ACC3014 CORPORATE REPORTING- APRIL 2023

Tutorial Week 3 Questions - Consolidation Subsequent to the Acquisition Date

Additional Practice Question 2

On 1 June 2017, Penang Berhad acquired 80% of the equity share capital of
Bangkok Berhad. The consideration consisted of two elements: a share exchange of
three shares in Penang for every five acquired shares in Bangkok and the issue of a
RM100 6% loan note for every 500 shares acquired in Bangkok. The share issue
and loan notes have not yet been recorded by Penang. At the date of acquisition
shares in Penang had a market value or RM5.00 each and the shares of Bangkok
had a stock market price of RM3.50 each. Below are the summarized draft financial
statements of both companies.

Statements of Comprehensive Income for the year ended 30 September 2017

Penang Bangkok
Berhad Berhad
RM’000 RM’000
Revenue 92,500 45,000
Cost of sales (70,500) (36,000)
Gross profit 22,000 9,000
Distribution costs (2,500) (1,200)
Administrative expenses (5,500) (2,400)
Finance costs (100) nil
Profit before tax 13,900 5,400
Income tax expense (3,900) (1,500)
Profit for the year 10,000 3,900
Other comprehensive income:
Gain on revaluation of land 500 nil
Total comprehensive income 10,500 3,900

Statements of Financial Position as at 30 September 2017

Penang Bangkok
Berhad Berhad
Assets RM’000 RM’000
Non-current assets
Property, plant and equipment 25,500 13,900
Investments 1,800 nil
27,300 13,900
Current assets 12,500 2,400
Total assets 39,800 16,300

Equity
Equity shares of RM1 each 12,000 5,000
Land revaluation reserve-
30 Sept 2017 2,000 nil
Other equity reserve-
30 Sept 2016 500 nil
Retained earnings 12,300 4,500
26,800 9,500

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Liabilities
Non-current liabilities
6% loan notes 3,000 nil
Current liabilities 10,000 6,800
Total equity and liabilities 39,800 16,300

The following information is relevant:

• At the date of acquisition, the fair value of Bangkok’s assets was equal to their
carrying amounts with the exception of its property. This had a fair value of
RM1.2 million below its carrying amount. This would lead to a reduction of the
depreciation charge (in cost of sales) of RM50,000 in the post-acquisition period.
Bangkok has not incorporated this value change into its entity financial
statements. Penang’s group policy is to revalue all properties to current value at
each year end. On 30 September 2017, the value of Bangkok property was
unchanged from its value at acquisition, but the land element of Penang’s
property had increased in value by RM500,000 as shown in other comprehensive
income.

• Sales from Bangkok to Penang throughout the year ended 30 September 2017
had consistently been RM1 million per month. Bangkok made a mark-up on cost
of 25% on these sales. Penang had RM2 million (at cost to Penang) of inventory
that had been supplied in the post-acquisition period by Bangkok as at 30
September 2017.

• Penang had a trade payable balance owing to Bangkok of RM350,000 as at 30

September 2017. This agreed with the corresponding receivable in Bangkok’s
books.

• Penang’s investments include some investments have increased in value by

RM300,000 during the year. The other equity reserve relates to these
investments and is based on their value as at 30 September 2016. There were no
acquisitions or disposals of any of these investments during the year ended 30
September 2017.

• Penang’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose, Bangkok’s share price at that date can be deemed
to be representative of the fair value of the shares held by the non-controlling
interest.

• There has been no impairment of consolidated goodwill.

Required:
In accordance with IFRS 10/ MFRS 10 (Round your answers to the nearest ringgit):

(i) Prepare the consolidated statement of comprehensive income for Penang

Berhad for the year ended 30 September 2017.

(ii) Prepare the consolidated statement of financial position for Penang Berhad as at
30 September 2017.

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Consolidated Statement of Comprehensive Income for Penang Berhad for the year
ended 30 September 2017

Penang Bangkok Dr Cr CSCI

Berhad Berhad
(Parent) (Subsidiary)
RM’000 RM’000 RM’000 RM’000 RM’000
Revenue

Cost of sales

Gross profit
Distribution costs
Administrative expenses
Finance costs
Profit before tax
Income tax expense
Profit for the year
Other comprehensive
income:
Gain on revaluation of
land
Gain on revaluation of
investments
Total comprehensive
income
Profit for year
attributable to:
Owner of the parent
(balance)
NCI

Total comprehensive
income attributable to:
Owner of the parent
NCI

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ACC3014 CORPORATE REPORTING- APRIL 2023

Consolidated Statement of Financial Position for Penang Berhad ended 30 September

2017

Penang Bangkok Dr Cr CSOFP

Berhad Berhad
(Parent) (Subsidiary)
RM’000 RM’000 RM’000 RM’000 RM’000
Assets
Non-current assets
Investment in
Bangkok
Property, plant and
equipment
Investments

Goodwill (W2)

Current assets

Total assets

Equity and
liabilities
Equity shares of
RM1 each

Land revaluation
reserve
Other equity
reserve

Retained earnings
(W3)
Non-controlling
interest (W4)
Total equity
Non-current
liabilities
6% loan notes
Current liabilities

Total equity and

liabilities

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Workings:
W1: Group Structure

W2: Goodwill in Bangkok

RM’000

Consolidated Journal Entries Adjustments

RM’000 RM’000

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W3: Retained earnings

Penang Bangkok
Berhad Berhad
RM’000 RM’000

W4: Non-controlling interest in statement of financial position

RM’000

Other workings: