractual arrangement
between the parties established joint control of the activities that are conducted in entity
X. The main feature of entity X’s legal form is that the entity, not the parties, has rights
to the assets, and obligations for the liabilities, relating to the arrangement. These
activities include the rental of the retail units, managing the car park, maintaining the
centre and its equipment, such as lifts, and building the reputation and customer base
for the centre as a whole.
The terms of the contractual arrangement are such that:
a. Entity X owns the shopping centre. The contractual arrangement does not
specify that the parties have rights to the shopping centre.

b. The parties are not liable in respect of the debts, liabilities or obligations of entity
X. If the entity X is unable to pay any of its debts or other liabilities or to
discharge its obligations to third parties, the liability of each party to any third
party will be limited to the unpaid amount of that party’s capital contribution.
c. The parties have the rights to sell or pledge their interests in entity X.
d. Each party receives a share of the income from operating the shopping centre
(which is the rental income net of the operating costs) in accordance with its
interest in entity X.
Required:
Explain how entity X should be classified in accordance with NFRS 11 Joint
Arrangements.
(Ans./Hints: It should be classified as joint venture)
CONSOLIDATED FINANCIAL STATEMENTS

NFRS 3
NFRS 10
Business combinations
A business combination is a transaction or other event in which an acquirer obtains
control of one or more business. A business is integrated set of activities and asserts
that is capable of being conducted and managed for the purpose of providing a return in
the form of dividends, lower costs or other economic benefits directly to investors or
other owners, members or participants.

Guidance /accounting treatment is discussed in two NFRS- (i) NFRS 3 Business
Combinations and (ii) NFRS 10 Consolidated Financial Statements. NFRS 3 is about
initial accounting for a new investment, setting out the rules on the calculation of
goodwill on acquisition of investment. NFRS 10 explains the on-going rules related to
procedure of preparation of consolidated financial statements.
Objectives of NFRS 3
The objective of this NFRS is to improve the relevance, reliability and comparability of
the information that a reporting entity provides in its financial statements about a
business combination and its effects. To accomplish this, this NFRS establishes
principles and requirements for how the acquirer:
a. recognizes and measures in its financial statements the identifiable assets
acquired, the liability assumed and any non-controlling interest in the acquiree.
b. recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and
c. determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.
Recognition Principle
An acquirer must recognize (separately from goodwill), identifiable assets acquired,
liabilities assumed and any non-controlling interest in the acquiree as of the acquisition
date, if they meet the definitions of assets and liabilities in the Framework for the
Preparation and Presentation of Financial Statements at the acquisition date. This might
result in recognition of assets and liabilities not previously recognized by the acquiree.
Intangible Assets
When a company acquires a subsidiary, it may identify intangible assets of the acquiree,
which were not included in the financial statements of the acquiree. If these assets are
separately identifiable and can be measured reliably, they should be included in the
consolidated financial statement as intangible assets.
Re-structuring expenses
An acquirer should not recognize any liability for the cost of restructuring a subsidiary or
for any other costs expected to be incurred as a result of the acquisition.
Reacquired rights
As a part of business combination, an acquirer may reacquire a right that it had
previously granted to the acquiree to use one or more of the acquirer’s recognized or
unrecognized assets. A reacquired right is an identifiable intangible asset that the
acquirer recognizes separately from goodwill.

Contingent liabilities
The requirements in NAS 37 do not apply in determining which contingent liabilities to
be recognized as of the acquisition date. Instead, the acquirer shall recognize as of the
acquisition date a contingent liability assumed in a business combination if it is a
present obligation that arises from past events and its fair value can be reliably
measured.
A contingent liability of acquiree which was not recognized in the financial statement of
the acquiree, the acquirer should recognize it at acquisition date even if it is not
probable that an outflow of resources will be required to settle the obligation.
Contingent assets should not be recognized.
Measurement Principle
The acquirer should measure all the identifiable assets and liabilities assumed at their
acquisition date fair value.
Income tax
As per NAS 12 Income Tax.
Employee Benefits
As per NAS 19 Employees Benefits
Contingent liabilities
At Fair value
Intangible assets
At fair value
Purchase Consideration (cost of investment)

Three type of consideration
- Immediate payment
- Deferred payment
- Contingent consideration
Immediate payment – at fair value at acquisition.
Deferred payment – at present value.
Contingent consideration – at fair value at date of acquisition
Contingent consideration after initial recognition

The fair value of contingent consideration should be reviewed at the end of each
accounting period and any increase/ decrease should be adjusted with retained
earnings in the consolidated financial statements.
Acquisition related costs

Acquisition related costs include advisory, legal, accounting fee and other expenses
incurred for the acquisition of shares. All the acquisition related costs should be
expensed in the period in which they are incurred.
The costs to issue debt or equity

The costs to issue debt or equity securities shall be recognized in accordance with NAS
32 and NFRS 9.
Non-controlling interest
Non-controlling interest (shares held by others than parents) should be recognized at
fair value at date of acquisition. Alternatively it may be shown at proportionate share by
non-controlling interest in net assets of acquiree at the acquisition date.
Non-controlling interest at subsequent reporting date

Non-controlling interest should be reported at fair value (proportionate assets) of non-
controlling interest at acquisition date after adjusting with share of NCI in increase or
decrease in net assets of acquiree after the date of acquisition to reporting date.
Recognizing and measuring goodwill or gain from a bargain purcgae
Goodwill
The acquirer shall recognize goodwill as of the acquisition date as the excess of (a)
over (b) below:
(a) the aggregate of:

i. the consideration transferred (sum of all three type)
ii. value of non-controlling interest at acquisition date
iii. in a business combination achieved in stages, the acquisition date fair
value of the acquirer’s previously held equity interest in the acquiree.
(b) the net assets of the acquiree as on the acquisition date.
The excess is goodwill. The amount of goodwill should be separately recognized

(separately from assets and liabilities). This goodwill on acquisition should not be
amortized. However the goodwill is subject to impairment loss as per NAS 27.
Goodwill at subsequent reporting date

Recognized at goodwill at date of acquisition adjusted with impairment loss if any.
Gain from bargain price

It results in gain if (b) is excess over (a). The acquirer shall recognize the resulting gain
in profit or loss on the acquisition date.

Purchase of additional equity by parents after control is achieved
A company may make a further purchase of shares after control has been achieved.
This is a transaction between the owners of the subsidiary (the controlling interest and
the non-controlling interest).
This further purchase result into change in non-controlling interest.
The difference between the purchase consideration and the reduction in the non
controlling interest is recognized in equity. Reduction in non-controlling interest is share
of net assets given up by the non-controlling interest.
Amount to be adjusted in equity is calculated as

Consideration paid for further acquisition xxx
Less:
Reduction in non-controlling interest at the date of further acquisition xxx
Non-controlling Interest
NCI for consolidated financial statement is based on the percentage remaining at the
reporting date.
If NCI is shown at proportionate net asset it can be directly calculated by applying
percentage of NCI in net assets at reporting date.
IF NCI is shown at fair value, it should be calculated as fair value at date of original
purchase and adjusted by increase in net assets since purchase to sale date and
deducting share in net assets sold at the date of further acquisition.
NCI can be calculated as

NCI at the date of acquisition (% of NCI of acquisition)
Add: Share of NCI in increase in net assets from date of acquisition to further
acquisition (% of NCI of acquisition)
Add: share of NCI in increase in net assets from date of further acquisition to reporting
date (% of NCI after further acquisition)
Less: share on net assets disposed at date of further acquisition
Valuation of Goodwill
Value of goodwill remains as originally calculated. Goodwill not calculated on further
acquisition.
Consolidated retained earnings

Parents own retained earnings
Share of parents in increase in net assets from date of acquisition to reporting date (%
of parents of acquisition)
Share of parents in increase in net assets from date of further acquisition to reporting
date (% of further acquisition)
Equity adjustments

Further adjustments as may be required as in general case
Control achieved after further acquisition

Parent acquires shares which do not result into control over investee. Control is
achieved after further acquisition. In this case, shares until control achieved remains as
simple investment and no consolidation is made. Consolidated financial statements are
prepared after control is achieved.
All consolidation procedure starts normally taking further acquisition date as date of
acquisition and percentage of parent and NCI at date after further acquisition.
Goodwill
Goodwill is calculated on consolidation. Goodwill is calculated as:
Fair value of consideration of further acquisition
Fair value on date of further acquisition of original shares
NCI on date of further acquisition
Net assets on date of further acquisition
Amount to be adjusted in equity

Fair value of original shares on date of further acquisition
Less:
Carrying amount of original shares on date of further acquisition
Foreign Subsidiary
In case of a foreign subsidiary, all adjustments are given effect into individual financial
statements. After all needed adjustments (corrections), all amounts of foreign subsidiary
are translated into currency of parent company. After translation normal consolidation
procedures are applied.
Translation of a Foreign Operation when foreign operation is consolidated (NAS 21)

1. The result and financial position of an entity whose functional currency is not
currency of a hyperinflationary (hyperinflation is where the country’s rate of
inflation is very high):
a. The assets and liabilities of the foreign operation (including comparatives) shall
be translated at closing rate. This means both monetary and non-monetary items
are translated using closing rate.
b. Income and expenses of the foreign operation (including comparatives) shall be
translated at exchange rate at date of transactions. For practical reasons,
average rate of week or month can be used for transactions during that period.

