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BNM has $10 million $1 ordinary shares in issue at 1 January 2010. On 1 August 2010
BNM issued 2 million $1 ordinary shares at a premium of 30 cents. BNM's profit available to
ordinary shareholders was $4 million for the year ended 31 December 2010.
The basic earnings per share is:
(2 marks)
2 The Directors of GHJ, an unlisted entity, have approached the directors of a smaller listed
entity and have proposed an agreed takeover by GHJ. The net assets of GHJ are
approximately twice as great as the target entity.
This type of arrangement is known as a
A
merger
listed acquisition
reverse acquisition
(2 marks)
3 IOP operates a defined benefit pension plan for its employees. The present value of the
pension plan obligations as at 31 December 2010 total $567 million. The fair value of the
pension plan assets at that date total $558 million. Unrecognised gains as at 31 December
2010 were $3 million.
The statement of financial position of IOP as at 31 December 2010 will show:
A
(2 marks)
4 FGH acquired an investment in a listed entity and classified the investment as available for
sale. 100,000 shares were acquired at $1.15 on 1 May 2010 and the related acquisition
costs were $8,000. The shares were trading at $1.50 at 31 December 2010
The subsequent measurement of the available for sale investment will be recorded by:
A
(2 marks)
BGR's functional and presentational currency is the dollar ($). BGR purchased non-current
assets on credit for 250,000 on 25 March 2010. The payable was settled on 12 May. The
relevant exchange rates were:
25 March 2010
30 April 2010
12 May 2010
0.741 : $1
0.753 : $1
0.731 : $1
At 30 April 2010, the entity's year end, what amounts would have been held in respect of
this transaction?
A
6 LMR had 3 million $1 ordinary shares in issue at 1 May 2009. On 30 September 2009, LMR
issued a further 1 million $1 shares at par. Profit before tax for the year ended 30 April 2010
was $450,000 and the related income tax charge was $110,000.
Calculate the basic earnings per share of LMR for the year to 30 April 2010.
(2 marks)
7 The non-current asset turnover ratios of entities X and Y are 0.44 and 0.82 respectively.
Explain, giving TWO reasons, why this ratio may not provide a good comparison of the
efficiency of the entities.
(2 marks)
8 NBW purchased a bond with a par value of $5 million on 1 July 2009. The bond carries a
5% coupon, payable annually in arrears and is redeemable on 30 June 2014 at $5.8 million.
NBW fully intends to hold the bond until the redemption date. The bond was purchased at a
10% discount. The effective interest rate on the bond is 10.26%.
Calculate the closing value of the bond liability in NBWs financial statements as at 30 June
2010.
(2 marks)
9 GH granted share options to its 300 employees on 1 January 2009. Each employee will
receive 1,000 share options provided they continue to work for GH for three years from the
grant date. The fair value of each option at the grant date was $1.22.
The actual and expected staff movement over the three years to 31 December 2011 is
provided below:
2009 - 25 employees left and another 40 were expected to leave over the next two years.
2010 - A further 15 employees left and another 20 were expected to leave the following
year.
The charge to GH's income statement for the year ended 31 December 2010 in respect of
the share options was:
A
$97,600
$99,633
$195,200
$292,800
(2 marks)
10 JK operates a defined benefit pension plan. The fair value of the plan assets at 31
December 2010 was $13.1 million. The present value of the plan liabilities at 31 December
2010 was $13.9 million. JK currently adopts the corridor approach for the treatment of
actuarial gains and losses. Unrecognised actuarial losses as at 31 December 2010 totalled
$0.5 million.
The net pension asset or liability that would be included in JK's statement of financial
position as at 31 December 2010 is
A
(2 marks)
11 AD acquired 100,000 shares in BC on 25 October 2010 for $3 per share. The investment
resulted in AD holding 5% of the equity shares of BC. The related transaction costs were
$12,000. BC's shares were trading at $3.40 on 31 December 2010. The investment has
been classified as held for trading.
The increase in value of the investment will result in
A
(2 marks)
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Share of profit of associate
Finance costs
Profit before tax
Income tax expense
Profit for the year
2010
$m
252
(203)
49
(18)
(16)
7
(12)
10
(3)
7
The operating profit margin (to the nearest two decimal places) of KL for the year ended 31
December 2010 is
A
3.97%
5.95%
8.73%
19.44%
(2 marks)
13
JAC operates a defined benefit pension plan for its employees. The fair value of the plan
assets at 1 June 2008 was $3,100,000. JAC made contributions of $300,000 to the plan in
the year to 31 May 2009 and the expected return on assets has been calculated at
$190,000. The pension plan paid out a total of $225,000 in benefits in the period and the
fair value of the plan assets at 31 May 2009 was $3,340,000.
The actuarial gain or loss in respect of the pension plan assets of JACs defined benefit
pension plan for the year ended 31 May 2009 is:
$125,000 loss
$25,000 loss
$25,000 gain
D
$125,000 gain
(2 marks)
14 MX had 5 million $1 ordinary shares in issue at 1 May 2008. On 30 September 2008 MX
issued a further 2 million $1 ordinary shares at par.
Profit before tax for the year ended 30 April 2009 was $650,000 and the related income
tax charge was $210,000.
The basic earnings per share of MX for the year to 30 April 2009 is:
A
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D
13.5 cents per share
(2 marks)
15 AB, CD and EF are listed entities operating in the same business sector. At 31 December
2009 their P/E ratios were reported as follows:
AB
17.1
CD
13.2
EF
9.3
Which ONE of the following statements about these P/E ratios is correct?
A
CD represents the safest investment because its P/E lies midway between the other two.
EFs share price may be relatively lower than that of AB and CD because of an adverse
effect such as a profit warning.
(2 marks)
D
Economic
Environmental
Segmental
Social
(2 marks)
17
AB granted 1,000 share options to its 300 employees on 1 January 2011. To be eligible,
employees must remain employed for three years from the date of issue and the rights
must be exercised in January 2014. In the year to 31 December 2011, 32 staff left and a
further 35 were expected to leave over the following two years.
The fair value of the share options at 1 January 2011 was $8.
The accounting entry to record the expense associated with the share options (to the
nearest $), for the year to 31 December 2011, in accordance with IFRS 2 Share-based
Payment is to:
debit staff costs $1,864,000 and credit other reserves (within equity) $1,864,000.
debit staff costs $621,333 and credit other reserves (within equity) $621,333.
(2 marks)
18 NM acquired an equity investment in another entity and classified it immediately as held for
trading. The investment cost $880,000 on 1 May 2011 and at its following year end NM had
recognised a gain of $6,800 on the investment. NM pays 2% commission to its broker on all
transactions.
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The value of this investment will be included in NM's statement of financial position at:
A
$886,800
$904,400
$904,536
$912,560
(2 marks)
19 GHJ operates a defined benefit pension plan for its employees. At 1 July 2011 the present
value of the plan liabilities was $1,400,000. The interest cost on the plan liabilities was
estimated at 7%.
The actuary estimates that the current service cost for the year ended 30 June 2012 is
$300,000. GHJ made contributions into the pension plan of $400,000 in the year.
The pension plan paid $220,000 to retired members in the year to 30 June 2012.
At 30 June 2012 the present value of the plan liabilities was $1,600,000.
GHJ recognises actuarial gains and losses in other comprehensive income in the period in
which they occur.
The actuarial gain or loss on the pension liabilities that GHJ will recognise in other
comprehensive income for the year ended 30 June 2012 is:
A
gain of $198,000
gain of $22,000
loss of $8,000
loss of $22,000
20 ABC issued 6% debentures on 1 January 2010 at their par value of $3 million. Issue costs
were $200,000. The interest on the debentures is paid annually in arrears. The debentures
will be redeemed in 4 years' time at a premium of $400,000. The effective interest rate in
respect of these debentures is approximately 11%.
