Consolidated Financial Statements Practice Questions and Solutions

1.3 CONSOLIDATED FINANCIAL STATEMENTS

UNIT 1: INTRODUCTION TO GROUP ACCOUNT
LEARNING OUTCOMES:
By the end of the lecture, students should be able to:
i. explain the concepts and principles of groups and consolidated financial
statements
ii. explain the concept of a group as a single economic unit
iii. define a subsidiary within relevant accounting standards
iv. Identify and outline the circumstances in which a group is required to
prepare consolidated financial statements
v. State when a group may claim exemption from the preparation of
consolidated financial statements
vi. State when consolidation of a subsidiary is permitted by accounting
standards and other applicable regulation.
vii. Explain the need for using coterminous year ends and uniform
accounting policies when preparing consolidated financial statements
viii. Outline the objective of consolidated financial statements
ACTIVITY
Activity Describe the concept of a group as a single economic unit
1.3a
Activity Explain and apply the definition of a subsidiary within relevant accounting
1.3b standards

Activity Explain when a group is required to prepare consolidated financial
1.3c Statements
Activity Describe the circumstances when a group may claim exemption from the
1.3d preparation of consolidated financial statements
Activity Explain why directors may not wish to consolidate a subsidiary and when this is
1.3e permitted by accounting standards and other applicable regulation.
Activity Explain the need for using coterminous year ends and uniform accounting
1.3f policies when preparing consolidated financial statements
Activity Explain the objective of consolidated financial statements
1.3g
Activity 1.4 Watch a summary video here: https://youtu.be/ftR82-1WhAI

Activity 1.5 Group Discussion 2: Solve Case 1.1


Activity 1.6 Group Discussion 3: Solve Case 1.2

Activity 1.7 REVISE: IFRS 3 & 10 and IAS 27


CASE 1.1: Abacus and Scale
Abacus acquired 60% of Scale's ordinary share capital on 30 June 20X2 at a price $1.06 per share.
The balance on Scale's retained earnings at that date was $104m and the general reserve stood at
$11m. Their respective statements of financial position as at 30 September 20X6 are as follows:
Abacus Scale
$m $m
Non-current assets:
Property, plant & equipment 2,848 354

1

, Patents 45 –
Investment in Scale 159
3,052 354
Current assets
Inventories 895 225
Trade and other receivables 1,348 251
Cash and cash equivalents 212 34
2,455 510
5,507 864
Equity
Share capital (20c ordinary shares) 920 50
General reserve 775 46
Retained earnings 2,086 394
3,781 490
Non-current liabilities
Long-term borrowings 558 168
Current liabilities
Trade and other payables 1,168 183
Current portion of long-term borrowings – 23
1,168 206
5,507 864
Annual impairment tests have revealed cumulative impairment losses relating to recognised
goodwill of $17m to date.

Required
Produce the consolidated statement of financial position for the Abacus Group as at 30 September
20X6. It is the group policy to value the non-controlling interest at its proportionate share of the
fair value of the subsidiary's identifiable net assets. (10 marks)

CASE 1.2: Pappo and Narat
Pappo purchased 75% of Frimpong for $2,000,000 10 years ago when the balance on its retained
earnings was $1,044,000. The statements of financial position of the two companies as at 31
March 20X4 are as follows:
Pappo Narat
$'000 $'000
NON-CURRENT ASSETS
Investment in Narat 2,000 –
Land and buildings 3,350 –
Plant and equipment 1,010 2,210
Motor vehicles 510 345
6,870 2,555
CURRENT ASSETS
Inventories 890 352
Trade receivables 1,372 514
Cash and cash equivalents 89 51
2,351 917
9,221 3,472
EQUITY
Share capital – $1 ordinary shares 1,000 500
Revaluation surplus 2,500 –
Retained earnings 4,225 2,610
7,725 3,110
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