Assignment - Financial Statement Analysis for Business
Question 1 -
(a) Briefly explain when a non-current asset or disposal group should be classified as 'held for sale' as per IFRS 5.
(b) IFRS 5 requires certain conditions to be met before an asset or disposal group can be classified as held for sale. What are these conditions?
(c) Royal Ltd was preparing its financial statements for the year ended 31 December 2017. On 01 December 2017, the parent company became committed to a plan to sell a subsidiary, Box Ltd, and the director has already found a potential buyer. On 15 December 2017 a survey was carried out and a restructuring plan was proposed for Box Ltd. The buyer agreed to wait for the implementation of the restructuring plan (i.e., the subsidiary will not be sold until the restructuring plan is implemented). This is not expected to occur until July 2018.
Discuss whether the subsidiary, Box Ltd, can be classified as 'held for sale' as per IFRS 5 for the year ended 31 December 2017.
Question 2 -
Statements of financial position for the year ended 31 December
|
2016
|
2017
|
|
$ 000
|
$ 000
|
|
Non-current assets
|
|
|
|
Properties (NBV)
|
113,020
|
96,420
|
|
Current assets
|
|
|
|
Inventories
|
67,000
|
57,500
|
|
Cash
|
58,000
|
60,400
|
|
Total current assets
|
125,000
|
117,900
|
|
Total assets
|
238,020
|
214,320
|
|
Equity and liabilities
|
|
|
|
Ordinary Share Capital ($ 0.25 each)
|
40,000
|
36,000
|
|
Share premium
|
24,000
|
20,000
|
|
Revaluation reserves
|
13,000
|
10,000
|
|
Retained Earnings
|
35,270
|
26,680
|
|
112,270
|
92,680
|
|
Non-current liabilities
|
44,150
|
42,240
|
|
Current liabilities
|
81,600
|
79,400
|
|
Total equity and liabilities
|
238,020
|
214,320
|
Notes:
(i) A property which had cost $ 25,000,000 (Net Book Value of $ 12,500,000) was sold during the year for $ 14,000,000.
(ii) Movement in revaluation reserve is due to revaluation of properties.
(iii) Accumulated depreciation was as per table below:
|
31-Dec-17
|
31-Dec-16
|
|
$ 000
|
$ 000
|
|
65,000
|
50,000
|
(iv) Ordinary shares were issued during the year for cash.
Required:
a) Calculate the following by using the T account format:
i. Addition to properties
ii. Depreciation for the year
iii. Profit/(Loss) on disposal of property
b) Calculate the number of shares issued and the premium per share.
Question 3 -
On 01 February 2017, Paul Ltd acquired 224,700 ordinary shares of Sam Ltd and as a result Paul Ltd holds 70% shares in Sam Ltd. The purchase consideration was as follows:
Cash paid $ 150,000
A deferred cash settlement to be paid in three years' time of $ 300,000
By an exchange of two shares in Paul Ltd for every five shares in Sam Ltd. The market price of Paul Ltd share at the date of acquisition was $ 4 and the market price of each Sam Ltd share at the date of acquisition was $ 2.25
The discount rate of Paul Ltd is 12 %.
(a) Calculate the fair value consideration transferred to acquire control of Sam Ltd.
Paul Ltd has recently appointed an accountant, Mr J. Smith, following the resignation of the previous group accountant. When Mr. J. Smith was preparing the group accounts for the year ended 31 January 2018, he found that only the cash consideration of $ 150,000 has been accounted. The par value of each ordinary share for Paul Ltd is $ 1.
(b) Prepare an extract of equity (Ordinary shares, Share premium and Retained earnings) and liabilities section of the consolidated statement of financial position as at 31 January 2018 to show how the deferred payment and shares exchange should be accounted.
On the acquisition date, the retained earnings of Sam Ltd stood at $ 50,000 and share capital was $ 321,000. Sam Ltd holds a patent which has not been recognized in its financial statements. The directors of Paul Ltd are of the opinion that the patent should be accounted. The patent had a fair value of $ 125,000 and a remaining term four years to go as from the date of acquisition. The carrying value of Property and Plant was in excess by $ 40,000 on the acquisition date. Included within the intangible assets of Sam Ltd is goodwill of $ 5,000 which arose on the purchase of the trade and assets of a sole-trader business.
(c) Calculate the net assets of Sam Ltd at the date of acquisition.
The fair value non-controlling interest at acquisition date was $ 75,000.
(d) Calculate the goodwill at the date of acquisition.