BKAR 3043 FINANCIAL ACCOUNTING AND REPORTING IV_A192

TUTORIAL 3: CHANGES IN GROUP STRUCTURE PART

QUESTION 1
On 1 January 2016, SOA Bhd acquired 90% interest in FPK Bhd. At that time, retained
profits of FPK Bhd was RM1,000,000 and the remaining 10% non-controlling interest was
measured at fair value as RM580,000. On the same date, FPK Bhd acquired 80% interest in
BEC Bhd at a cost of RM2,600,000. At this acquisition date, BEC Bhd’s retained profits was
RM600,000 and the remaining 20% (Original) non-controlling interest was measured at fair
value as RM700,000. On 1 April 2018, SOA Bhd acquired 10% in BEC Bhd for RM980,000.

The following are financial statements provided by SOA Bhd and its subsidiaries:

Statement of Comprehensive Income

For the year ended 31 December 2018
SOA Bhd FPK Bhd BEC Bhd
RM’000 RM’000 RM’000
Sales 5,200 3,550 3,800
Cost of goods sold (2,500) (1,000) (1,900)
Gross profit 2,700 2,550 1,900
Less: Operating expenses (450) (450) (500)
Profit before taxation 2,250 2,100 1,400
Less: Taxation (1,060) (980) (400)
Profit after taxation 1,190 1,120 1,000
Retained profit, 1/1/18 2,300 2,100 800
Retained profit, 31/12/18 3,490 3,220 1,800

Statement of Financial Position

As at 31 December 2018
SOA Bhd FPK Bhd BEC Bhd
RM’000 RM’000 RM’000
Investment, at cost:
Shares in FPK Bhd 4,500 - -
Shares in BEC Bhd 980 2,600 -
Other assets 4,880 4,480 5,000
10,360 7,080 5,000
Financed by:
Ordinary share (RM1 each) 4,000 3,000 2,500
Retained profit 3,490 3,220 1,800
Other Liabilities 2,870 860 700
10,360 7,080 5,000

Additional information:

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1. FPK Bhd started selling goods to SOA Bhd in January 2018. During the year, FPK Bhd
sold goods to SOA Bhd for RM400,000. At year end RM150,000 of the goods
remained in the closing stock of SOA Bhd. The profit margin is 20% on selling price.
2. On 1 January 2017, SOA Bhd transferred a machinery with a net book value of
RM300,000 to BEC Bhd. The transfer price was RM450,000 and the machine had a
remaining useful life of 3 years as at the date of the transfer.
3. Tax effects on unrealized profit or loss on inter-company transactions should be ignored.
4. Assume revenue accrued evenly throughout the year.
5. There are no changes in the share capital account of all the companies in the group.
6. The group used the fair value method to record the non-controlling interest for FPK Bhd
and the proportionate share of net identifiable assets method to record the non-
controlling interest for BEC Bhd.

REQUIRED:

(a) Record all the consolidation journal entries of SOA Bhd and its subsidiaries for the year
ended 31 December 2018 using one-stage method.

(b) Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive Income
of SOA Bhd and its subsidiaries for the year ended 31 December 2018.

(c) Prepare the Consolidated Statement of Changes in Equity of SOA Bhd and its
subsidiaries for the year ended 31 December 2018.

(d) Prepare the Consolidated Statement of Financial Position of SOA Bhd and its
subsidiaries for the year ended 31 December 2018.

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QUESTION 2

Alam Berhad (Alam) acquired 75% interest in Suria Berhad (Suria) for a consideration of
RM70,000,000 on 1 January 2015 when the retained earnings of Suria was RM11,400,000.
Later, on 1 January 2016, Alam acquired 30% of interest in Permai Berhad (Permai) for a
consideration of RM31,000,000. The retained earnings of Permai on this date was
RM8,000,000. Alam treated this investment as investment in associate and accounted using a
cost method. On 1 July 2017, during the current year Alam disposed 20% of its holding in
Suria for a consideration of RM15,300,000.

The financial statements for the three companies for the financial year ended 30 June 2018
are as follows:

Statements of Profit or Loss and Other Comprehensive Income

For the year ended 30 June 2018
Alam Suria Permai
RM’000 RM’000 RM’000
Revenue 37,000 28,120 27,000
Cost of sales (19,000) (16,000) (15,600)
Gross profit 18,000 12,120 11,400
Other income 4,500 - 2,500
Operating expenses (7,000) (4,840) (5,100)
Profit before taxation 15,500 7,280 8,800
Taxation (3,720) (1,747) (2,250)
Profit after taxation 11,780 5,533 6,550

Movement of Retained Profit For the year ended 30 June 2018

Alam Suria Permai
RM’000 RM’000 RM’000
Retained earnings b/f 17,600 16,800 11,200
Profit after taxation 11,780 5,533 6,550
Proposed dividend (7,600) (4,200) -
Retained earnings c/f 21,780 18,133 17,750

Statement of Financial Position as at 30 June 2018

Alam Suria Permai
RM’000 RM’000 RM’000
Investment securities 87,000 32,000 -
Other non-current assets 102,500 44,100 86,450
Current assets 30,430 22,433 28,900
219,930 98,533 115,350

140,000 60,000 80,000

Share capital, RM1
Retained earnings 21,780 18,133 17,750
Non-current liabilities 35,200 12,800 11,500

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 Current liabilities 22,950 7,600 6,100
219,930 98,533 115,350

