FAR 610

TUTORIAL 2.1 - VERTICAL STRUCTURE

QUESTION 1 VERTICAL COMBINED CFS
The following information is extracted from the financial statements of Axia Bhd, Brabus Bhd
and Cherry Bhd for the year 31 December 2015.
Statements of Profit and Loss and Other Comprehensive Income for the Year Ended
31 December 2015
Axia Bhd
RM000
Sales
Cost of sales
Gross profit
Operating expenses
Finance cost
Profit before taxation
Taxation
Profit for the year

Brabus Bhd
RM000

69,185
(20,500)
48,685
(15,710)
(600)
32,375
(8,095)
24,280

Cherry Bhd
RM000

39,385
(13,350)
26,035
(9,185)
(400)
16,450
(4,050)
12,400

29,920
(13,500)
16,420
(5,920)
(160)
10,340
(2,580)
7,760

Statements of Changes in Equity for the Year Ended 31 December 2015

Axia Bhd
RM000
Retained profit brought forward
Profit for the year
Ordinary dividend
Retained profit carried forward

Brabus Bhd
RM000

98,125
24,280
(18,000)
104,405

Cherry Bhd
RM000

68,750
12,400
(4,000)
77,150

29,000
7,760
(1,600)
35,160

Statements of Financial Position as at 31 December 2015

Axia Bhd
RM000
Non-Current Assets
Property, plant and equipment
Investments
Current Assets
Inventories
Trade receivables
CA Cherry
Bank

Brabus Bhd
RM000

Cherry Bhd
RM000

723,000
240,000

170,000
90,000

124,000
-

4,100
20,755
113,200
1,101,055

2,700
11,815
12,000
28,535
315,050

2,500
8,975
27,685
163,160

Equity
Ordinary shares of RM1
Retained profit
Share premium

700,000
104,405
262,500

200,000
77,150
25,000

80,000
35,160
30,000

Non-current Liabilities
6% loan

10,000

6,150
18,000
1,101,055

8,900
4,000
315,050

6,400
1,600
10,000
163,160

Current Liabilities
Trade payables
Ordinary dividend payable
CA - Brabus
Additional information:

1. Axia Bhd acquired 160 million ordinary shares of Brabus Bhd on 1 January 2012 when
the retained profit and share premium of Brabus Bhd were RM45 million and RM25
million respectively. The cost of this business combination was discharged by an issue of
80 million ordinary shares in Axia Bhd. The fair value of Axia Bhds ordinary shares on
acquisition date was RM3.00 each.
The carrying value of the net assets of Brabus Bhd reflected their fair value with the
exception of a freehold land. The fair value of the land increased by RM10 million. The
fair value of the land was further increased by RM5 million on 31 December 2015.
Brabus Bhd did not adjust its books to reflect the new value.
2. Brabus Bhd acquired 60 million ordinary shares of Cherry Bhd on 1 July 2015 when the
share premium of Cherry Bhd was RM30 million. The fair value of these shares was
RM120 million.
3. On 1 January 2014, Axia Bhd sold a machine to Brabus Bhd for RM55 million. The
carrying amount of the machine was RM50 million and its remaining useful life was 5
years. The machine still remained in the premise of Brabus Bhd as at 31 December
2015.
4. During the post-acquisition period, Brabus Bhd sold goods to Cherry Bhd for RM5
million. The goods were sold at a profit of 25% on selling price. Half of these goods
remained unsold as at 31 December 2015.
5. The group measures the non-controlling interests at their proportionate share of the fair
value of the net assets of the subsidiaries at the acquisition date.
6. It is the groups policy to depreciate all its assets using straight line method, giving full
years depreciation in the year of purchase and none in the year of disposal.
7. All profits and losses are deemed to accrue evenly throughout the year unless stated
otherwise.
8. All dividends are assumed to be post-acquisition dividends.
Required:
a. Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive Income
for Axia Bhd and its group of companies for the year ended 31 December 2015.
b. Prepare the Consolidated Statement of Financial Position of the group as at 31
December 2015.
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QUESTION 2 VERTICAL CSOPL