However, if exchange rate fluctuates significantly, the use of the average rate for
a period is inappropriate.
c. all arising exchange differences shall be recognized in other comprehensive
income (in reserve) and not as a gain or loss in profit or loss statement.
2. The result and financial position of an entity whose functional currency is

currency of a hyperinflationary:
a. all items (assets, liability, income, expenses, including comparatives) of foreign
operation shall be translated using closing rate at the date of most recent
statement of financial position, except that:
b. when amounts are translated into the currency of a non-hyperinflationary
economy, comparative amounts shall be those that were presented as current
year amounts in the relevant prior year financial statements.
Any goodwill arising out of acquisition of a foreign operation and fair value adjustments
to the carrying amounts of assets and liabilities arising on the acquisition of that foreign
operation is treated as an asset and liabilities of the foreign operation.
Translation procedures can be summarized as:

1. Calculate net assets of investee in foreign currency on date of acquisition and
date of consolidated financial statements.
2. Find out NCI on date of acquisition in foreign currency and translate it by rate of
date of acquisition.
3. Find out goodwill on date of acquisition in foreign currency and translate it by rate
of date of acquisition.
4. Translate again goodwill by rate on date of consolidation.
5. Difference between 3 and 4 is exchange difference on goodwill.
6. Find out exchange difference on net assets as
Opening net assets at rate at date of acquisition
Add: Increase in net assets at average rate
Total
Closing net assets at closing rate
Difference is exchange gain on net assets
7. Total exchange gain = Gain on goodwill + Gain on net assets
8. NCI on consolidation
NCI on acquisition at rate of acquisition
Add: increase in net assets at average rate
Add: share in exchange gain
9. Amount to be transferred to exchange gain reserve
Share of parent in exchange gain.
10. Consolidated retained earnings
Retained earnings of parents
Add: increase in net assets at average rate

Note:
All items at date of acquisition are translated applying rate on date of acquisition.
Disposal of subsidiary
1. Full Disposal of subsidiary
All shares of subsidiary are disposed by the parent. The parent should recognize the
proceeds and profit or loss on disposal. It should de-recognize net assets of subsidiary,
non-controlling interest and goodwill.
Profit loss on disposal should be calculated as follows:
Sales proceeds xxxx
Less:
Net assets of subsidiary xxx
Less: Non-controlling interest (xxx)
Share in net assets xxx
Add: Goodwill xxx xxxx
Profit/loss on disposal xxxx
2. Partial disposal resulting into loss of control

The parent should recognize the proceeds and profit or loss on disposal. It should de-
recognize net assets of subsidiary, non-controlling interest and goodwill.
Profit loss on disposal should be calculated as follows:
Sales proceeds xxxx
Add: Fair value of remaining investment xxxx xxxx
Less:
Net assets of subsidiary xxx
Less: Non-controlling interest (xxx)
Share in net assets xxx
Add: Goodwill xxx xxxx
Profit/loss on disposal xxxx
3. Partial disposal without loss of control

The disposal is regarded as a transaction between the owners of the subsidiary. No
profit/loss is recognized. An equity adjustment is recognized.
Equity adjustment is calculated as:
Sale proceeds xxxx
Less: Net assets sold to NCI xxxx
Q.No. 22:
P acquired 75% of the shares in S on 1st January 2007 when S had retained earnings of
Rs.15,000. The market price of S’s share just before the date of acquisition was Rs.1.60.
P values non-controlling interest at fair value. Goodwill is not impaired.

The statements of financial position of P and S at 31st December 2007 were as follows:
P (Rs.) S (Rs.)
Property, plant and equipment 60,000 50,000
Shares in S 68,000 --
128,000 50,000
Current Assets 52,000 35,000
180,000 85,000
Share capital of Re.1 100,000 50,000
Retained earnings 70,000 25,000
170,000 75,000
Current liabilities 10,000 10,000
180,000 85,000
Required:
Prepare the consolidated statement of financial position of the P group.
[Ans. Goodwill Rs.23,000; Group earnings Rs.77,500; Non-controlling interest Rs.22,500]
Q.No. 23:
The draft statements of financial position of Ping Co and Pong Co on 30 June 2008 were
as follows:
Ping Co. Pong Co.

(Rs.) (Rs.)
Assets
Non-current assets
20,000 ordinary shares in Pong Co at cost 30,000
80,000
Current assets
Inventory 3,000 8,000
Owed by Ping Co 10,000
Receivables 16,000 7,000
Cash 2,000
21,000 25,000
Total assets 101,000 65,000
Equity and Liabilities
Ordinary shares of Re.1 each 45,000 25,000
Revaluation surplus 12,000 5,000
83,000 58,000
Current liabilities
Owed to Pong Co 8,000

Trade payables 10,000 7,000
18,000 7,000
Total equity and liabilities 101,000 65,000
Ping Co acquired its investment in Pong Co on 1 July 2007 when the retained earnings
of Pong Co stood at Rs.6,000. The agreed consideration was Rs.30,000 cash and a
further Rs.10,000 on 1st July 2009. Ping Co’s cost of capital is 7%. Pong Co has an
internally-developed brand name ‘Pongo’ which was valued at Rs.5,000 on the date of
acquisition. There have been no changes in the share capital or revaluation surplus of
Pong Co since that date. At 30 June 2008 Pong Co had invoiced Ping Co for goods to
the value of Rs.2,000 and Ping Co had sent payment in full but this had not been
received by Pong Co.
There is no impairment of goodwill. It is group policy to value non-controlling interest at
full fair value. At the acquisition date, the non-controlling interest was valued at Rs.9,000.
Required:
Prepare the consolidated statement of financial position of Ping Co as at 30th June 2008.
[Ans. Goodwill Rs.6,734; Consolidated Reserve Rs.42,988; Non-controlling interest
Rs.13,400]
Q.No. 24:
P Co has owned 75% of the shares of S Co since the incorporation of that company.
During the year 31st December 2002, S Co sold goods costing Rs.16,000 to P Co at a
price of Rs.20,000 and these goods were still unsold by P Co at the end of the year.
Draft statements of financial position of each company at 31st December 2002 were:
P Co. S Co.
Assets
Non-current assets
0
Investment- 75,000 shares in S Co at 75,000 --
cost
200,000 120,00
0
Current-assets
Inventories 50,000 48,000
Trade receivable 20,000 16,000
70,000 64,000
0
Equity and Liabilities
Equity
Equity shares of Re.1 each fully paid 80,000 100,00

0
230,000 160,00
0
0
Required:
Prepare the consolidated statement of financial position of P Co at 31st December 2002.
The fair value of the non-controlling interest at acquisition was Rs.25,000.
[Ans. Consolidated earning Rs.192,000; Non-controlling interest Rs.39,000]
Q.No. 25:
P Co acquired 80% of the shares of S Co one year ago when the revenue reserves of S
Co stood at Rs.10,000. Draft statements of financial position for each company are:
P Co. S Co.
Assets
Non-current assets
Investment in S Co at cost 46,000
126,000 40,000
Current assets 40,000 30,000
Equity
145,000 52,000
During the year S Co sold goods to P Co for Rs.50,000, the profits to S Co being 20% of
selling price. At the end of the reporting period, Rs.15,000 of these good remained
unsold in the inventories of P Co. At the same date, P Co owed S Co Rs.12,000 for
goods bought and this debt is included in the trade payables of P Co and the
receivables of S Co. Non-controlling interest is valued at fair value. It was valued at
Rs.9,000 at the date of acquisition.
Required:
Prepare a draft consolidated statement of financial position of P Co.
[Ans. Goodwill Rs.15,000; Consolidated earning Rs.52,200; Non-controlling interest
Rs.10,800]

Q.No. 26:
P Co owns 60% of S Co and on 1st January 2001, S Co sells plant costing Rs.10,000 to P
Co for Rs.12,500. The companies make up accounts to 31st December 2001 and the
balances of their retained earnings at that date are:
P Co after charging depreciation 10% on plant Rs.27,000
S Co including profit on sale of plant Rs.18,000
Required:
Show the working for consolidated retained earnings.
[Ans. Consolidated retained earning Rs.36,450]
Q.No. 27:
Hinge Co acquired 80% of the ordinary shares of Singe Co on 1st April 2005. On 31st
December 2004 Singe Co’s accounts showed a share premium account of Rs.4,000 and
retained earnings of Rs.15,000. The statements of financial position of the two
companies at 31st December 2005 are set out below. Neither company has paid any
dividends during the year. Non-controlling interest should be valued at full fair value.
The market price of the subsidiary’s shares was Rs.2.50 prior to acquisition by the
parent.
Required:
You are required to prepare the consolidated statement of financial position of Hinge Co
at 31st December 2005. There has been no impairment of goodwill.
Q.No. 28:
Statements of financial position at 31st December 2005:
Hinge Singe
Co. Co.
Rs. Rs.
Assets:
Non-current assets:
16,000 ordinary shares of Re.0.50 each in Single Co. 50,000 --
82,000
Current assets 85,000 43,000
Equity:
Ordinary shares of Re.1 each 100,000
Ordinary shares of Re.0.50 each 10,000
Share premium account 7,000 4,000
147,000 53,000

[Ans. Goodwill Rs.25,000; consolidated retained earnings Rs.54,400; non-controlling

interest Rs.13,600]
P Co acquired all 50,000 of Re.1 ordinary shares in S Co for Rs.20,000 on 1st January
2001 when there was a debit balance of Rs.35,000 on S Co’s retained earnings. In the
years 2001 to 2004 S Co makes profits of Rs.40,000 in total, leaving a credit balance of
Rs.5,000 on retained earnings at 31st December 2004. P Co’s retained earnings at the
same date are Rs.70,000.
Required:
Calculate goodwill/capital reserve and consolidated retained earnings.
[Ans. Goodwill Rs.5,000; consolidated retained earnings Rs.110,000]

Q.No. 29:
P Co acquired 7% of the ordinary shares of S Co on 1 September 2005. At that date the
fair value of S Co’s non-current assets was Rs.23,000 greater than their net book value,
and the balance of retained earnings was Rs.21,000. The statements of financial
position of both companies at 31st August 2006 are given below. S Co has not
incorporated any revaluation in its books of account. Non-controlling interest is valued at
full fair value which was deemed to be Rs.18,000 at the acquisition date.
Financial statements as on 31st August 2006:

P Co. S Co.
Assets
Non-current assets
Investment in S Co at cost 51,000
114,000 28,000
Current-assets 82,000 43,000
Equity
176,000 61,000
If S Co had revalued its non-current assets at 1st September 2005, an addition of
Rs.3,000 would have been made to the depreciation charged in 2005-06.