The debentures will be included in the statement of financial position of ABC at 31
December 2011 at a value of:
A
$2,928,000
$2,940,000
$3,070,080
$3,150,000
(2 marks)
(2 marks)
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21
SR granted 1,000 share appreciation rights (SARs) to its 300 employees on 1 January
2011. To be eligible, employees must remain employed for 3 years from the date of issue
and the rights must be exercised in January 2014, with settlement due in cash. In the year
to 31 December 2011, 32 members of staff left and a further 35 were expected to leave
over the following 2 years.
The fair value of each SAR was $8 at 31 December 2011.
The accounting entry to record the expense associated with the SARs (to the nearest $), for
the year to 31 December 2011, in accordance with IFRS 2 Share-based Payment is to:
debit staff costs $1,864,000 and credit other reserves (within equity) $1,864,000.
debit staff costs $621,333 and credit other reserves (within equity) $621,333.
22 KL issued a long term debt instrument with a nominal value of $9.5 million on 1 January
2011. The costs associated with the issue totalled $370,000. The instrument carries a
coupon rate of 5%. However, effective interest rate for this instrument is 7%.
The value of the debt instrument in KL's statement of financial position at 31 December
2011 was
A
$8,965,900
$9,294,100
$9,312,600
$9,690,000
(2 marks)
23 The following information is available for GHJ for the year ended 31 March 2012:
Profit for the year
Total comprehensive income for the year
Share capital ($1 equity shares)
$160m
$248m
$300m
The share capital at the year-end includes 100m shares that were issued as a bonus issue
on 1 July 2011.
The basic earnings per share for the year ended 31 March 2012 is
A
53.3 cents B
58.2 cents C
82.7 cents D
90.2 cents
24 SR acquired 60% of the 1 million $1 ordinary shares of BN on 1 July 2011 for $3,250,000
when BN's retained earnings were $2,760,000. The group policy is to measure noncontrolling interests at fair value at the date of acquisition. The fair value of non-controlling
interests at 1 July 2011 was $1,960,000. There has been no impairment of goodwill since
the date of acquisition.
SR acquired a further 20% of BN's share capital on 1 March 2012 for $1,000,000 when the
retained earnings of BN were $2,960,000.
The value of goodwill appearing on SR Group's statement of financial position at 31 March
2012 is
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$994,000
$1,450,000
$1,594,000
$2,250,000
(2 marks)
(2 marks)
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An expense of $155,000.
An expense of $245,000.
An expense of $255,000.
An expense of $365,000.
(2 marks)
26 The actuarial gain or loss on the pension plan assets that will be included in the other
comprehensive income of R for the year ended 31 December 2012 is:
A
a loss of $155,000
a loss of $70,000
a gain of $70,000
a gain of $220,000
(2 marks)
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Dr Bank
Dr profit/loss
Cr Equity
$990,000
$10,000
$1,000,000
Dr Bank
Cr Equity
$990,000
$990,000
Dr Bank
Dr profit/loss
Cr Liability
$990,000
$10,000
$1,000,000
Dr Bank
Cr Liability
(2 marks)
$990,000
$990,000
28 X Group acquired 40% of Y on 1 April 2012 for $400,000 and, as a result, was able to
exercise significant influence over Y. Y's profit for the year ended 31 December 2012 was
$100,000 and its other comprehensive income, net of tax, was $20,000.
The value of the investment in associate that X Group will include in its accounts as at 31
December 2012 is:
A
$430,000
$436,000
$490,000
$520,000
(2 marks)
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The inventories days and the trade receivable days for the period to 30 June 2013 will be
approximately:
Inventories days
Receivables days
94 days
128 days
94 days
100 days
73 days
100 days
73 days
128 days
(2 marks)
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30 On 1 October 2012, AB, a listed entity, had 8,000,000 $1.00 ordinary shares in issue. On 1
July 2013 AB issued 1,500,000 new $1.00 ordinary shares for $9.20 per share. The profit
before tax of AB for the year ended 30 September 2013 was $10,580,000. AB is subject to
tax of 20% on all profits.
AB's basic earnings per share for the year ended 30 September 2013 is approximately:
A
89.1 cents
96.6 cents
101.1 cents
126.3 cents
(2 marks)
31 EM acquired 100,000 of the 1 million equity shares in LR on 1 October 2012 for $6 per
share. The related transaction costs were $30,000. The investment was classified as held
for trading. At 31 December 2012 LR's shares were trading at $6.40.
Which of the following journal entries will be processed to record the subsequent
measurement of the investment at 31 December 2012?
Dr Investment $40,000;
Dr Investment $37,000;
Dr Investment $40,000;
Cr Reserves $40,000
Dr Investment $37,000;
Cr Reserves $37,000
32 ABC operates a defined benefit plan for all its employees. At 1 October 2012, the defined
benefit pension plan's assets had a fair value of $1,100,000. The actuary estimated that for
the year to 30 September 2013 the interest cost was 10%, the expected return on assets
6% and the current service cost $400,000. ABC paid contributions of $420,000 into the plan
and the pension plan paid $300,000 to retired members in the year to 30 September 2013.
At 30 September 2013, the defined benefit plan's assets had a fair value of $1,300,000.
The actuarial gain arising on ABC's defined benefits pension plan assets for the year
ended 30 September 2013 was:
A
$2,000
$14,000
$34,000
$124,000
(2 marks)
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33Quartile is in the jewellery retail business which can be assumed to be highly seasonal. For the
year ended
30 September 2014, Quartile assessed its operating performance by comparing selected
accounting ratios with those
of its business sector average as provided by an agency. You may assume that the business
sector used by the agency
is an accurate representation of Quartiles business.
Which of the following circumstances may invalidate the comparison of Quartiles ratios
with those of the sector
average?
(i) In the current year, Quartile has experienced significant rising costs for its purchases
(ii) The sector average figures are complied from companies whose year end is between 1 July
2014 and
30 September 2014
(iii) Quartile does not revalue its properties, but is aware that other entities in this sector do
(iv) During the year, Quartile discovered an error relating to the inventory count at 30 September
2013. This error
was correctly accounted for in the financial statements for the current year ended 30 September
2014
A All four
B (i), (ii) and (iii)
C (ii) and (iii) only
D (ii), (iii) and (iv)
34The following information has been taken or calculated from Fowlers financial statements for
the year ended
30 September 2014.
Fowlers cash cycle at 30 September 2014 is 70 days.
Its inventory turnover is six times.
Year-end trade payables are $230,000.
Purchases on credit for the year were $2 million.
Cost of sales for the year was $18 million.
What is Fowlers trade receivables collection period as at 30 September 2014?
All calculations should be made to the nearest full day. The trading year is 365 days.
A 106 days
B 89 days
C 56 days
D 51 days
35On 1 January 2014, Viagem acquired 80% of the equity share capital of Greca.
Extracts of their statements of profit or loss for the year ended 30 September 2014 are:
Viagem Greca
$000 $000
Revenue 64,600 38,000
Cost of sales (51,200) (26,000)
Sales from Viagem to Greca throughout the year ended 30 September 2014 had consistently been
$800,000 per
month. Viagem made a mark-up on cost of 25% on these sales. Greca had $15 million of these
goods in inventory
as at 30 September 2014.
What would be the cost of sales in Viagems consolidated statement of profit or loss for the
year ended
30 September 2014?
A $599 million
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B $614 million
C $638 million
D $679 million
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In accordance with IAS 33 Earnings per Share, what is Hoys diluted earnings per share for
the year ended
30 September 2014?
A 250 cents
B 221 cents
C 310 cents
D 419 cents
41 Although the objectives and purposes of not-for-profit entities are different from those of
commercial entities, the
accounting requirements of not-for-profit entities are moving closer to those entities to which IFRSs
apply.
Which of the following IFRS requirements would NOT be relevant to a not-for-profit entity?
A Preparation of a statement of cash flows
B Requirement to capitalise a finance lease
C Disclosure of earnings per share
D Disclosure of non-adjusting events after the reporting date
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B $1,450,000
C $1,594,000
D $2,250,000
45.
NM acquired an equity investment in another entity and classified it immediately as held for trading.
The investment cost $880,000 on 1 May 2011 and at its following year end NM had recognised a gain of
$6,800 on the investment. NM pays 2% commission to its broker on all transactions.
The value of this investment will be included in NM's statement of financial position at:
A $886,800
B $904,400
C $904,536
D $912,560
46.
X Group acquired 40% of Y on 1 April 2012 for $400,000 and, as a result, was able to exercise significant
influence over Y. Y's profit for the year ended 31 December 2012 was $100,000 and its other
comprehensive income, net of tax, was $20,000.
The value of the investment in associate that X Group will include in its accounts as at 31 December
2012 is:
A $430,000
B $436,000
C $490,000
D $520,000
47.
AB owns a controlling interest in another entity, CD, and exerts significant influence over EF, an entity in
which it holds 30% of the ordinary share capital. During the financial year ended 30 April 2005, EF sold
goods to AB valued at $80,000. The cost of the goods to EF was $60,000. Twentyfive per cent of the
goods remained in ABs inventory at 30 April 2005. Briefly explain how the intragroup trading will be
dealt with in the consolidated accounts of AB.
4,000,000
(10,000,000 x 7/12) + (12,000,000 x 5/12)
$m
567
558
9
3
12
$123,000
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31 December 2010 - FV
Uplift in value
$150,000
$ 27,000
Non-current assets are recorded at the spot rate at the date of transaction and not
retranslated (250,000/0.741 = $337,382). Trade payables are restated at the closing rate as
payables are a monetary item (250,000/0.753 = $332,005).
The answer is B
6
Post tax earnings ($450,000 - 110,000)
Weighted avarage number of shares in issue:
1 May - 30 September 3 million x 5/12 months
1 October - 30 April 4 million x 7/12 months
$340,000
1,250,000
2,333,333
3,583,333
9.5 cents per share
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Closing balance
$000
4,711.7
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2009 (300-25-40) x 1,000 x $1.22 = $286,700 over 3 years = $95,567 charge for 2009
2010 (300-25-15-20) x 1,000 x $1.22 = $292,800 x 2/3 years = $195,200 recognisable to date
Less amount recognised in 2009 $(195,200-95,567) = $99,633 charge for 2010
The answer is B
10
$m
13.9
(13.1)
0.8
(0.5)
0.3
$40,000
$40,000
Being the uplift in value and the recording of the gain in the income statement
The answer is D
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12
Operating profit/revenue = $(49-18-16)m/$252m x 100 = 5.95% The answer is B
13
Pension plan assets
FV of plan assets at 1 June 2008
Contributions made
Expected return on assets
Benefits paid
Actuarial loss (balancing figure)
FV of plan assets at 31 May 2009
$000
3,100
300
190
(225)
(25)
3,340
The answer is B
14
Post tax earnings
Weighted average number of shares in issue:
1 may 30 September 5 million shares x 5/12 months
1 October 30 April 7 million shares x 7/12 months
Earnings per share $440,000/6,166,000
$440,000
2,083
4,083
6,166
7.1 cents per share
The answer is B
15 The answer is D
16 The answer is C
17
Workings
1,000 options x (300 - 32 - 35) eligible employees x FV $8 = $1,864,000
Recognised expense for the year to 31 December 2011 $1,864,000 x 1/3 years =
$621,333
Recorded as DR staff costs and CR other reserves
The answer is C
18 Workings
Cost of investment
Plus gain on remeasurement
Total initial value recorded
880,000
The investment has been classified as held for trading on initial recognition and so is
recorded at fair value (cost) with transaction costs being recognised immediately in profit
or loss.
The answer is A
19 Workings
$000
The answer is D
20 Workings
$000
3,000
Proceeds of issue
Less issue costs
Net proceeds
Effective interest 11%
Interest paid
Balance of liability at 31 December 2011
2,800
(180)
The answer is A
21
$621,333
The SARs are an example of a cash-settled share-based payment and therefore the
credit is to liabilities.
The answer is D
22
Opening balance
$
9,130,000
Finance cost at 7%
$
639,100
Interest paid 5%
$
(475,000)
Closing balance
$
9,294,100
The answer is B
23 EPS =
May
2012
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M1 - Examiners' Answers
24
Goodwill
Consideration transferred
Non-controlling interests
$000
$000
3,250
5,210
1,000
2,760
(3,760)
1,450
Goodwill on acquisition
Note: the additional 20% purchase of shares does not trigger a goodwill calculation because SR
already controls BN. The additional acquisition is dealt with by an adjustment to parent's equity.
The answer is B
25
Workings
Profit/loss expense
Service costs
Net interest cost 5% (1,200 - 1,100)
Net expense
The answer is C
$000
250
5
255
26 Workings
Movement on assets
Opening balance
Expected return 5% x $1,100,000
Contribution paid
Benefits paid
Actuarial gain
Closing balance
The answer is C
29
Workings
Inventories at 30/6/13
Cost of sales for 6 months
$620,000
$2,420,000
Receivables at 30/6/13
Revenue
The answer is B
30 Workings
EPS
Profit after tax ($10,580,000 - $2,116,000)
Weighted average number of shares:
At 1 October 2012
Issue in the period (1,500,000 x 3/12)
Basic eps for 2013 $8,464,000/8,375,000
$8,464,000
8,000,000
375,000
8,375,000
101.1 cents
per share
The answer is C
32 Workings
FV of pension plan assets
$000
Opening balance
Expected return 6%
Contributions
Benefits paid
Actuarial gain on plan assets
Closing balance
1,100
66
420
(300)
14
1,300
The answer is B
33 C
34 D
Year end inventory of six times is 61 days (365/6).
Trade payables period is 42 days (230,000 x 365/2,000,000).
Therefore receivables collection period is 51 days (70 61 + 42).
35 C
$
Cost of sales
Viagem 51,200
Greca (26,000 x 9/12) 19,500
Intra-group purchases (800 x 9 months) (7,200)
URP in inventory (1,500 x 25/125) 300
63,800
36 D
37 A
38 D
39 A
$000
Cost (240,000 x $6) 1,440
Share of associates profit (400 x 6/12 x 240/800) 60
Less dividend received (150 x 240/800) (45)
1,455
40 A
(1,550/((2,500 x 2 + 1,200 see below)
2 million shares at $120 = $24 million which would buy 800,000 shares at full price of $3.
Therefore, dilution element (free shares) is 1,200,000 (2,000 800).
41 C
42 D
Factoring with recourse means Trent still has the risk of an irrecoverable receivable and therefore would
not derecognise the receivable.
43.
Operating profit/revenue = $(491816)m/$252m x 100 = 5.95%
The answer is B
44.
Goodwill $000
Consideration transferred 3,250
Noncontrolling interests 1,960
5,210
Fair value of net assets acquired:
Share capital 1,000
Retained earnings 2,760
(3,760)
Goodwill on acquisition 1,450
Note: the additional 20% purchase of shares does not trigger a goodwill calculation because SR already
controls BN. The additional acquisition is dealt with by an adjustment to parent's equity.
The answer is B
45.
$000
Cost of investment 880
Plus gain on remeasurement 6.8
Total initial value recorded 886.8
The investment has been classified as held for trading on initial recognition and so is recorded at fair
value (cost) with transaction costs being recognised immediately in profit or loss.
The answer is A
46.
The group will include the cost of $400,000 plus its share of the postacquisition profit and gains of the
associate 40% (($100,000 + $20,000) x 9/12)) = $400,000 + $36,000 = $436,000 = valuation of associate
at 31/12/2012.
The answer is B
47.
Unrealised profit = ($80,000 $60,000) x 25% = $5,000.
The group share of the figure is 30%, i.e. $1,500. The profit and inventory are located in the holding
entity, so therefore the adjustment is to consolidated reserves and consolidated inventory.