On 1 August 2010, Mewah Bhd acquired 90% of the ordinary shares of Kaya Bhd when the
retained profit of Kaya Bhd was RM800 million. The goodwill for this acquisition was RM20
million and 10% was impaired in the current year.
On 1 September 2014, Kaya Bhd acquired 40 million of the 50 million ordinary shares in
Senang Bhd for RM80 million. On that date, the carrying amount of Senang Bhds net assets
reflected their fair values except for land. The carrying amount of the land was RM25 million
and it was revalued to RM30 million. At the end of the year, the fair value of the land had
increased by another RM3 million. Senang Bhd did not incorporate the fair value in its
accounts.
Given below are the statements of profit or loss and statements of changes in equity of
Mewah Bhd, Kaya Bhd and Senang Bhd for the year ended 31 December 2014.
Statements of Profit or Loss for the year ended 31 December 2014

Revenue
Cost of sales
Gross profit
Operating expenses
Other income
Dividends from subsidiary
Dividend from Aman Bhd
Finance cost
Profit before tax
Taxation
Profit for the year

Mewah Bhd
RM million
1,880
(820)
1,060
(470)
20
18
2.5
(49)
581.5
(102)
479.5

Kaya Bhd
RM million
1,250
(540)
710
(290)
12
(31)
401
(51)
350

Senang Bhd
RM million
990
(540)
450
(120)
6
(21)
315
(24)
291

Statements of Changes in Equity for the year ended 31 December 2014

Mewah Bhd
RM million
Retained profit brought forward
1,205
Profit for the year
479.5
Ordinary dividend paid in December 2014
(30)
Retained profit carried forward
1,654.5

Kaya Bhd
RM million
980
350
(20)
1,310

Senang Bhd
RM million
590
291
(15)
866

Additional information:
1

The policy of the group is to measure non-controlling interest at fair value at the
acquisition date. The fair value of non-controlling interest of Kaya Bhd and Senang
Bhd are as follows:
10% holding in Kaya Bhd on 1 August 2010
28% holding in Senang Bhd on 1 September 2014

RM 200 million
RM 20 million

Mewah Bhd acquired 25% ordinary shares in Aman Bhd on 1 April 2014 for RM30
million. On this date, the carrying amount of the net assets of Aman Bhd reflected their
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fair values except for building. The fair value of this building was RM8 million more
than its carrying amount and the remaining useful life of the building was 10 years.
On 1 January 2014, the retained profit of Aman Bhd was RM65 million and its profit
after tax for the year ended 31 December 2014 was RM24 million. At the year end, the
recoverable amount of investment in Aman Berhad was less than its carrying amount
by RM1 million.
3

On 1 January 2012, Mewah Bhd sold a machine with a carrying amount of RM11
million to Kaya Bhd for RM15 million. On that date the remaining useful life of the
machine was 4 years. The machine is still in Kaya Bhds books as at 31 December
2014.

In 2013, Kaya Bhd sold goods to Mewah Bhd at a profit of RM5 million. The unrealised
profits in the opening inventory of Mewah Bhd was RM200,000.

During the post-acquisition period, Senang Bhd sold goods to Mewah Bhd for RM43
million at a profit of RM3 million. At the end of the year, half of these goods remain
unsold.

It is the group policy to depreciate all its assets using straight line method, giving full
years depreciation in the year of purchase and none in the year of disposal.

All profits and losses are deemed to accrue evenly throughout the year.

Required:
a

Prepare the consolidated statement of profit or loss and other comprehensive income
for the year ended 31 December 2014.

Prepare the consolidated statement of changes in equity for the year ended 31
December 2014 showing group retained profit and non-controlling interest.

