(a) Statement of comprehensive income for the year ended 31st December 2022

Print Frame Subtotal Adj Adj Group Detailed marks break down
€’000s €’000s €’000s €’000s €’000s €’000s
Revenue 1,820 245 2,065 (85) 1,980 1 for P, 1 for S, 1 for i/g adj
Cost of sales 1,170 95 1,265 (85) 9 1,189 1 for P, 1 for S, 1 for i/g adj, 1 for URP
Gross profit 650 150 800 792
Operating expenses 325 40 365 365 P&S
Operating profit
325 110 435 427
Investment income
36 0 36 (36) 0 1 for P, 1 for adj
Interest income
5 0 5 (5) 0 1 for P, 1 for adj
Interest expense
25 5 30 (5) 25 1 for P, 1 for S, 1 for adj
Profit before tax 341 105 446 402
Tax 45 15 60 60 P&S
Profit for the financial year 296 90 386 341.5

Attributable to: Overall statements presentation

Owners of the Parent =(296 - 36) * 100% + (90-8.5)*60% 308.9 2 P; 3 S
Non Controlling Interest =(90-8.5)*40% 32.6
341.5

Extract from the statement of changes in equity for the year ended 31st December 2022
Group
€’000s
Retained earnings as at 1 January 2022 1,256 (1244+ (260-240)*60%

Total comprehensive income 308.9 Owners of parent share only - see SOPL above
Dividends (120) Print's dividends only
Retained earnings as at 31 December 2022 1,444.9 Same as SOFP figure
Overall statements presentation

Part c

1. The selling company has recognised profit on goods that it has sold but remain in the group The
profit is unrealised from the group point of view as it has not been sold to third parties outside the
group and thus it must not be recognised in the consolidated accounts. You cannot earn a profit by
selling to yourself (i.e. within the group structure).

2. Inventory held by purchasing company held at price paid which effectively includes an element of
profit. This contravenes IAS 2 which says inventory should be held at the lower of cost (to the group
overall) and net realisable value.

Discuss how this applies to adjustment (ii) in

the question

Part d
Highlight how IFRS10 changed the definition of control and students
are expected to discuss how control is now established for group
accounts and also to discuss the resulting benefits to investors and
other users of consolidated a/cs.

Important to discuss 3 elements of IFRS 10 discussed in class -

1. Right to earn variable returns from investment
2. Power to govern financial and operating policies of an entity to obtain benefits
3. Ability to use its power to affect the return

Expect students to reference accounting scandals such as Enron etc

(where companies under the defacto control of Enron were excluded from consolidated
accounts.
under While this
accounting treatment
standards was lawful
in force at the time, such practice allowed companies to
prepare
consolidated accounts which gave no indication of the true financial position of the group.
Expect students to be aware that most PLC company accounts are group accounts and
the importance
of reliability for users.
Other elements of IFRS10 such as additional disclosures should be discussed
discussed.
 (b) Statement of financial position as at 31st December 2022
Print Frame Adj Adj Group Detailed marks break down
Non-current assets: €’000s €’000s €’000s €’000s €’000s

Plant and equipment 1,010 320 1,330 1 P,S; 2 FV Adj

Land – at valuation 450 230 50 730 P,S
Investment in group
630 - (630) 0
undertaking
Goodwill
Other financial investments 144 W6 See Workings
250 0 (250) 0 0.5 P; 0.5 Adj
2,340 550 2,204
Current assets:

Inventory
520 375 (9) 887 1 P,S; 2 Adj
Trade Receivables 450 190 640
Intercompany Receivables 71 0 -35 (36) 0 1 P,S; 3 Adj
Bank
650 225 875
1,691 790 2,402

Total assets 4,031 1,340 4,605.5

Equity:

Share capital - €1 shares 1,200 400 (400) 1,200

Share premium 400 30 (30) 400
Revaluation Reserve 300 150 336 W9 See Workings
Retained earnings
1,420 290 1,444.9 W8 See Workings
3,320 870 3,381
Non controlling interest 365 W7 See Workings
3,746
Non-current liabilities:

Long term loan 200 250 (250) 200 0.5 P,S; 0.5 Adj

Current liabilities:

Trade Payables
356 160 516
Intercompany Payables 35 0 (30) (5) 0 1 P,S; 2 Adj
Dividend payable 120 60 (36) 144 1 P,S; 1 Adj
511 220 660

Total equity and liabilities 4,031 1,340 4,605.5

-

Overall statement presentation

Workings
W1 Calculation of group shareholding

Print Ltd acquired 240,000 ordinary shares of Frame Ltd. Shore's issued share capital was 400,000 €1 shares

=> This represents 60% of a shareholding (240,000 shares acquired divided by 400,000 issued shares)

W2 Fair value adjustment required

Dr. PPE 50,000

Cr. Cost of control 50,000

W3 Elimination of Intercompany Sales

Frame (sub) is the seller

Dr Revenue with the value of the intercompany sales made 85,000

Cr. Cost of Sales with the value of the intercompany sales made 85,000

85,000 85000 represents 125% of cost (mark is is a % of cost)

