QUESTION TWO
On 1 October 2010, Pythias secured a majority equityshareholding in Sara on the following terms: an immediate paymentof K4 per share on 1 October 2010 and a further amount deferreduntil 1 October 2011 of K5.4 million. The immediate payment hasbeen recorded in Pythiasâs financial statements, but the deferredpayment has not been recorded. Pythiasâs cost of capital is 8% perannum. On 1 February 2011, Pythias also acquired 25% of the equityshares of Austin paying K10 million in cash.
The summarised statements of financial position of the threecompanies at 30 September 2011 are:
Pythias Sara Austin
Assets K000 K000 K000
Non-current assets
Property, plant and equipment 40,000 31,000 30,000
Intangible assets 7,500
Investments â Sara (8 million shares at K4 each) 32,000
â Austin 10,000 nil nil
ââââââ ââââââ ââââââ
89,500 31,000 30,000
Current assets
Inventory 11,200 8,400 10,000
Trade receivables 7,400 5,3005,000
Bank 3,400 nil 2,000
ââââââ ââââââ ââââââ
Total assets 111,500 44,700 47,000
ââââââ ââââââ ââââââ
Equity and liabilities
Equity Equity shares of K1 each 50,000 10,000 10,000
Retained earnings â at 1 October 2010 25,700 12,00031,800
â for year ended 30 September 2011 9,200 6,000 1,200
ââââââ ââââââ ââââââ
84,900 28,000 43,000
Non-current liabilities
Deferred tax 15,000 8,000 1,000
Current liabilities
Bank nil 2,500 nil
Trade payables 11,600 6,200 3,000
ââââââ ââââââ ââââââ
Total equity and liabilities 111,500 44,70047,000
ââââââ ââââââ ââââââ
The following information is relevant:
(i) Pythiasâs policy is to value the non-controlling interest atfair value at the date of acquisition. For this purpose thedirectors of Pythias considered a share price for Sara of K3.50 pershare to be appropriate.
(ii) At the date of acquisition, the fair values of Saraâsproperty, plant and equipment was equal to its carrying amount withthe exception of Saraâs plant which had a fair value of K4 millionabove its carrying amount. At that date the plant had a remaininglife of four years. Sara uses straight-line depreciation for plantassuming a nil residual value. Also at the date of acquisition,Pythias valued Saraâs customer relationships as a customer baseintangible asset at fair value of K3 million. Sara has notaccounted for this asset. Trading relationships with Saraâscustomers last on average for six years.
(iii) At 30 September 2011, Saraâs inventory included goodsbought from Pythias (at cost to Sara) of K2.6 million. Pythias hadmarked up these goods by 30% on cost. Pythiasâs agreed currentaccount balance owed by Sara at 30 September 2011 was K1.3million.
(iv)Impairment tests were carried out on 30 September 2011 whichconcluded that consolidated goodwill was not impaired, but, due todisappointing earnings, the value of the investment in Austin wasimpaired by K2.5 million.
(v) Assume all profits accrue evenly through the year.
Required:
Prepare the consolidated statement of financial position forPythias as at 30 September 2011. (25 marks)
QUESTION TWO
On 1 October 2010, Pythias secured a majority equityshareholding in Sara on the following terms: an immediate paymentof K4 per share on 1 October 2010 and a further amount deferreduntil 1 October 2011 of K5.4 million. The immediate payment hasbeen recorded in Pythiasâs financial statements, but the deferredpayment has not been recorded. Pythiasâs cost of capital is 8% perannum. On 1 February 2011, Pythias also acquired 25% of the equityshares of Austin paying K10 million in cash.
The summarised statements of financial position of the threecompanies at 30 September 2011 are:
Pythias Sara Austin
Assets K000 K000 K000
Non-current assets
Property, plant and equipment 40,000 31,000 30,000
Intangible assets 7,500
Investments â Sara (8 million shares at K4 each) 32,000
â Austin 10,000 nil nil
ââââââ ââââââ ââââââ
89,500 31,000 30,000
Current assets
Inventory 11,200 8,400 10,000
Trade receivables 7,400 5,3005,000
Bank 3,400 nil 2,000
ââââââ ââââââ ââââââ
Total assets 111,500 44,700 47,000
ââââââ ââââââ ââââââ
Equity and liabilities
Equity Equity shares of K1 each 50,000 10,000 10,000
Retained earnings â at 1 October 2010 25,700 12,00031,800
â for year ended 30 September 2011 9,200 6,000 1,200
ââââââ ââââââ ââââââ
84,900 28,000 43,000
Non-current liabilities
Deferred tax 15,000 8,000 1,000
Current liabilities
Bank nil 2,500 nil
Trade payables 11,600 6,200 3,000
ââââââ ââââââ ââââââ
Total equity and liabilities 111,500 44,70047,000
ââââââ ââââââ ââââââ
The following information is relevant:
(i) Pythiasâs policy is to value the non-controlling interest atfair value at the date of acquisition. For this purpose thedirectors of Pythias considered a share price for Sara of K3.50 pershare to be appropriate.
(ii) At the date of acquisition, the fair values of Saraâsproperty, plant and equipment was equal to its carrying amount withthe exception of Saraâs plant which had a fair value of K4 millionabove its carrying amount. At that date the plant had a remaininglife of four years. Sara uses straight-line depreciation for plantassuming a nil residual value. Also at the date of acquisition,Pythias valued Saraâs customer relationships as a customer baseintangible asset at fair value of K3 million. Sara has notaccounted for this asset. Trading relationships with Saraâscustomers last on average for six years.
(iii) At 30 September 2011, Saraâs inventory included goodsbought from Pythias (at cost to Sara) of K2.6 million. Pythias hadmarked up these goods by 30% on cost. Pythiasâs agreed currentaccount balance owed by Sara at 30 September 2011 was K1.3million.
(iv)Impairment tests were carried out on 30 September 2011 whichconcluded that consolidated goodwill was not impaired, but, due todisappointing earnings, the value of the investment in Austin wasimpaired by K2.5 million.
(v) Assume all profits accrue evenly through the year.
Required:
Prepare the consolidated statement of financial position forPythias as at 30 September 2011. (25 marks)