QUESTION 3 VERTICAL CSOPL

The statements of profit or loss and statements of changes in equity for the year ended 31
December 2014 for Oglio Bhd, Chilly Bhd, Flake Bhd and Pepper Bhd are given below:
Statements of Profit or Loss for the year ended 31 December 2014

Revenue
Cost of sales
Gross profit
Rental income
Gain on disposal of
equipment
Operating expenses
Interest payable
Profit before tax
Taxation
Profit for the year

Oglio
Bhd
RM million

Chilly
Bhd
RM million

Flake
Bhd
RM million

Pepper
Bhd
RM million

37,500
(15,000)
22,500
6,000
-

21,875
(8,750)
13,125
25

19,500
(7,800)
11,700
-

15,000
(6,000)
9,000
-

(10,500)
18,000
(5,400)
12,600

(5,469)
7,681
(2,251)
5,430

(5,850)
5,850
(1,800)
4,050

(4,500)
(125)
4,375
(1,375)
3,000

Statements of Changes in Equity for the year ended 31 December 2014

Retained profit b/f

Profit for the year
Ordinary dividend
Retained profit c/f

Oglio
Bhd
RM million
7,495
12,600
(3,600)
16,495

Chilly
Bhd
RM million
5,816
5,430
11,246

Flake
Bhd
RM million
5,150
4,050
9,200

Pepper
Bhd
RM million
3,218
3,000
6,218

Additional information:
1

On 1 January 2010, Oglio Bhd acquired 67.5 million of the 90 million ordinary shares of RM1
each in Chilly Bhd. At this date, the retained profit of Chilly Bhd was RM3,700 million and
one of the buildings belonging to Chilly Bhd had a fair value of RM500 million more than its
carrying value. The remaining useful life of this building as at 1 January 2010 was 20 years.
Goodwill arising from the acquisition was RM4,200 million. As at 31 December 2012,
goodwill had already been impaired by 15%. In the current financial year, the goodwill was
impaired by another 5%.
On the date of acquisition, the fair value of the non-controlling interest in Chilly Bhd
was RM24,600 million.

On 1 January 2012, Chilly Bhd acquired 60% interest in the ordinary shares of Flake Bhd for
RM31,800 million. On this date, the retained profit of Flake Bhd was RM2,500 million and the
carrying values of the net assets of Flake Bhd reflected their fair values except for several
financial assets. On 1 January 2012, the fair values of these financial assets, which had
been classified as available for sale, exceeded their carrying values by RM1,250 million. The
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fair values of these assets rose by another RM380 million during the year ended 31
December 2014. The bargain purchase arising from this acquisition was RM750 million.
The fair value of the non-controlling interest in Flake Bhd on 1 January 2012 was
RM29,150 million.
3

On 1 April 2014, Oglio Bhd acquired 10,500,000 of the 30,000,000 RM1 ordinary shares in
Pepper Bhd. There was no goodwill or bargain purchase resulting from this acquisition.

On 1 August 2014, Flake Bhd sold RM1,750 million worth of goods to Oglio Bhd at a profit of
RM200 million. A stock take indicated that 75% of the goods are still in the inventories of
Oglio Bhd.

In November 2014, Chilly Bhd sold one of its equipment to Flake Bhd at a profit of RM25
million. The remaining useful life of the equipment on the date of disposal was ten years. It is
the groups policy to depreciate equipment on a straight-line basis taking a full years
depreciation in the year of purchase and none in the year of disposal.

The rental income of Oglio Bhd consists of 8% rental of premises to Flake Bhd.

All profits are deemed to accrue evenly throughout the year.

It is the group policy to value non-controlling interest at fair value at the acquisition date.
Required:

Prepare the consolidated statement of profit or loss and other comprehensive income of
Oglio Bhd Group for the year ended 31 December 2014.

Prepare the consolidated statement of changes in equity of Oglio Bhd Group for the year
ended 31 December 2014, showing group retained profit and non-controlling interest only.

QUESTION 4 VERTICAL CSOFP

The summarised statements of financial position of Kam Bhd, Ram Bhd, Tam Bhd and Sam
Bhd at 31 December 2011 are given below:
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Assets
Tangible assets
Investments
Inventories
Trade receivables
Cash at bank

Equity and liabilities

Ordinary share capital
(RM1 each)
Share premium
Retained profits/(losses)
10% Debentures
Trade payables
Dividend payable
Bank overdraft

Kam Bhd
RMmillio
n

Ram Bhd
RMmillio
n

Tam Bhd
RMmillio
n

Sam Bhd
RMmillion

580
792.25
127.75
100
10
1,610

300
200
145
45
690

250
120
90
20
480

200
90
80
17.5
387.5

700

400

200

180

200
330
150
50
180
1,610

75
(5)
140
40
40
690

48
120
40
42
30
480

40
60
40
37.5
30
387.5

Additional information:
1.