68,000 Cost = 85,000/1.25
17,000 Profit on sale
Half of these goods are in inventory at year end
Provision for unrealised profit using mark up = Unsold inventory X mark up =17000*0.5=8500

Dr. Cost of Sales 8,500

Dr Inventory 8,500

DR Payables 30,000
CR Receivables 30,000

W4 Elimination of Intercompany Loan & Interest

Intercompany Loan term loan value is Euro 250,000

Interest is charged at 4% for 6 months 5,000

Consolidation adjustments required:

Dr. Interest Income (CSCI) 5,000

Cr. Interest Expense (CSCI) 5,000

Eliminate interest payable and receivable at year end also

DR Payables 5,000
CR Receivables 5,000

Dr Long term loans 250,000

Cr Other Financial Investments 250,000

W5 Elimination of intercompany dividends

Dividend declared and payable by Shore Ltd was €60,000

Print Ltd's share of this dividend was 60% or 36,000

Dr. Investment Income 36,000

Cr. Dividends Declared (SCE) 36,000

Dr. Dividends payable 36,000

Cr. Receivables 36,000
W6 Calculation of Goodwill

Consideration 630,000

Share Capital 400,000

Share Premium 30,000
Revaluation Reserve 90,000
Retained Earnings (see SOCE in question) 240,000
Net assets acquired at date of acquisition 760,000
Fair value adjustment to bring PPE to FV at acquisition date 50,000

Total FV of Shore at date of acquisition 810,000

Group share acquired (60%) 486,000

Positive Goodwill 144,000

W7 Calculation of Non Controlling Interest

Net assets of Frame at 31 December 2022 870,000

Add Fair Value adjustment 50,000
Less PUP -8,500
911,500

NCI share = 40% 364,600

OR
NCI at Acquisition = 810,000 * 40% 324,000
Post Acq Profits Shore
Retained Earnings at 31 Dec 2022 290,000
Retained Earnings at Acq Date 240,000
Post Acq Losses 50,000
NCI Share (40%) 20,000
Less PUP -8500 -3,400

Revaluation Reserve at 31 Dec 2022 150,000

Revaluation Reserve at Acq Date 90,000
Post Acq Profits 60,000 24,000
NCI Share (40%) 364,600

W8 Group share of Consolidated Reserves :

Parent profits (retained earnings only, no PUP) 1,420,000

1,420,000
Post Acq Profits Frame

Retained Earnings at 31 Dec 2022 290,000

Retained Earnings at Acq Date 240,000
Post Acq Profits 50,000 50,000
Less PUP

Less PUP 8,500

41,500
Group Share (60%) 60% 24,900
1,444,900
(a)
Issue 1
IAS 38 & IFRS3
Internally generated brand name not allowed under IAS 38
However as part of acquisition - now falls under IFRS3 & included at fair value

DR Intangible assets 60,000

CR Cost of control/goodwill 60,000

Issue 2
IAS 37 & IFRS 3
Contingent liability in Sunlo accounts as not probable (only 30%)
Under IFRS3 this will be included in the accounts and the goodwill calculation

DR Cost of control/goodwill 50,000

CR Provision 50,000

Issue 3
IAS 38 & IFRS 3
Workforce cannot be recognised as an IA - does not meet control criteria

Issue 4
New Motorway:
What has happened:
DB Expenses (P&L) 360,000
CR Bank 360,000

Correcting entry:
DB Intangible assets (dvmt costs 150,000
CR Expenses - retained earnings (P&L) 150,000
(b)
2022 €
Initially record sale at =$300,000/1.05 285,714
$
90,000 30% 85,714
210,000 70% 200,000
300,000 285,714

30% settled on 15 Dec 2022 90,000 =$90,000/1.07

84,112 Received
85,714 Initially Recognised
1,602 FX Loss on Settlement

70% remaining on 31 Dec 2022 210,000 =$210,000/1.10

190,909 Retranslated at year end rate
200,000 Initially Recognised
9,091 FX Loss on Retranslation

30% settled on 1 Feb 2023 - =$210,000/1.02

205,882 Received
190,909 Retranslated amount at 2022 year end
14,973 FX Gain on settlement

(c)
285,714 =$300,000/1.05
DR TR 285,714
CR Sales 285,714
1.11.2022

30% €
90,000 1.07 84,112
CR TR 85,714
DR Bank 84,112
DR SOPL FX loss 1,602
15.12.2022 Part Settlement

DR FX Loss SOPL 9,091

CR TR 9,091
31.12.2022 Restranslation of remaining TR at year end

CR TR 190,909 2022 year end amount removed

DR Bank 205,882
CR SOPL FX Gain 14,973
1.2.2023 Final Settlement
(ii)
IAS 12 ref
Arguments for
Arguments against
Potential Improvements (disounting, partial provision etc)
Overall answer and structure