Additional information:

1. Suria had acquired 25% interest in Permai on 1 March 2018 for a consideration of
RM32,000,000. This transaction has not been recorded by Alam.
2. Suria sold merchandise to Alam with a profit margin of 25% on sales. In year 2018, the
related sales were RM9,000,000 and out of that amount RM3,200,000 still remained in
the Alam’s ending inventories. The corresponding intercompany sales and ending
inventories in the prior year were RM3,000,000 and RM800,000 respectively.
3. Permai sold a land to Suria on 31 May 2018 for RM5,000,000. The book value of the
land on that date was RM4,000,000. This profit was included within other income.
4. Shares of the companies were traded as follows:
Suria Permai
1 January 2015 RM1.50 RM1.25
1 March 2018 RM1.40 RM1.50

5. All dividends were not paid during the current year. Dividend income was included
within other income.
6. Any gain or loss from disposal of shares was accounted in other income.
7. Assume company tax rate was 24%. Tax effects on unrealised profit for inter
company’s transactions should be ignored.
8. There were no changes in the share capital for all the companies in the group.
9. Assume all revenues and expenses were accrued evenly throughout the year.
10. The group policy is to measure the non-controlling interest at fair value.

REQUIRED:

(a) Prepare the consolidation journal entries for the year ended 30 June 2018 using one
stage method.

(b) Prepare the Consolidated Statements of Profit or Loss and Other Comprehensive
Income for Alam Berhad for the year ended 30 June 2018.

(c) Prepare the Consolidated Statement of Financial Position for Alam Berhad as at 30
June 2018.

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QUESTION 3

On 16 October 2016, Perdana Bhd acquired 80% interest in Waja Bhd for cash consideration
of RM20 millions and 60% interest in Saga Bhd for cash consideration of RM30 millions. On
the date of acquisition, the market price of shares and retained profit for Waja Bhd and Saga
Bhd are as follows:
Waja Bhd Saga Bhd
RM RM
Market price per share 1.25 1.40
Retained profit 2 millions 6 millions

Before that, Saga Bhd had acquired 80% interest in Satria Bhd on 28 May 2015 for cash
consideration of RM40 millions when the retained profits of Satria Bhd was RM4 millions.
The considerations paid by Saga Bhd to acquire Satria Bhd were based on its proportionate
share of the fair value of Satria Bhd as a whole (implied value –to find NCI 20% Original).

On 1 January 2018, Perdana Bhd acquired 10% of interest in Satria Bhd for cash
consideration of RM8 millions. Later, on 30 September 2018, Perdana Bhd sold 10 million
shares in Waja Bhd for cash consideration of RM14.2 millions. The market price for these
shares on those dates was RM1.29 and RM1.55 respectively.

The financial statements for the four companies are as follows:

Statement of Comprehensive Income for the year ended 31 December 2018

Perdana Waja Bhd Satria Saga Bhd
Bhd RM’000 Bhd RM’000
RM’000 RM’000
Revenue 16,500 10,900 13,900 12,000
(–) Cost of sales (9,500) (7,000) (8,400) (8,000)
Gross profit/(Loss) 7,000 3,900 5,500 4,000
Gain on sales of land 2,560 – – –
Gain on shares disposal 1,700 – – –
Dividend income 240 – – 1,920
(–) Operating expenses (3,500) (1,100) (1,800) (3,420)
Profit before taxation 8,000 2,800 3,700 2,500
Less: Taxation (3,400) (800) (1,300) (1,100)
Profit after taxation 4,600 2,000 2,400 1,400

Movement in Retained Profits for the year ended 31 December 2018

Retained profit b/f 8,800 3,500 5,600 8,400
Profit for the period 800 2,000 600 1,400
Dividend paid (3,800) – (1,800) –
Retained profit c/f 9,600 5,500 6,200 9,800

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 Statement of Financial Position as at 31 December 2018
Perdana Waja Bhd Satria Saga Bhd
Bhd RM’000 Bhd RM’000
RM’000 RM’000
Investment at cost 45,500 – – 40,000
Other assets 14,500 30,000 55,000 10,000
60,000 30,000 55,000 50,000
Share Capital @ RM1 40,000 20,000 40,000 30,000
Retained profit 9,600 5,500 6,200 9,800
Other liabilities 10,400 4,500 8,800 10,200
60,000 30,000 55,000 50,000

Additional information:
1. Waja Bhd sold merchandise to Perdana Bhd with a profit margin of 25% on sales. In
year 2018, the related sales was RM4.5 million and out of that amount, RM1.6 million
still remain in the Perdana Bhd’s ending inventories.
2. Perdana Bhd sold a land to Satria Bhd on 31 March 2018 for RM5 million. The land
was originally bought from Waja Bhd on 31 August 2013.
3. Assume company tax rate was 25%. Tax effects on unrealised profit for inter
company’s transactions should be ignored.
4. There were no changes in the share capital for all the companies in the group.
5. All dividends were paid during the current year.
6. Assume all revenues and expenses were accrued evenly throughout the year.
7. The group policy is to measure the non-controlling interest at fair value.

REQUIRED:
(a) Record all the consolidation journal entries for the year ended 31 December 2018
using one stage method.
(b) Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive
Income for Perdana Bhd for the year ended 31 December 2018.
(c) Prepare the Consolidated Statement of Financial Position for Perdana Bhd as at 31
December 2018.