Investments by Kam Bhd and Ram Bhd were as follows:

a. On 1 January 2008, Kam Bhd bought 300 million shares in Ram Bhd for
RM406.25 million. On the same date, Kam Bhd acquired all the debentures of
Ram Bhd at par. The retained profit of Ram Bhd was RM32 million at that date.
The net assets of Ram Bhd at 1 January 2008 had a fair value which was the
same as their book value. The fair value of non-controlling interest on 1 January
2008 was RM134 million.
b. On 1 January 2007, Ram Bhd bought 160 million shares in Tam Bhd for RM200
million. The retained profit of Tam Bhd was RM10 million on that date and was
RM40 million on 1 January 2008. On 1 January 2007 and 1 January 2008, all of
the net assets of Tam Bhd had a fair value which was the same as their book
value. On 1 January 2008, Tam Bhd had an unrecognised household brand name
which had a market value of RM7.5 million. This brand has an indefinite
economic life. The fair value of non-controlling interest on 1 January 2007 and 1
January 2008 were RM100 million and RM102 million respectively.
c. On 1 January 2011, Kam Bhd bought 72 million shares in Sam Bhd for RM206
million. The retained profit of Sam Bhd was RM50 million at that date. On the
same date, all of the net assets of Sam Bhd had a fair value which was the same
as their book value except for its land which had a fair value of RM250,000 in
excess of its book value. The board of directors of Sam Bhd had 10 members
and 7 of them were appointed by Kam Bhd and Kam Bhd was able to control
Sam Bhd. The fair value of non-controlling interest on 1 January 2011 was
RM240 million.

d. On 31 December 2011, Kam Bhd acquired a 10% stake in Ham Bhd for RM40
million.
2.

The share premium of Ram Bhd and Sam Bhd remain unchanged from 1
January 2007.

3. Non-controlling interest is measured at fair value. Full goodwill for Sam Bhd is
impaired by RM5 million as at 31 December 2011. Goodwill has not been impaired
for Ram Bhd and Tam Bhd.
4. On 31 December 2011, the inventories of Kam Bhd included RM30 million in respect
of goods purchased from Sam Bhd. Sam Bhd invoiced goods to Kam Bhd at cost
plus 20%. On 31 December 2011, the trade receivables of Sam Bhd and the trade
payables of Kam Bhd included RM20 million in respect of goods purchased from
Sam Bhd by Kam Bhd.
5. During the current year, Ram Bhd disposed a building which had a book value of
RM2.5 million to Tam Bhd for RM3 million. The remaining useful life of the building is
25 years.
6. Ram Bhd has not recognised its share of dividends from Tam Bhd. Kam Bhd has
recognised its share of dividends from Sam Bhd and is included in the trade
receivables.
7.

All the companies have not provided for the second half-year debenture interest.
Required:
i.

Explain how Ram Bhd, Tam Bhd and Sam Bhd will be dealt with in the
Consolidated Statement of Financial Position of Kam Bhd Group as at 31
December 2011. Give reasons for your answer in each case.

ii.

Prepare the Consolidated Statement of Financial Position of Kam Bhd Group as

at 31 December 2011.

QUESTION 5 VERTICAL CSOFP

The summarised statements of financial position of Salam Bhd, Palam Bhd and Talam Bhd
as at 31 December 2014 are as follows:

Assets
Property, plant and equipment
Intangibles
Investment in Palam Bhd:
1,500,000 ordinary shares
200,000 preference shares
Investment in Talam Bhd
Other investments
Inventories
Bills receivables
Trade receivables
Ordinary dividend receivable
Bank

Salam Bhd
RM000

Palam Bhd
RM000

Talam Bhd
RM000

5,000
87.5

700
20

1,250

1,875
200
75
750
175
281.25
93.75
187.5
8,725

Equity and Liabilities

Ordinary shares of RM1.00 each
10% Preference shares of RM1.00 each
Share premium
General reserves
Retained profit as at 1 January 2013
Profit for the year ending 31 December 2013
Long term loan
Bills payable
Trade payables
Ordinary dividend payable

