Answers
Fundamentals Level – Skills Module, Paper F7 (SGP)
Financial Reporting (Singapore) December 2013 Answers
1 (a) Polestar
Consolidated statement of profit or loss for the year ended 30 September 2013
$’000
Revenue (110,000 + (66,000 x 6/12) – (4,000 + 9,000 intra-group sales)) 130,000
Cost of sales (w (i)) (109,300)
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Gross profit 20,700
Distribution costs (3,000 + (2,000 x 6/12)) (4,000)
Administrative expenses (5,250 + (2,400 x 6/12) – 3,400 negative goodwill (w (iii))) (3,050)
Loss on equity investments (200)
Decrease in contingent consideration (1,800 – 1,500) 300
Finance costs (250)
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Profit before tax 13,500
Income tax expense (3,500 – (1,000 x 6/12)) (3,000)
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Profit for the year 10,500
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Profit for year attributable to:
Equity holders of the parent 11,250
Non-controlling interest losses (see below) (750)
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10,500
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Southstar’s adjusted post-acquisition losses for the year ended 30 September 2013 are $3 million (4,600 x 6/12 + (100
additional depreciation + 600 URP)). Therefore the non-controlling interest share of the losses is $750,000 (3,000 x 25%).
Note: FRS 103 Business Combinations says negative goodwill should be credited to the acquirer, thus none of it relates to
the non-controlling interests.
(b) Consolidated statement of financial position as at 30 September 2013
$’000
Assets
Non-current assets
Property, plant and equipment (w (ii)) 63,900
Financial asset: equity investments (16,000 – (13,500 cash consideration) – 200 loss) 2,300
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66,200
Current assets (16,500 + 4,800 – 600 URP) 20,700
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Total assets 86,900
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Equity and liabilities
Equity attributable to owners of the parent
Equity shares 30,000
Retained earnings (w (iv)) 29,750
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59,750
Non-controlling interest (w (v)) 2,850
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Total equity 62,600
Current liabilities
Contingent consideration 1,500
Other (15,000 + 7,800) 22,800
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Total equity and liabilities 86,900
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Workings in $’000
(i) Cost of sales
$’000
Polestar 88,000
Southstar (67,200 x 6/12) 33,600
Intra-group purchases (4,000 + 9,000) (13,000)
URP in inventory (see below) 600
Additional depreciation on leased property (2,000/10 years x 6/12) 100
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109,300
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The profit on the sale of the goods back to Polestar is $3·6 million (9,000 – (4,000 + 1,400)). Therefore the unrealised
profit (URP) in the inventory of $1·5 million at 30 September 2013 is $600,000 (3,600 x 1,500/9,000).
(ii) Property, plant and equipment
$’000
Polestar 41,000
Southstar 21,000
Fair value adjustment 2,000
Additional depreciation (100)
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63,900
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(iii) Goodwill in Southstar
$’000 $’000
Investment at cost
Immediate cash consideration (6,000 x 2 (i.e. shares issued at 50 cents) x 75% x $1·50) 13,500
Contingent consideration 1,800
Non-controlling interest (12,000 x 25% x $1·20) 3,600
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18,900
Net assets (equity) of Southstar at 30 September 2013 18,000
Add back: post-acquisition losses (4,600 x 6/12) 2,300
Fair value adjustment for property 2,000
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Net assets at date of acquisition (22,300)
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Bargain purchase/negative goodwill – credited directly to profit or loss (3,400)
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(iv) Retained earnings
$’000
Polestar 28,500
Southstar’s post-acquisition adjusted losses (3,000 x 75%) (2,250)
Negative goodwill 3,400
Loss on equity investments (200)
Decrease in contingent consideration 300
