Question :
The subsequent information relate to the Grace plc group of corporation as at 31st October 2012. The summarized statements of financial position of these three companies at 31 October 2012 were as follows:
Non-current Assets Grace plc
$'000
Poise plc
$'000
Leisure plc
$'000
Property plant equipment
2,140 1,063 720
Investment in subsidiary -at cost
1,452
500 -
Other investments 200 100 -
Current assets
Inventory 350 212 108
Trade receivables 213 127 82
Cash and bank 234 26 19
Total assets 4,589 2,028 929
Equity shares -k1 shares 500 200 100
Retained earnings 3,215 1,330 510
Total equity 3,715 1,530 610
Non-current liabilities Deferred tax 500 300 200
Current liabilities
Trade payables 262 151 92
Taxation payable 112 47 27
Total equity and liabilities 4,589 2,028 929
Additional Information
1. On 1 November 2011 Grace Plc. acquired 160 million of the equity shares and voting rights of
Poise plc
2. Poise plc. Acquired 75 million of the equity shares and voting rights of Leisure plc on 1 November 2008
3. At the dates of share purchases the subsequent information is known:
Company earnings Date Equity shares
$'000
Retained
$,000
Poise plc 1 November 2009 200 560
Poise plc 1 November 2011 200 800
Leisure plc 1 November 2009 100 240
Leisure plc 1 November 2011 100
1. With the subsequent exceptions the fair value of assets of investee companies directly approximated their book value at the relevant acquisition dates:
Company Asset Book Values
$,000
Fair Value
$,000 Poise plc Inventory* 147 197
Poise plc Equipment** 200 400
*all of this inventory had been sold by 31 October 2012
**this equipment was purchased in 2010 and is depreciated over its five year life on a straight line basis. It is still held by Poise plc.
2. During 2012, the following intra group trading took place:
Selling company Buying company Sale at transfer price
$,000
Profit on sales
Poise plc Grape plc 280 40% on cost
3. Poise plc has levied a management charge of $10 million per annum on Leisure plc for services which it gives. In 2012 Leisure plc has neither paid this charge nor accrued it as outstanding
4. The dividends payable were declared before the statement of financial position date and are thus included as liabilities. No dividends receivable has been accrued by parent companies.
5. In the year of buy a full year's depreciation is provided in respect of non-current assets and no deprecation is provided in the year of disposal.
Required:
a. Purpose a Consolidate Statement of Financial Position of Grace plc as at 31 October 2013
b. Describe why the fair value of a company's assets is used in the preparation of combined financial statement