International Financial Reporting

International Financial Reporting
Student’s Name
Institutional Affiliation
Course
Instructor
Date
International Financial Reporting
This task is on the financial reporting in acquisitions by groups of companies (subsidiaries), and where one company owns at least 20% of shares of an investee company (associate). Solutions to the two problems, one for subsidiaries under the groups of companies and the other for an associate, are presented below.
Exercise 20.3: M Ltd, P Ltd, and Q Ltd
This is a case of a parent company, M Ltd, acquiring the two other companies, P Ltd (90%) and Q Ltd (25%). Below is the consolidated statement of financial position for M Ltd as at 31 July 2020.
M Ltd

Consolidated Statement of Financial Position

as at 31 July 2020


£ 000

Assets


Non-current assets


Property, plant and equipment (2,570 + 370 + 280 +80)

3,300

Goodwill (W1)

70


3,370

Current assets (1,150 + 220 +170)

1,540


4,910

Equity


Ordinary share capital

1,000

Retained earnings (W2)

2,574


3,574

Non-controlling interest (W3)

326


3,900

Liabilities


Current liabilities (810 + 110 + 90)

1,010


4,910

Workings:



1. Goodwill



Price paid by M Ltd



P Ltd

410


Q Ltd

100


Total paid


510

P Ltd's equity as at 31 July 2017 (100 + 220)

320


Fair value adjustment

80


90% x 400

400

360




Q Ltd's equity as at 31 July 2019 (80 + 240)

320


Fair value adjustment

-


25% x 320

320

80

Goodwill as at 31 July 2017


70




2. Group retained earnings



M Ltd's retained earnings as at 31 July 2020


2,420

P Ltd's retained earnings as at 31 July 2020

380


Less; P Ltd's retained earnings as at 31 July 2017

220


90% x 160

160

144




Q Ltd's retained earnings as at 31 July 2020

280


Less; Q Ltd's retained earnings as at 31 July 2019

240


25% x 40

40

10

Group retained earnings as at 31 July 2020


2,574




3. Non-contro...