Required:
Prepare P Co’s consolidated statements of financial position as at 31st August 2006.
[Ans. Goodwill Rs.5,000; consolidated retained earnings Rs.108,750; non-controlling

interest Rs.22,250]
Q.No. 30:
An asset is recorded in S Co’s books at its historical cost of Rs.4,000. On 1st January
2005 P Co bought 80% of S Co’s equity. Its directors attributed a fair value of Rs.3,000 to
the assets at that date. It had been depreciated for two years out of an expected life of
four years on straight line basis. There was no expected residual value. On 30th June
2005 the asset was sold for Rs.2,600. What is the profit or loss on disposal of this asset
to be recorded in S Co’s accounts and in p Co’s consolidated accounts for the year
ended 31st December 2005?
[Ans. In S Co’s – profit Rs.1,100; in consolidated – profit Rs.350]
Alpha holds investment in Beta. The draft statements of financial position of the two
entities at 30 September 2016 were as follows:
Alpha Beta
(Rs.’000) (Rs.’000)
Assets
Non-current assets
Property, plant and equipment (notes 1) 524,000 370,000
Investments (notes 1) 423,000 Nil
947,000 370,000
Current assets
Trade receivables 90,000 66,000
Cash and cash receivables 15,000 12,000
225,000 153,000
Total assets 1,172,000 523,000
Equity
Share capital (Rs.1 share) 140,000 100,000
Retained earnings (note 1) 573,000 210,000
Other component of equity (note 1) 250,000 10,000
963,000 320,000
Provisions 1,250 Nil
Long term borrowings 82,750 90,000
Deferred tax 45,000 28,000
129,000 118,000
Current liabilities

Trade and other payables 60,000 50,000
Short term borrowings 20,000 35,000
80,000 85,000
Total equity and liabilities 1,172,000 523,000
Note 1Alpha’s investment in Beta

On 1st October 2013, Alpha acquired 80 million shares in Beta by means of a share
exchange of one share in Alpha for every two shares acquired in Beta. On 1st October
2013, the market value of an Alpha share was Rs.7.
Alpha incurred directly attributable due diligence costs of Rs.3 million on acquisition of
Beta. The directors of Alpha included these acquisition costs in the carrying amount of
the investment in Beta in the draft statement of financial position of Alpha. There has
been no change to the carrying amount of this investment in Alpha’s own statement of
financial position since 1 October 2013.
On 1st October 2013, the individual financial statements of Beta showed the following
balances:
- Retained earnings Rs.150 million
- Other components of equity Rs.5 million.
The directors of Alpha carried out a fair value exercise to measure the identifiable
assets and liabilities of Beta at 1st October 2013. The following matters emerged:
- Property having a carrying amount of Rs.160 million (land component Rs.70
million, building component Rs.90 million) had an estimated fair value of Rs.200
million (land component Rs.80 million, building component Rs.120 million). The
building component of the property had an estimated useful life of 30 years at 1st
October 2013.
- Plant and equipment having a carrying amount of Rs.120 million had an
estimated fair value of Rs.140 million. The estimated remaining useful life of this
plant at 1st October 2013 was four years. None of this plant and equipment had
been disposed off between 1st October 2013 and 30th September 2016.
- On 1st October 2013, the notes to the financial statements of Beta disclosed a
contingent liability. On 1st October 2013, the fair value of this contingent liability
was reliably measured at Rs.6 million. The contingency was resolved in the year
ended 30th September 2014 and no payments were required to be made by Beta
in respect of this contingent liability.
- The fair value adjustments have not been reflected in the individual financial
statements of Beta. In the consolidated financial statements the fair value
adjustments will be regarded as temporary differences for the purposes of
computing deferred tax. The rate of deferred tax to apply to temporary
differences is 20%.
The directors of Alpha used the proportion of net assets method when measuring the
non-controlling interest in Beta in the consolidated statement of financial position.

Note 2Impairment review of goodwill on acquisition of Beta
No impairment of the goodwill on acquisition of Beta was evident when the reviews
were carried out on 30 September 2014 and 2015. On 30 September 2016, the directors
of Alpha carried out a further review and concluded that the recoverable amount of the
net assets of Beta at that date was Rs.400 million. Beta is regarded as a single cash
generating unit for the purpose of measuring goodwill impairment.
Required:
Prepare the consolidated statement of financial position of Alpha at 30th September 2016.
You need only consider the deferred tax implications of any adjustments you make
where the questions specifically refers to deferred tax.
[Ans. Goodwill Rs.37,120; Non-controlling interest Rs.70,720; consolidated earning
Rs.606,000]
Q.No. 31:
Alpha holds investment in Gamma. The draft statements of financial position of the two
entities at 30 September 2016 were as follows:
Alpha Gamma
(Rs.’000) (Rs.’000)
Assets
Non-current assets
Property, plant and equipment (notes 1) 524,000 162,000
Investments (notes 1) 423,000 Nil
947,000 162,000
Current assets
Trade receivables (note 2) 90,000 55,000
225,000 125,000
Total assets 1,172,000 287,000
Equity
Share capital (Rs.1 share) 140,000 80,000
Retained earnings (note 1) 573,000 90,000
Other component of equity (note 1) 250,000 Nil
963,000 170,000
Provisions (note 3) 1,250 Nil
Long term borrowings 82,750 48,000
129,000 78,000
Current liabilities

80,000 39,000
Note 1Alpha’s investment in Gamma
On 1st October 2015, Alpha acquired 60 million shares in Gamma by means of a cash
payment of Rs.140 million. The purchase agreement provided for an additional payment
on 31st October 2017 to the former holders of the 60 million acquired shares. The amount
of this additional payment is dependent on the financial performance of Gamma in the
two year period from 1st October 2015 to 30th September 2017. On 1st October 2015, the
fair value of this additional payment was estimated to be Rs.20 million. This estimate
was revised to Rs.24 million on 30th September 2016. Alpha has not made any entries in
its draft financial statements to record this potential additional payment.
On 1st October 2015, the individual financial statements of Gamma showed a balance on
retained earnings of Rs.75 million.
On 1st October 2015, the fair values of the net assets of Gamma were the same as their
carrying amounts with the exception of some land which had a carrying amount of Rs.50
million and a fair value of Rs.70 million. This land continued to be an asset of Gamma at
30th September 2016. The fair value adjustment has not been reflected in the individual
financial statement of Gamma. In the consolidated financial statements the fair value
adjustments will be regarded as a temporary difference for the purposes of computing
deferred tax. The rate of deferred tax to apply to temporary differences is 20%.
No impairment issues arose concerning the measurement of Gamma in the

consolidated statement of financial position of Alpha at 30th September 2016.
The directors of Alpha used the full goodwill (fair value) method when measuring the
non-controlling interest in Gamma in the consolidated statement of financial position. On
1st October 2015, the fair value of a share in Gamma was Rs.2.30.
Note 2Trade receivables and payables

Group policy is to clear intra-group balances on a given date prior to each year end. At
30th September 2016, Gamma was late in making the required payment of Rs.10 million
to Alpha. The payment was made by Gamma on29th September 2016 and received and
recovered by Alpha on 2nd October 2016.
Note 3Provisions
On 1st October 2015, Alpha completed the construction of a non-current asset with an
estimated useful life of 20 years. The costs of construction were recognized in property,
plant and equipment and depreciated appropriately. Alpha has a legal obligation to
restore the site on which non-current asset is located on 30th September 2035. The
estimated cost of restoration work at 30th September 2035 prices, is Rs.25 million. The
directors of Alpha have made a provision of Rs.1.25 million (1/20 × Rs.25 million) in the
draft statement of financial position at 30th September 2016. An appropriate annual

discount rate to use in any relevant calculations is 6% and at this rate the present value
of Rs.1 payable in 20 years is Re.0.312.
Required:
You need only consider the deferred tax implications of any adjustments you make
where the questions specifically refers to deferred tax.
[Ans. Goodwill Rs.35,000; Non-controlling interest Rs.49,750, Consolidated revenue
Rs.580,642]
Q.No. 32:
Alpha’s investment includes one subsidiary Beta. The draft statements of financial
position of the two entities at 30th September 2015 were as follows:
Alpha Beta
(Rs.’000) (Rs.’000)
Assets
Non-current assets:
Property, plant and equipment (note 1) 380,000 355,000
Intangible assets (note 1) 80,000 40,000
Investments (note 1 and 3) 497,000 Nil
957,000 395,000
Current assets
Inventories (note 4) 100,000 70,000
Trade receivables (note 5) 80,000 66,000
Cash and cash equivalent (note 5) 10,000 15,000
190,000 151,000
Total assets 1,147,000 546,000
Equity
Share capital of Rs.0.50 150,000 200,000
Retained earnings (notes 1) 498,000 186,000
Other component of equity (notes 1 and 3) 295,000 10,000
Total equity 943,000 396,000
Long term borrowings (note 7) 60,000 50,000
Total non-current liabilities 129,000 80,000
Current liabilities
Trade and other payables (note 5) 50,000 55,000
Total current liabilities 75,000 70,000

Note 1Alpha’s investment in Beta
On 1st October 2012, Alpha acquired 300 million shares in Beta by means of a share
exchange of one share in Alpha for every two shares acquired in Beta. On 1st October
2012, the market value of an Alpha share was Rs.2.40. Alpha incurred directly
attributable costs of Rs.2 million on acquisition of Beta. These costs comprised:
- Rs.0.80 million –cost of issuing own shares, credited to Alpha’s share premium
account within other component of equity.
- Rs.1.20 million due diligence costs –included in the carrying amount of the
investment in Beta in Alpha’s own statement of financial position.
There has been no change to the carrying amount of this investment in Alpha’s own
statement of financial position since 1st October 2012.
On 1st October 2012, the individual financial statements of Beta showed the following
reserves balances:
- Other component of equity Rs.10 million
assets and liabilities of Beta at 1st October 2012. The following matters emerged:
- Plant and equipment having a carrying amount of Rs.295 million had an
estimated value market value of Rs.340 million. The estimated remaining useful
economic life of this plant at 1st October 2012 was five years. None of this plant
and equipment had been disposed between 1st October 2012 and 30th September
2015.
- An in-process research and development project existed at 1st October 2012 but
did not meet the recognition criteria of NAS 38- Intangible assets. The fair value
of the research and development project at 1st October 2012 was Rs.20 million.
The project started to generate economic benefits on 1st October 2013 over an
estimated period of four years.
The above two fair value adjustments have not been reflected in the individual financial
statements of Beta. In the consolidated financial statements, these fair value
adjustments will be regarded as temporary differences for the purpose of computing
deferred tax. The rate of deferred tax to apply to temporary differences is 20%.
Alpha uses the proportion of net assets method to calculate non-controlling interest in
Beta.
Note 2Impairment review of goodwill of acquisition of Beta

No impairment of the goodwill on acquisition of Beta was evident when reviews were
carried out on 30th September 2013 and 2014. On 30th September 2015, the directors of
Alpha concluded that the recoverable amount of the net assets (including the goodwill)
of Beta at that date was Rs.450 million. Beta is regarded as a single cash generating
unit for the purpose of measuring goodwill impairment.

Note 3Other investments
Apart from its investment in Beta, the investments of Alpha included in the statement of
financial position at 30th September 2015 are all financial assets which Alpha measure at
fair value through other comprehensive income. These other investments are correctly
measured in accordance with NFRS -9 financial instruments
Note 4intra-group sales of inventories

The inventories of Alpha at 30th September 2015 included components purchased from
Beta in the last three months of the financial year at a cost of Rs.20 million. Beta
supplied these good s at a mark-up of 25% on the cost to Beta.
Note 5Trade receivables and payables

Group policy is to clear intra-group balances on a given date prior to each year end. All
group companies had complied with this policy at 30th September 2015, so at that date
there were no outstanding intra-group balances.
Note 6Provisions
On 30th September, Alpha finalized the construction of an energy generating facility. The
facility has an expected useful economic life of 25 years and Alpha has a legal
requirement to decommission the facility at the end of its estimated useful life. The
directors of Alpha estimated the cost of this decommissioning to be Rs.34 million based
on prices prevailing at 30th September 2040. At an appropriate discount rate the present
value of the cost of decommissioning the facility is Rs.10 million. The directors of Alpha
made a provision of Rs.34 million and charged this amount as an operating cost in the
financial statements of Alpha for the year ended 30th September 2015.
Note 7Long term borrowings

On 1st October 2014, Alpha issued 40 million Rs.1 bonds at par. The cost of issuing the
bonds was Rs.1 million and this cost was charged as a finance cost for the year ended
30th September 2015. No interest is payable on the bonds but they are redeemable at a
large premium which makes their effective finance cost 8% per annum. The bonds are
included at a carrying amount of Rs.40 million in the statement of financial position of
Alpha at 30th September 2015.
Required:
You need only consider deferred tax implications of any adjustments you make where
the question specifically refers to deferred tax.
[Ans. Goodwill Rs.26,700; Non-controlling interest Rs.103,600; Consolidated earning
Rs.506180]

Q.No. 33:
On 1st October 1, 2005, Emerald Ltd acquired 80% share capital of Pearl Ltd and
immediately paid cash of Rs.23 per share. At this date, the market value of share of
Pearl Ltd was Rs.19 per share. The summarized statements of financial position of both
companies as on December 31, 2005 are given below:
Rs.’ 000
Particulars Emerald Pearl Ltd.
Ltd.
Non- current assets:
Investment:
Pearl Ltd 9,200
Diamond Ltd 500 9,700
Financial assets 10,000
54,800 11,000
Current assets:
Inventory 10,000 2,000
Trade receivables 3,000 800
Cash and bank balances 2,200 500
15,200 3,300
Equity
Share capital of Rs.10 each 30,000 5,000
Reserves 30,000 7,500
60,000 12,500
a. At the date of acquisition, Emerald Ltd also offered to pay a further amount in
cash on December 31, 2016 if Pearl Ltd returns to profitable by that date. The
value of contingent consideration was Rs.1 million at the date of acquisition and
reduced to Rs.0.80 million on reporting date due to losses in current year. This
consideration has not been recorded yet.
b. At the beginning of the year, January 1, 2015, retained reserve of Emerald Ltd
and Pearl Ltd were as follows:
Emerald Ltd (Rs. in ‘000) 27,500
Pearl Ltd (Rs. in ‘000) 10,000
c. All revenues and expenses of Pearl Ltd deemed to accrue evenly over the year.
d. On June 1, 2015, Emerald Ltd and Sapphire Ltd (an unrelated company) set up a
new company Diamond Ltd. Diamond Ltd issued 100,000 shares of Rs.10 per
share (at par) for cash to both Emerald Ltd and Sapphire Ltd in equal proportion
i.e. 50,000 shares to each company. Diamond Ltd reported a profit of Rs.400,000

for the year ended 31st December 2015. Emerald Ltd and Sapphire Ltd have
contractual agreement that they will jointly make all major operational and
financial decisions concerning Diamond Ltd.
e. Emerald Ltd recorded the investment of 50,000 shares in Diamond Ltd at par
Rs.10 each in its financial statements.
f. On January 1, 2015, Emerald Ltd issued 5 years loan of Rs.10 million to a hospital
for construction of wards. The company agreed to charge interest at subsidized
rate of 2% per annum instead of 8% per annum market rate. The interest will be
received in arrears on January 1 of every year. Emerald Ltd treated this project a
CSR (Corporate Social Responsibility) activity. This amount of loan has been
recorded as financial assets in the books of Emerald Ltd.
g. It is Group’s policy to value non-controlling interest at fair value at the date of
acquisition and use equity method of accounting for its joint ventures and
associates.
Required:
Prepare consolidated statement of financial position for the Emerald Group as at 31st
December 2015 as per relevant International Financial Reporting Standards and NAS.
[Ans. Capital Reserve Rs.1,025; Group retained earning Rs.29,142 and non-controlling
interest Rs.1,775]
Q.No. 34:
Alpha holds investment in Beta. The statements of financial position of the two entities
as on 31st March 2016 were as follows:
Alpha Beta
(Rs.’000) (Rs.’000)
Assets
Non-current assets:
Investments (notes 1 and 2) 139,000 15,000
274,000 115,000
Current assets:
107,000 70,000
Total assets 381,000 185,000
Equity
Share capital (Rs.1 shares) 120,000 80,000
Retained earning 163,000 44,000
283,000 124,000
Non- current liabilities

Long- term borrowings (note 3) 30,000 25,000
62,000 33,000
Current liabilities
Short-term borrowings 6,000 6,000
36,000 28,000
Note 1Alpha investment in Beta

On 1st April 2015 Alpha purchased 60 million shares in Beta for an immediate cash
payment of Rs.100 million. The retained earnings of Beta at 1st April 2015 were Rs.35
million.
It is the group policy to value the non-controlling interest in subsidiary at the date of
acquisition at fair value. The fair value of an equity share in Beta at 1st April 2015 was
estimated at Rs.1.70. This fair value is considered by the directors of Alpha to be an
appropriate basis for measuring the non-controlling interest in Beta on 1st April 2015.
The terms of business combination provide for the payment of an additional Rs.15
million to the former shareholders of Beta on 31st March 2017. On 1st April 2015 Alpha’s
credit rating was such that it could have borrowed funds at an annual finance cost of 8%.
The statement of financial position of Alpha includes this investment at its original cost
of Rs.100 million.
assets and liabilities at 1st April 2015. The following matters emerged:
- A property having a carrying amount of Rs.40 million (depreciable amount Rs.24
million) had a fair value of Rs.60 million (depreciable amount Rs.36 million). The
estimated future useful life of the depreciable amount of the property at 1st April
2015 was 30 years.
- Plant and equipment having a carrying amount of Rs.51 million had a fair value of
Rs.54 million. The estimated future useful life of the plant at 1st April 2015 was
three years.
The fair value adjustments have not been reflected in the individual financial statement
of Beta. In the consolidated financial statements the fair value adjustment will be
regarded as temporary differences for the purpose of computing deferred tax. The rate
of tax to apply to temporary difference is 30%.
Note 2 Beta’s investment

