18/05

A acquired a 60% holding in B on 1 July 20X6. At this date, A gave B a $500,000 8% loan. The interest on the loan has been accounted for correctly in the individual financial statements. The totals for finance costs for the year to 31 December 20X6 in the individual financial statements are shown below. 

A   $200,000 

B   $70,000 

What are consolidated finance costs for the year to 31 December 20X6?

A $215,000 

B $225,000 

C $230,000 

D $250,000

• A

• B

• C

• D

Answer explanation

The correct answer is B

The finance costs for the subsidiary must be time apportioned for six months, as A has only owned them for that period of time. Also, the intra‐group interest must be split out. The intra‐group interest would not have existed in the first half of the year, as the loan was only given to B in July.   

The intra‐group interest for the second 6 months would have been $20,000 ($500,000 × 8% × 6 /12). Without this, B’s finance costs would have been $50,000 for the year. Splitting this evenly across the year would mean that $25,000 was incurred in each six month period.   

Therefore the total finance costs would be $200,000 + $25,000 = $225,000

AB has owned 80% of CD for many years. In the current year ended 30 June 20X3, AB has reported total revenues of $5.5 million, and CD of $2.1 million. AB hassold goods to CD during the year with a total value of $1 million, earning a margin of 20%. Half of these goods remain in year‐end inventories. 

What is the consolidated revenue figure for the AB group for the year ended 30 June 20X3? 

$_____________ ,000

Answer explanation

The correct answer is $6,600,000

Consolidated revenue: AB $5.5m + CD $2.1m – $1m intra‐group= $6.6 million 

All intra‐group sales and cost of sales are removed from the group accounts

Burridge bought 30% of Allen on 1 July 20X4. Allen’s statement of profit or loss for the year shows a profit of $400,000. Allen paid a dividend to Burridge of $50,000 on 1 December 20X4. At the year end, the investment in Allen was judged to have been impaired by $10,000. 

What will be the share of profit from associate shown in the consolidated statement of profit or loss for the year ended 31 December 20X4?

A $57,000 

B $50,000 

C $60,000 

D $110,000

• A

• B

• C

• D

Answer explanation

The correct answer is B

The dividend would not have been in Allen’s statement of profit or loss, so no adjustment to this would be made. The adjustment to remove the dividend would be made in investment income, where Burridge will have recorded the income in its individual financial statements. 

The profit needs to be time‐apportioned for the six months of ownership, with the $10,000 impairment then deducted. 

Share of profit of associate = 30% × $200,000 ($400,000 × 6/12) – $10,000 = $50,000 

Badger acquired 30% of Eagle on 1 July 20X3 at a cost of $5.5 million. Badger has classified Eagle as an associate undertaking. For the year ended 30 September 20X3, Eagle has reported a net profit of $625,000. 

What is the value of the associate investment in the group statement of financial position of Badger as at 30 September 20X3?

A   $5,546,875 

B   $5,500,000 

C   $6,125,000 

D   $5,968,750

• A

• B

• C

• D

Green is an associate undertaking of Purple. Purple owns 30% of the shares in Green, and has done so for many years.   During the year ended 31 December 20X4, Green made a net profit of $1.5 million. Green sold goods to Purple during the year with a value of $2 million, and half are still in Purple’s inventories at year end. All the goods were sold at a margin of 30%. Purple has recognised previous impairments in relation to its investment in Green of $225,000. In the current year, Purple wishes to recognise an additional impairment charge of $35,000. 

What is the share of profit of associate to be shown in Purple’s consolidated statement of profit or loss?

$____________ ,000