1,687.5
150
550
75
182.5
37.5
51.25
3,453.75

75
430
37.5
210
5
70.5
2,078

5,650
750
600
450
532.5
217.5

2,000
500

1,250

170
350
175

187.5
168.5
169
8,725

47.5
111.25
100
3,453.75

125
150
125
250
90.5
25
62.5
2,078

Additional information:
1. Salam Bhd bought the ordinary shares and preference shares in Palam Bhd on 1
January 2012. The consideration for the ordinary shares acquired was settled by
Palam Bhds shareholders accepting 400,000 ordinary shares of Salam Bhd valued
at RM2.00 each and RM1,075,000 in cash. On the date of acquisition, the general
reserve and retained profit of Palam Bhd were RM25,000 and RM237,500
respectively. The fair value of the ordinary shares of Palam Bhd is RM1.15 per share.
2.

On 1 July 2014, Palam Bhd acquired 60% of the issued ordinary shares of Talam
Bhd when the general reserves of Talam Bhd was RM125,000. The fair values of the
net assets of Talam Bhd on 1 July 2014 were equal to their carrying values except
for:
i.
A building whose fair value was RM100,000 more than its carrying value. No
adjustment was made in the books of Talam Bhd to reflect this value. The
remaining life of the building was 40 years.
ii.
A permit which has a fair value of RM2,000,000 was not recorded in the
books since the permit was granted at no cost to Talam Bhd.

3.

On 28 February 2014, Talam Bhd paid ordinary dividend of RM50,000.

4.

The other investment of Salam Bhd refers to a 15% interest in the equity shares of
Yoyo Bhd which was acquired on 1 April 2014. Salam Bhd has classified this
investment as financial assets at fair value through profit or loss in accordance with
MFRS 139 Financial Instrument: Recognition and Measurement. The increase in fair
value of this investment amounting to RM10,000 had not yet been recognized by
Salam Bhd in its financial statements.

5. On 30 July 2014, Salam Bhd sold a piece of land to Palam Bhd at a profit of
RM35,000.
6. RM100,000 of the long term loan of Talam Bhd was a loan obtained from Salam Bhd.
Salam Bhd had included this amount as part of its bills receivables.
7. During the year, Palam Bhd sold goods to Salam Bhd at a profit of RM6,000. By the
year end, all these goods had been sold by Salam Bhd to third parties. At 30
December 2014, Salam Bhd remitted RM8,000 cash for the final settlement of the
amount owing to Palam Bhd but was not received by Palam Bhd until early January
2015.
8. During the post-acquisition period, Talam Bhd sold goods to Salam Bhd at an
invoiced price of RM12,000. RM2,000 of these sales had yet to be paid by Salam
Bhd. Talam Bhd made a profit of 20% on invoice price. By the year end, 40% of these
goods had been sold by Salam Bhd to third parties.
9. On 1 September 2014, Palam Bhd sold to Talam Bhd a plant of carrying value
RM20,000 for RM30,000. The remaining life of this plant was 5 years.
10. It is the policy of the group to depreciate all assets using straight line method on
yearly basis.
11. It is the groups policy to value the non-controlling interest of investment in Palam at
its fair value and investment in Talam at proportionate basis.
12. Assume all profits accrue evenly throughout the year.
Required:
Prepare a Consolidated Statement of Financial Position for Salam Bhd Group as at 31
December 2014.
QUESTION 6 THEORY QUESTIONS
(i)

To have power over an investee, an investor must have existing rights that give the
ability to direct the relevant activities of the investee. Give any two examples of the
existing rights that can give an investor power over the investee.

(ii)

Setia Bhd holds 20% of the ordinary shares of Alam Bhd and ten other shareholders
each hold 8% of the ordinary shares of Alam Bhd. A shareholder agreement
between Setia Bhd and all the other shareholders grants Setia Bhd the right to
appoint, remove and set the compensation of management responsible for the
relevant activities of Alam Bhd. Explain whether Setia Bhd has the power over Alam
Bhd.

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