Beta’s investment is a strategic equity investment in Sigma – key supplier. This
investment does not give Beta control or significant influence over Sigma. Sigma is not
a joint arrangement for Beta. The directors made an irrevocable election at initial
recognition of this investment to recognize all changes in fair value through other

comprehensive income. On 1st April 2015, was included in the financial statement of
Beta at its fair value of Rs.15 million.
The fair value of the investment in Sigma on 31st March 2016 was Rs.17 million. In the
tax jurisdiction in which Beta is located, unrealized profits on the revaluation of equity
investment are not subject to current tax. Any such profits are taxed only when the
investment is sold.
Note 3 Loan Note

On 1st April 2015 Alpha issued a Rs.30 million 6% convertible loan note at par. The loan
note is redeemable at a premium of 10% on 31st March 2019, or it may be converted into
ordinary shares on the basis of 50 shares for each Rs.100 of loan note at the option of
the holder. The interest (coupon) rate for an equivalent loan note without the conversion
rights would have been 10%. In the draft financial statements Alpha has paid and
charged interest of Rs.1,800,000 and shown the loan note at Rs.30 million in the
statement of financial position.
The present value of Rs.1 receivable at the end of each year, based on discount rates
of 6% and 10% can be taken as:
End of year 6% 10%
1 0.94 0.91
2 0.89 0.83
3 0.84 0.75
4 0.79 0.68
Note 4 Environmental provision

The draft financial statements contain an accumulating provision for the cost of restoring
(landscaping) the site of a quarry that is being operated by Alpha. The result of
environmental audit has concluded that the provisions has been calculated on the
wrong basis and is materially underprovided for.
A firm of environmental consultants has summarized the required provision:
Current Required
provision provision
(Rs.’000) (Rs.’000)
Statement of profit or loss charge – year to 31 March 2016 1,800
st
2,450
Statement of financial position liability – at 31 March 2016 12,000
st
21,500
Required:
Prepare the consolidated statement of financial position of Alpha at 31st March 2016.
Q.No. 35:
Alpha holds investment in Beta. The statements of financial position of the two entities
at 30th September 2011 were as follows:
Alpha Beta
(Rs.’000) (Rs.’000)

Assets
Non-current assets:
Investments:
in Beta 180,000 Nil
- in Sigma 15,000 Nil
- Others 52,000 Nil
457,000 165,000
Current assets
Cash and cash equivalents 12,000 7,000
132,000 81,000
Total assets 589,000 246,000
Equity
Share capital (shares of Rs.1) 180,000 100,000
Other components of equity 90,000 5,000
453,000 172,000
Contingent consideration (note 1) 20,000 Nil
Long-term borrowings (note 50,000 35,000
85,000 44,000
Current liabilities
51,000 30,000
Note 1 Alpha’s investment in Beta

On 1 April 2010, Alpha acquired 80 million shares of Beta by means of a share
st
exchange. Alpha issued one share for every two shares acquired in Beta. On 1st April
2010, the market value of an Alpha share was Rs.4 and the market value of a Beta
share was Rs.1.80. The terms of business combination provide for an additional cash
payment to the former shareholders of Beta on 30th June 2012 based on its post-
acquisition financial performance in the first two years since acquisition. The fair value
of this additional payment was Rs.20 million on 1st April 2010. The post acquisition
performance of Beta was such that the fair value of this payment had increased to Rs.22
million by 30th September 2011. The investment in Beta and non-current liabilities of
Alpha at 30th September 2010 include Rs.20 million in respect of the additional payment
due to be made on 30th June 2012.

On 1st April 2010, the individual financial statements of Beta showed the following
reserves balances:
- Other component of equity Rs.3 million
The directors of Alpha carried a fair value exercise to measure the identifiable assets
and liabilities of Beta at 1st April 2010. The following matters emerged:
- A property, having a carrying amount of Rs.50 million (depreciable amount Rs.30
million) had a fair value of Rs.70 million (depreciable amount Rs.33 million). The
estimated future useful life of the depreciable amount of the property at 1st April
2010 was 30 years. This property was still held by Beta at 30th September 2011.
- Plant and equipment having a carrying amount of Rs.60 million, had an estimated
market value of Rs.64 million. The estimated future life of the plant at 1st April
2010 was four years. This plant was still held by Beta at 30th September 2011.
- Inventory having a carrying amount of Rs.30 million had at estimated market
value of Rs.31 million. This entire inventory had been sold since 1st April 2010.
The fair value adjustments have not been reflected in the individual financial statements
of Beta. In the consolidated financial statements the fair value adjustments will be
regarded as temporary differences for the purpose of computing deferred tax. The rate
of tax to apply to temporary difference is 20%.
It is the group policy to value non-controlling interest in subsidiaries at the date of

acquisition at fair value. The fair value of an equity share in Beta at 1st April 2010 can be
used for this purpose.
Note 2 Impairment review

On 1 April 2010 the directors of Alpha identified that Beta comprised five cash
st
generating units and allocated goodwill arising on acquisition equally across each unit.
No impairment of goodwill was apparent in the year ended 30th September 2010.
During the year ended 30th September 2011 four of the five cash generating unit
performed very satisfactory and no impairment of the goodwill allocated to these units
had occurred. However the performance of the other unit was below expectation. During
the impairment review carried out at 30th September 2011 assets (excluding goodwill)
having a carrying amount in the consolidated financial statements of Rs.50 million were
allocated to this unit. The recoverable amount of these assets was estimated at Rs.52
million.
Note 3 Alpha’s investment in Sigma

Alpha investment in Sigma does not give Alpha sole control, joint control or significant
influence. The investment was purchased on 1st January 2011 for Rs.15 million. The
investment was classified as fair value through other comprehensive income. The fair
value of the investment in Sigma on 30th September 2011 was Rs.16 million. In the tax
jurisdiction in which Alpha is located, unrealized profits on the revaluation of equity

investments are not subject to current tax. Any such profits are taxed only when the
investment is sold.
Note 4 Employees share option scheme

On 1 October 2009 Alpha granted 5,000 share options to 1,000 key employees. The
st
options are due to vest on 30th September 2013 provided the employees remain in
employment at 30th September 2013. On 1st October 2009 the directors of Alpha
estimated that 90% of the key employees would satisfy the vesting condition. Actual
employee turnover was such that this estimate was revised to 92% on 30th September
2010 and 93% on 30th September 2011.
At 1st October 2009 the fair value of each share option was estimated to be Rs.1.20. The
estimate was revised to Rs.1.25 on 30th September 2010 and Rs.1.28 on 30th September
2011. You can ignore the deferred tax implications of the information in this note.
Alpha correctly recognized this transaction in the financial statements for the year
ended 30th September 2010. However, they have made no additional adjustments in the
financial statements for the year ended 30th September 2011.
Note 5 Modification of Vehicles

On 1st January 2011 legislation was passed requiring Alpha to carry out modifications to
its motor vehicles to enable harmful emissions to be reduced. The modifications should
have been completed by 30th June 2011 at an estimated cost to Alpha of Rs.3 million. In
fact by 30th September 2011 none of the vehicles had been modified although they
continued to be used. It is likely that Alpha will be fined Rs.500,000 per month for the
illegal use of the vehicles. The directors of Alpha are uncertain exactly when they will
carry out the modifications but they intend to do so sometime during the year ended 30th
September 2012. They expect that a fine will become payable very shortly as legal
action has commenced against Alpha
Required
Consolidated statement of financial position as at 30th September 2011.
Q.No. 36:
Epsilon prepares consolidated financial statements to 30th September each year. On 1st
January 2004, Epsilon acquired 75% of the equity shares of Kappa and gained control of
Kappa. Kappa has 12 million equity shares in issue. Details of purchase considerations
are as follows:
- On 1st January 2004, Epsilon issued two shares for every three shares acquired in
Kappa. On 1st January 2004, the market value of an equity share in Epsilon was
Rs.6.50 and the market value of an equity shares in Kappa was Rs.6.
- On 31st December 2004, Epsilon will make a cash payment of Rs.7.15 million to
the former shareholders of Kappa who sold their shares to Epsilon on 1st January
2004. On 1st January 2004, Epsilon would have needed to pay interest at an
annual rate of 10% on borrowings.

- On 31st December 2005, Epsilon may make a cash payment of 30 million to the
former shareholders of Kappa who sold their shares to Epsilon on 1st January
2004. This payment is contingent upon the revenue of Epsilon growing by 15%
over the two year period from 1st January 2004 to 31st December 2005. On 1st
January 2004, the fair value of the contingent consideration was Rs.25 million. On
30th September 2004, the fair value of the contingent consideration was Rs.22
million.
On 1 January 2004, the carrying amounts of the identifiable net assets of Kappa in the
st
books of that company totaled Rs.60 million. On 1st January 2004, the fair value of these
net assets totaled Rs.70 million. The rate of deferred tax to apply to temporary
differences is 20%.
During the 9 months ended 30th September 2004, Kappa had a poorer than expected
operating performances. Therefore on 30th September 2004, it was necessary for
Epsilon to recognize an impairment of the goodwill arising on acquisition of Kappa,
amounting to 10% of its total computed value.
Required:
Compute the impairment of goodwill and explain how this impairment should be
recognized in the consolidated financial statements of Epsilon. You should do this under
both the methods permitted by NFRS 3 for the initial computation of the non-controlling
interest in Kappa at the date of acquisition.
Q.No. 37:
P acquired 80% of S 3 years ago. Goodwill on acquisition was Rs.80,000. The
recoverable amount of goodwill at the year end was estimated to be Rs.65,000. This
was the first time that the recoverable amount of goodwill had fallen below the initial
recognition.
S sells goods to P. The total sales in the year were Rs.100,000. At the year end P
retains inventory from S which had cost to S Rs.30,000 but was in P’s books at
Rs.35,000.
The distribution costs of S include depreciation of an asset which had been subject to a
fair value increase of Rs.100,000 on acquisition. The asset is being written off on a
straight line basis over 10 years.
The statements of profit or loss for the year ending 31st December 2011 are as follows:
P S
(Rs.’000) (Rs.’000)
Revenue 1,000 800
Cost of sales (400) (250)
Gross Profit 600 550
Distribution costs (120) (75)
Administrative costs (80) (20)
400 455
Dividend from S 80

Finance costs (25) (15)
Tax (45) (40)
Profit for the period 410 400
Prepare the consolidated income statement for the year ended 31st December 2011.
Q.No. 38:
Entity P acquired 80% of S on 1st October 2011. The statements of profit or loss for the
year ended 31st December 2011 are as follows:
P S
(Rs.’000) (Rs.’000)
Revenue 400 260
Cost of sales (200) (60)
Gross profit 200 200
Other income 20 --
Distribution costs (50) (30)
Administrative costs (90) (95)
Income tax (30) (15)
Profit for the period 50 60
Prepare the consolidated income statement for the year ended 31st December 2011.
Q.No. 39:
The draft statement of profit or loss and summarized statements of changes in equity of
Alpha and Beta for the year ended 31st March 2018 are given below:
Alpha Beta
(Rs.’000) (Rs.’000)
Revenue 150,000 100,000
Cost of sales (110,000) (78,000)
Gross profit 40,000 22,000
Distribution costs (7,000) (6,000)
Administrative costs (8,000) (7,000)
Profit from operations 25,000 9,000
Investment income 5,000 500
Finance costs (4,000) (3,000)
Profit before tax 26,000 6,500
Income tax expenses (7,000) (1,800)
Profit for the year 19,000 4,700
Summarized statements in changes in equity:
Balance on 1st April 2017 122,000 91,000

Dividends paid on 1st January 2018 (6,500) (3,000)
Balance on 31st March 2018 134,500 92,700
Note 1 Purchase of shares in Beta

On 1 October 2015 Alpha purchased an 80% equity shareholding in Beta. The equity of
st
Beta as shown in its own financial statements at that date was Rs.32 million. The non-
controlling interest is measured at its proportionate share of net assets.
Alpha issued 20 million shares to the former shareholders of Beta in exchange for the
shares purchased. The market value of Alpha’s shares on 1st October 2015 was Rs.2
At the date of acquisition, Beta owned a property with a carrying amount of Rs.28 million
and a market value of Rs.35 million. Beta had purchased the property for Rs.30 million
on 1st October 2010 and estimated that the depreciable amount of the property (the
building element) was Rs.16 million at 1st October 2010. The estimated useful life of the
building at 1st October 2010 was 40 years.
The directors of Alpha estimated that the building element of the property comprised of
50% of its market value at 1st October 2015. They considered that the original estimate of
the total useful life of the building elements (40 years from 1st October 2010) was still
valid.
At 1st October 2015, the plant of Beta had a carrying amount of Rs.12 million and market
value of Rs.15 million. The plant is depreciated on a straight line basis and the
remaining useful life of the plant at 1st October 2015 was estimated at five years.
All depreciation is charged on a monthly basis and presented in cost of sales. No
adjustments were made to the individual financial statements of Beta to reflect the
information given in this note.
Note 2 Impairment reviews

An impairment review at 31st March 2018 indicated that 25% of the goodwill on
acquisition of Beta needed to be written off. Apart from this, no other impairment of
goodwill on acquisition of Beta have been required.
All impairments are charged to cost of sales.
Note 3 Inter-company sales

Alpha supplied products used by Beta during the year ended 31st March 2018 were as
follows (all sales were made at a mark up of 25% on cost):
- Sales to Beta Rs.12.5 million
At 31st March 2018 and 31st March 2017 the inventories of Beta included the following
amounts in respect of goods purchased from Alpha:
Amount of inventory at (Rs.’000)
31st March 2018 31st March 2017
Beta Rs.3,000 Rs.1,600
Required:

Prepare the consolidated statement of profit or loss for Alpha for the year ended 31st
March 2018.
Q.No. 40:
The statements of profit and loss and other comprehensive income and summarized
statements of changes in equity of Alpha and Beta for the year ended 31st March 2018
are given below:
Statements of profit or loss or other comprehensive income
Alpha Beta
(Rs.’000) (Rs.’000)
Revenue 470,000 434,000
Cost of sales (256,000) (218,000)
Gross profit 214,000 216,000
Distribution costs (18,000) (17,000)
Administrative expenses (19,000) (16,000)
Investment income 37,300 Nil
Finance costs (68,000) (65,000)
Profit /(Loss) before tax 146,300 118,000
Income tax expenses (41,000) (33,000)
Profit / (Loss) for the year 105,300 85,000
Summarized statements of changes in equity
Balance at 1st April 2017 540,000 390,000
Comprehensive income for the year 105,300 85,000
Dividends paid on 31 December 2017
st
(52,000) (40,000)
Balance at 31st March 2018 593,300 435,000
Note 1Purchase of shares in Beta

On 1st October 2016 Alpha purchased 75 million of the 100 million equity shares in Beta.
Details of the shares purchase were as follows:
i. Alpha issued two new shares for every three shares acquired in Beta. On 1st
October 2016 the market value of an Alpha share was Rs.6 and the market value
of Beta share was Rs.3.20.
ii. Alpha agreed to make additional cash payment of Rs.1 for every share acquired
in Beta to be paid on 30th September 2018. This payment is contingent on the
profits of Beta exceeding a cumulative target in the two year period ending 30th
September 2018. The fair value of this contingent payment was Rs.55 million on
1st October 2016. The fair value had risen to Rs.58 million by 31st March 2017 and
to Rs.64 million by 31st March 2018. The directors of Alpha correctly accounted for
this contingent consideration in its financial statements for the year ended 31st
March 2017 but no changes have been made to the carrying amount of the
contingent consideration since 31st March 2017.
iii. Alpha incurred legal and professional costs of Rs.5 million connected with the
acquisition; Rs.2.4 million of these costs related to the cost of issuing shares.

Alpha correctly accounted for these acquisition costs in its financial statements
for the year ended 31st March 2017.
Alpha decided to value the non-controlling interest in Beta at the date of acquisition fair
value in its consolidated financial statements. The market value of a Beta share at the
date was used to calculate the fair value of non-controlling interest.
The equity of Beta as shown in its financial statements at 1st October 2016 was Rs.300
million. At that date the property, plant and equipment (PPE) of Beta had a carrying
amount of Rs.240 million and fair value of Rs.280 million.
The estimated future useful life of the PPE was four years from 1st October 2016. No
disposals of PPE occurred between 1st October 2016 and 31st March 2017.
On 1st October 2016 the directors estimated that the internally generated brand name of
Beta had a fair value of Rs.30 million and a future useful life of 30 years.
Note 2 Impairment review

On 31st March 2017 and 31st March 2018 the goodwill on consolidation of Beta was
reviewed for impairment. No impairment of the goodwill was necessary as a result of the
review on 31st March 2017. Beta is regarded as a single cash generating unit for
impairment purposes and at 31st March 2018 its recoverable amount was estimated as
Rs.550 million. Any impairment of goodwill is charged to cost of sales.
Note 3 Inter-company sales

Beta supplies goods to Alpha. Sales of the products to Alpha during the year ended 31st
March 2018 were as follows (all sales were made at a mark up of 33 1/3 % on cost):
- Sales to Alpha Rs.18 million.
At 31st March 2018 and 31st March 2017 the inventories of Alpha included the following
amounts in respect of goods purchased from Beta.
Amounts in inventory at (Rs.’000)
31st March 2018 31st March 2017
Alpha 3,600 2,100
Required:
Prepare the consolidated statement of profit or loss and other comprehensive income of
Alpha for the year ended 31st March 2018.
Q.No. 41:
On 1st July 2008 Fast acquired 60,000 of the 100,000 shares in Slow, its only subsidiary.
The draft statements of profit or loss and other comprehensive income of both
companies at 31st December 2008 are shown below:
Fast Slow
(Rs.’000 (Rs.’000)

)
Revenue 43,000 26,000
Cost of sales (28,000) (18,000)
Other income-dividend from Slow 2,000 --
Distribution costs (2,000) (800)
Administrative costs (4,000) (2,200)
Finance costs (500) (300)
Profit before tax 10,500 4,700
Income tax expenses (1,400) (900)
Other comprehensive income:
Gain one property revaluation (note 1) -- 2,000
Investment in equity instrument 200 --
Total comprehensive income for the year 9,300 5,800
Additional information
1. At the date of acquisition the fair value of Slow’s assets were equal to their
carrying amounts with the exception of a building which had a fair value Rs.1
million excess of its carrying amount. At the date of acquisition the building had a
remaining useful life of 20 years. Building depreciation is charged to
administrative expenses. The building was revalued again at 31st December 2008
and its fair value had increased by additional Rs.1 million.
2. Sales from Fast to Slow were Rs.6 million during the post acquisition period. Fast
marks up all sales by 20%.
3. Despite the property revaluation, Fast has concluded that goodwill in Slow has
been impaired by Rs.500,000.
4. It is Fast’s policy to value the non-controlling interest at full (fair) value.
5. Income and expenses can be assumed to have arisen evenly throughout the
year.
Prepare the consolidated statement of profit or loss and other comprehensive income
for the year ended 31st December 2008.
Q.No. 42:
H has owned 10% shares of S for several years. H bought a further 60% shares of S on
30th September 2001. Statements of profit or loss for the year ended 31st December 2001:
H S
(Rs.’000) (Rs.’000)
Revenue 10,000 6,000
Cost of sales (7,000) (4,800)
Expenses (1,000) (300)

Profit before tax 2,000 900
Profit after tax 1,500 740
Prepare consolidated profit or loss statement and comprehensive income.
Q.No. 43:
H has owned 60% of shares of S for several years. H bought a further 10% shares on
30th September 2001. Statements of profit or loss for the year ended 31st December 2001:
H S
(Rs.’000) (Rs.’000)
Revenue 10,000 6,000
Cost of sales (7,000) (4,800)
Expenses (1,000) (300)
Profit before tax 2,000 900
Profit after tax 1,500 740
Prepare consolidated profit or loss statement and comprehensive income.
Q.No. 44:
H Ltd bought 60% shares of s Ltd on 1st January 2010 for Rs.540 million. The balance on
S retained earnings was Rs.150 million. H again bought 10% shares of S on 1st January
2011 for Rs.45 million. The balance of retained earnings of S as on that date was Rs.300
million.
Statement of financial position of H and S as at 31st December 2011

H S
(Rs.million) (Rs.million)
Assets:
Investment in S 585 --
Other assets 2,500 650
3,085 650
Equity
Share Capital 100 100
Retained earning 2,485 500
2,585 600
Current liabilities 500 50
3,085 650
Prepare a consolidated statement of financial position as at 31st December 2011.

Q.No. 45:
Company H bought shares in company S as follows:
Cost (Rs.) Retained earning
(Rs.)
1st January 2001 120,000 shares 600,000 500,000
30 June 2004
th
40,000 shares 270,000 800,000
No fair value adjustments arose on the acquisition. Company S has issued share capital
of 200,000 ordinary shares of Rs.1.
What was the amount of goodwill arising on the acquisition?
Q.No. 46:
Company P bought shares in company T as follows:
Cost (Rs.) Retained earning
(Rs.)
1 January 2001
st
40,000 shares 180,000 500,000
30 June 2004
th
120,000 shares 270,000 800,000
No fair value adjustments arose on the acquisition. Company T had issued capital of
200,000 ordinary shares of Rs.1 and retained profits at 31st December 2004 were
Rs.900,000. The fair value of its initial investment in 40,000 shares of T was Rs.250,000
at 30th June 2004.
What is the value of goodwill on acquisition?
Q.No. 47:
H bought 80% shares of S (a company registered in USA) on 31st December 2014 when
S had retained earnings of $ 11,000.
Statement of financial position at 31st December 2015
H (Rs.) S ($)
Investment in S 1,125,000 --
Current assets 1,500,000 14,000
3,425,000 24,000
Share capital 1,000,000 5,000
Retained earnings 2,025,000 17,000
3,025,000 22,000
3,425,000 24,000
Opening balance of retained earnings 1,425,000 11,000
Add: retained earnings for the year 600,000 6,000
Closing balance of retained earnings 2,025,000 17,000
The following exchange rates are given:

31st December 2014 Rs.75 per $

Average for the year 2015 Rs.80 per $
31st December 2015 Rs.85 per $
Prepare a consolidated statement of financial position at 31st December 2015.
Q.No. 48:
On 1st January 2009, H Ltd acquired 90% shares of S Ltd. for Rs.120 million. The fair
value of net assets of S Ltd at that date was Rs.111 million. The fair value of NCI at 1st
January 2009 was Rs.9 million. H Ltd recognized full value of goodwill of Rs.18 million.
H Ltd subsequently sold the shares on 31st December 2009 for Rs.197 million. The
carrying value of net assets of S Ltd at 31st December 2009 was Rs.124 million.
Calculate the amount of profit or loss to be recognized in profit or loss statement.
Q.No. 49:
The following information has been given from draft financial statements of GC Holding
Ltd. (GCHL) and its investee companies, Unite Trade Ltd (UTL) and GC Overseas Ltd.
(GCOL) for the year ended 31st December 2015.
(In million)
GCHL UTL GCOL
(Rs.) (Rs.) ($|)
Sales 6,000 4,800 52
Cost of sales (3,200) (3,950) (32)
Gross profit 2,800 850 20
Operating cost (855) (595) (9)
Profit from operation 1,945 255 11
Investment income 1,400 26 6
Finance cost (233) (84) (2)
Profit before tax 3,112 197 15
Tax (568) (41) (3)
Profit after tax 2,544 156 12
Share capital (Rs.100 each/ $ 10 1,800 350 5

each)
Retained earnings:
As at 1st January 2015 2,451 459 27
Profit for the year 2,544 156 12
Dividend paid* (300) (120) (8)
Shareholder’s equity 6,495 845 36
* final dividend for the year ended 31st December 2014 paid in February 2015.

a. GCHL bought 2.625 million shares in UTL on 1st April 2013 for Rs.1,200 million
when UTL’s retained earnings were Rs.240 million. At subsequent date the fair
value of UTL’s net assets was equal to their carrying amount. There have been
no changes in the share capital since acquisition. The fair value of non-
controlling interest on acquisition was Rs.340 million. Prior to 1st January 2015,
impairments amounting to Rs.250 million had been recorded in UTL’s goodwill.
b. On 1st July 2015, GCHL sold 1.575 million shares in UTL for Rs.1,950 million. The
fair value of GCHL’s remaining shares on this date was Rs.1,300 million.
c. On 1st April 2015, GCHL bought 400,000 shares in GCOL, a company y located
overseas for $ 50 million. Professional fees relating to the acquisition were
Rs.100 million and these have been added to the cost of the investment. On 1st
April 2015, the fair value of GCOL’s net assets was equal to their carrying amount
except a building whose fair value exceeded the carrying amount by $ 8 million.
The building had a remaining useful life of 8 years at the date of acquisition. The
market price of a share of GCOL on acquisition was $ 120.
d. Investment income appearing in GCHL’s separate profit and loss statement
includes profit on sale of UTL’s shares and dividend received from UTL.
e. the exchange rates per $ were as follows:
1st April 2015 Rs.76

31 December 2015
st
Rs.79
Average for April to December Rs.78
2015
It is assumed that profits of all companies had accrued evenly during the year.
Required:
In accordance with the requirement of NFRS/IFRS, prepare consolidated statement of
comprehensive income of GCHL for the year ended 31st December 2015.
Q.No. 50:
H Ltd acquired 75% shares of S Ltd on 1st January 2014 when the retained earnings of S
Ltd were Rs.40,000.
S Ltd acquired 60% shares of T Ltd on 30th June 2014 when the retained earnings of T
Ltd were Rs.25,000. The retained earnings of T Ltd were Rs.20,000 when H Ltd acquired
shares of S Ltd.
Draft statements of financial position of H Ltd, S Ltd and T Ltd as at 31st December 2014
are as follows:
H Ltd S Ltd T Ltd
(Rs.’000) (Rs.’000) (Rs.’000)
Other assets 280 110 100
Investment in S 120 -- --
Investment in T -- 80 --
400 190 100

Share capital 200 100 50
Retained earnings 100 60 30
Liabilities 100 30 20
400 190 100
Prepare:
Consolidated statement of financial position of the group as at 31st December 2014.
Q.No. 51:
The following financial statements are given for the year ending 31st December 2014:
H Ltd S Ltd
(Rs.’000) (Rs.’000)
Revenue 22,950 8,800
Expenses (10,000) (5,000)
Operating profit 12,950 3,800
Tax (5,400) (2,150)
Profit after tax 7,550 1,650
Statement of changes in equity
Opening earnings 3,760 1,850
Closing earnings 11,310 3,500
a. H Ltd acquired 90% shares of S Ltd on 1st January 2011 for Rs.3,750,000 when
the retained earnings of S Ltd were Rs.500,000 and share capital was
Rs.3,000,000.
b. H Ltd sold its entire holding in S Ltd on 30th September 2014 for Rs.9,500,000.
Prepare the consolidated statement of profit or loss for the year ended 31st December
2014.
Q.No. 52:
H Ltd S Ltd
(Rs.’000) (Rs.’000)
Revenue 22,950 8,800
Expenses (10,000) (5,000)
Tax (5,400) (2,150)

Rs.3,000,000.
b. H Ltd sold 50% shares in S Ltd on 30th September 2014 for Rs.5,000,000.
c. The remaining 40% shares (having significant influence) was estimated to have a
fair value of Rs.3,500,000.
2014.
Q.No. 53:
H Ltd S Ltd
(Rs.’000) (Rs.’000)
Revenue 22,950 8,800
Expenses (10,000) (5,000)
Tax (5,400) (2,150)
Rs.3,000,000.
b. H Ltd 10% shares in S Ltd on 30th September 2014 for Rs.1,000,000.
2014 and calculate the equity adjustment necessary to reflect the changes in ownership.
Q.No. 54:
The statements of financial position of H Ltd, S Ltd and T Ltd as at 31st December 2017
were as follows:
H Ltd S Ltd T Ltd
(Rs.’000) (Rs.’000) (Rs.’000)
Investment in S Ltd 5,000 -- --
Investment in T Ltd -- 750 --
Other assets 11,900 6,000 1,500
16,900 6,750 1,500

Share capital 10,000 3,000 300
Retained earnings 4,900 2,750 700
Liabilities 2,000 1,000 500
16,900 6,750 1,500
H Ltd acquired 80 percent shares of S Ltd as on 1st January 2017. S Ltd acquired 60
percent shares of T Ltd on 1st January 2014. At the date of purchase of shares, the
following additional information is supplied to you:
Date Retained earnings of S Retained earnings of T
Ltd. (Rs.’000) Ltd. (Rs.’000)
1st January 2014 2,000 500
1 January 2017
st
2,300 650
Required:
Prepare the consolidated statement of financial position for the H Ltd’s group as at 31st
December 2017.
Q.No. 55:
The statements of financial position of H Ltd, S Ltd and T Ltd as at 31st December 2008
were as follows:
H Ltd S Ltd T Ltd
(Rs.’000) (Rs.’000) (Rs.’000)
Investment in S Ltd 3,300 -- --
Investment in T Ltd -- 2,200 --
Other assets 3,700 2,400 3,500
7,000 4,600 3,500
Share capital 4,000 2,500 2,000
Retained earnings 2,000 1,100 1,000
Liabilities 1,000 1,000 500
7,000 4,600 3,500
H Ltd acquired 80 percent shares of S Ltd as on 1st January 2007. S Ltd acquired 60
percent shares of T Ltd as on 31st December 2007. H Ltd measures NCI at its fair value.
At the dates of share purchase, the following information is available:
Date Retained earnings of S Retained earnings of T
Ltd. (Rs.’000) Ltd. (Rs.’000)
1 January 2007
st
400 200
31st December 2007 700 320
Fair value of NCI of S Ltd Fair value of NCI of T Ltd
(Rs.’000) (Rs.’000)
1 January 2007
st
800 1,600
31st December 2007 960 2,000
Required:

Prepare the consolidated statement of financial position for the H Ltd’s group as at 31st
December 2008.
Q.No. 56:
On 1st October 2008 P Co. acquired 90% shares of P Co by issuing 100,000 shares at an
agreed value of Rs.1.60 per share and Rs.140,000 in cash.
At the time of acquisition, the balance sheet of S Co included the following:
(Rs. in ‘000)
Property, plant and equipment 190
Inventories 70
Trade receivables 30
Cash and cash equivalent 10
Trade payables (40)
260
The consolidated balance sheets of P Co as at 31st December were as follows:
2008 (Rs.’000) 2007
(Rs.‘000)
Non-current assets:
Goodwill 66 --
2,566 2,300
Current assets:
Cash and cash equivalents 16 50
2,836 2,350
Equity and liabilities:
Equity:
Share capital (Rs.1 each) 1.150 1,000
Share premium account 590 500
3,531 3,030
Minority interest 31 --
3,562 3,030
Current liabilities
Trade payables 1,690 1,520
Income tax payable 150 100
1,840 1,620
The consolidated income statement for the year ended 31 December 2008 was as
st
follows:
Rs.’000

Revenue 10,000
Cost of sales (7,500)
Gross profit 2,500
Administrative expenses (2,080)
Profit before tax 420
Income tax expenses (150)
Profit for the period 270
Profit attributable to:
Parents 261
Minority interest 9
You are also given the following information:
a. Depreciation charged to the consolidated income statement amounted to
Rs.210,000.
b. There were no disposals of property, plant and equipment during the year.
c. No dividends were paid by the parent.
Required:
Prepare a consolidated cash flow statement for the year ended 31st December 2008
under the indirect method in accordance with relevant NFRS/NAS
ADDITIONAL PRACTICE
Q.No. 57:
Barcelona acquired 60% of Madrid's ordinary share capital on 1 October 2012 at a price
of Rs.1.06 per share. The balance on Madrid's retained earnings at that date was Rs.104
million and the general reserve stood at Rs.11 million.
Their respective statements of financial position as at 30 September 2016 are:
Barcelona Madrid
Rs. million Rs. million
Non-current assets
Property, plant and equipment 2,848 354
Patents 45 --
Investment in Madrid 159 --
3,052 354
Current assets
Inventories 895 225
Trade and other receivables 1348 251
Cash and cash equivalents 212 34
2,455 510
5,507 864
Equity
Share capital (Rs.0.20 each) 920 50

Retained earnings 2,086 394
General reserve 775 46
3,781 490
Long-term borrowings 558 168
Current liabilities
Trade and other payables 1,168 183
Current portion of long-term borrowings -- 23
1,168 206
5,507 864
At the date of acquisition the fair values of some of Madrid's assets were greater than
their carrying amounts. One line of Madrid's inventory had a fair value of Rs.8 million
above its carrying amount. This inventory had all been sold by 30 September 2016.
Madrid's land and buildings had a fair value Rs.26 million above their carrying amount.
Rs.20 million of this is attributable to the buildings, which had a remaining useful life of
ten years at the date of acquisition.
It is group policy to value non-controlling interests at full (or fair) value. The fair value of
the non-controlling interests at acquisition was Rs.86 million.
Annual impairment tests have revealed cumulative impairment losses relating to
recognised goodwill of Rs.20 million to date.
Required
Produce the consolidated statement of financial position for the Barcelona Group as at
30 September 2016.
Q.No. 58:
On 1 January 2007, Pitch acquired 80% of Stadium for 200,000 when Stadium's share
capital and reserves were as follows:
Rs.'000
Share capital 100
Retained earnings 34
134
At acquisition, the fair value of some of Stadium's assets were greater than their book
value as follows:
Rs.'000
Inventories 9 (sold 1.3.2007)
Freehold land 12
Property, plant and equipment (5 year remaining useful life) 35
56
At 31 December 2008 the statement of financial position of Pitch and Stadium were as
follows:
Pitch Stadium
Rs.’000 Rs.’000

Cost of Stadium 200 --
Other assets 308 310
508 310
Share capital 150 100
Retained earning 307 162
457 262
Liabilities 51 48
508 310
Required:
Prepare the consolidated statement of financial statement of Pitch as at 31 December
2008.
Cumulative impairment losses amounting to Rs.19,000 resulting from annual impairment
tests are to be written off recognized goodwill on consolidation.
Q.No. 59:
On 1 July 2007 Port acquired 80% of the ordinary share capital of Storm for Rs.100,000
when the balance on Storm's retained earnings was Rs.50,000. The balance sheets of
the two companies at 30 June 2008 are as follows:
Pitch Stadium
Rs.’000 Rs.’000
Non-current assets
Property, plant and equipment 216 182
Investment in storm 100 --
316 182
Current assets 678 350
994 532
Equity
Share capital 150 100
Retained earnings 550 400
700 500
Current liabilities 294 32
994 532
Notes:
(i) During the year ended 30 June 2008 Port sold an item of plant and equipment to
Storm for Rs.56,000. The asset originally cost Rs.90,000 and has been written
down to Rs.36,000 as at 30 June 2007. Both companies depreciate plant and
equipment on a straight line basis over 5 years. Storm depreciated the cost of the
asset over its remaining useful life of 2 years.
(ii) The net fair value of the identifiable assets, liabilities and contingent liabilities
acquired was found to exceed the cost of the business combination even after
the figures had been reassessed.

Required
Prepare the consolidated statement of financial position as at 30 June 2008.

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Advanced Financial Reporting

CA, Ranjit Kumar Yadav

Institute of Chartered Accountants of Nepal

NAS 27 SEPARATE FINANCIAL STATEMENT

Preparation of separate financial statements

AFR by CA, Ranjit Kumar Yadav Page 2

An entity shall recognize a dividend from a subsidiary, a joint venture or an associate in

b. A list of significant investments in subsidiaries, jointly controlled entities and

When a parent prepares separate financial statements in addition to consolidated

AFR by CA, Ranjit Kumar Yadav Page 3

CD Ltd is an associate of AB Ltd as significant influence is demonstrated by the

AFR by CA, Ranjit Kumar Yadav Page 4

AFR by CA, Ranjit Kumar Yadav Page 5

Reporting at subsequent reporting date

Consolidated statement of profit or loss

Upstream and downstream transactions

Losses of associates and joint venture

AFR by CA, Ranjit Kumar Yadav Page 6

Using appropriate assumptions, both methods give the same result.

The recoverable amount of an investment in an associate or a joint venture should be

AFR by CA, Ranjit Kumar Yadav Page 7

AFR by CA, Ranjit Kumar Yadav Page 8

Summarized statement of financial position

AFR by CA, Ranjit Kumar Yadav Page 9

AFR by CA, Ranjit Kumar Yadav Page 10

AFR by CA, Ranjit Kumar Yadav Page 11

An impairment test conducted at the year-end revealed cumulative impairment losses of

AFR by CA, Ranjit Kumar Yadav Page 12

NFRS 11 JOINT ARRANGEMENT

AFR by CA, Ranjit Kumar Yadav Page 13

AFR by CA, Ranjit Kumar Yadav Page 14

Guidance on classification of a joint arrangement

Structure of the joint arrangement

Legal form of separate vehicle

AFR by CA, Ranjit Kumar Yadav Page 15

Consolidated financial statements of parties to a joint arrangement

AFR by CA, Ranjit Kumar Yadav Page 16

Separate financial statements

AFR by CA, Ranjit Kumar Yadav Page 17

AFR by CA, Ranjit Kumar Yadav Page 18

AFR by CA, Ranjit Kumar Yadav Page 19

CONSOLIDATED FINANCIAL STATEMENTS

AFR by CA, Ranjit Kumar Yadav Page 20

AFR by CA, Ranjit Kumar Yadav Page 21

Purchase Consideration (cost of investment)

Contingent consideration after initial recognition

Acquisition related costs

AFR by CA, Ranjit Kumar Yadav Page 22

The costs to issue debt or equity

Non-controlling interest at subsequent reporting date

Recognizing and measuring goodwill or gain from a bargain purcgae

(a) the aggregate of:

The excess is goodwill. The amount of goodwill should be separately recognized

Goodwill at subsequent reporting date

Gain from bargain price

AFR by CA, Ranjit Kumar Yadav Page 23

Amount to be adjusted in equity is calculated as

NCI can be calculated as

Consolidated retained earnings

AFR by CA, Ranjit Kumar Yadav Page 24