BKAR 3043 FINANCIAL ACCOUNTING AND REPORTING IV

TUTORIAL 2: CHANGES IN GROUP STRUCTURE

SUBMISSION DATE:

Question 1
On 1 January 2014, Pesona Bhd acquired a 30% equity interest in Saga Bhd for a cash
consideration of RM5,100,000. Saga Bhd’s net assets were represented by share capital of
RM10,00,000 and retained profit of RM6,000,000. The interest was classified as investment in
associate. Pesona Bhd had applied the equity method for its investment in Saga Bhd.

On 1 January 2016, Pesona Bhd acquired another 30% interest in the equity shares of Saga Bhd
for a consideration of RM7,500,000. On this date the quoted market price of Saga Bhd’s equity
shares was RM2.00 per share. The fair value of Saga Bhd as a whole was based on its market
price on the acquisition date. Retained profit of Saga Bhd at this date was RM8,400,000.

On 1 April 2017, Pesona Bhd acquired 1,000,000 of Saga Bhd’s shares for cash consideration
of RM2,500,000. The financial statements of Pesona Bhd and Saga Bhd for the year ended 31
December 2017 are as follows:

Statement of Changes in Equity (partial) for the year ended 31 December 2017
Pesona Bhd Saga Bhd
(RM’000) (RM’000)
Beginning retained profits 24,400 10,000
Profit for the year 6,580 2,400
Ending retained profit 30,980 12,400

Statement of Financial Position as at 31 December 2017

Pesona Bhd Saga Bhd
(RM’000) (RM’000)

Share capital of RM1.00 each 20,000 10,000

Retained profits 30,980 12,400
50,980 22,400
Investment in Saga Bhd, at cost 16,000 -
Sundry net assets 34,980 22,400
50,980 22,400

Additional information:

1. The group uses fair value method to measure the non-controlling interest.

2. The earnings of Saga Bhd accrued evenly throughout 2017.

3. Income tax rate is 30%.

REQUIRED:
(a) Calculate the goodwill as at 1 January 2016.

(b) Compute the gain or loss on re-measurement at the acquisition date.

(c) Explain an accounting treatment in group account for additional purchase of shares in
2017.
(d) Prepare the consolidation journal entries for the year ended 31 December 2017.
Question 2

TRM Bhd is one of the leading group of companies in Malaysia principally engaged in the
manufacturing. On 1 July 2014, TRM Bhd acquired 80% interest in SIT Bhd with retained
profits of RM3,500,000. SIT Bhd acquired 70% interest in REX Bhd at a cost of RM5,250,000
on 1 July 2015, the market price of REX Bhd on the acquisition date was RM1.50. At this
acquisition date, REX Bhd’s retained profits was RM1,500,000.

The following are financial statements provided by TRM Bhd and its subsidiaries:

Statement of Comprehensive Income

For the year ended 30 June 2017
TRM Bhd SIT Bhd REX Bhd
RM’000 RM’000 RM’000
Sales 18,300 15,650 13,400
Cost of goods sold (7,500) (6,560) (6,140)
Gross profit 10,800 9,090 7,260
Add: Other Income
Gain on sales on land - - 1,500
Dividend Income 2,400 - -
Management fees received 1,400 - -
Less: Expenses
Operating expenses (2,710) (2,480) (2,000)
Management fee - (1,400) -
Profit before taxation 11,890 5,210 6,760
Less: Taxation (3,000) (1,300) (1,690)
Profit after taxation 8,890 3,910 5,070
Retained earnings, 1/7/2016 8,300 7,000 3,540
Dividend paid (5,500) (3,000) -
Retained earnings, 30/6/2017 11,690 7,910 8,610

Statement of Financial Position

As at 30 June 2017
TRM Bhd SIT Bhd REX Bhd
RM’000 RM’000 RM’000
Property, plant and equipment 11,500 11,350 11,900
Investment, at cost:
Shares in SIT Bhd 10,500 - -
Shares in REX Bhd 2,000 5,250 -
Current assets 6,240 5,993 4,627
30,240 22,593 16,527

Financed by:
Ordinary share (RM1 each) 12,000 8,000 5,000
Retained earnings 11,690 7,910 8,610
Long-term liabilities 3,000 4,100 1,500
Current liabilities 3,550 2,583 1,417
30,240 22,593 16,527
Additional information:

1. There are no changes in the share capital account of all the companies in the group.

2. Assume revenue and expenses for the group accrued evenly throughout the year.

3. The group used the proportionate share of net identifiable assets method to record the
non-controlling interest for SIT Bhd and the fair value method to record the non-
controlling interest for REX Bhd.

4. All dividends were paid during the current year.

5. On 1 October 2016, 15% of REX Bhd shareholdings acquired by TRM Bhd for RM
RM2,000,000.

6. During the year, SIT Bhd paid management fees of RM1,400,000 to TRM Bhd.

7. SIT Bhd sold goods to TRM Bhd for RM3,500,000 with a profit margin of 20% on cost
and the inventory balance of TRM Bhd at year end was RM1,200,000.

8. On 1 January 2017, TRM Bhd sold land with a net book value of RM3,000,000 to REX
Bhd for RM4,500,000.

9. Assume tax rate is maintained at 25%. The tax effects on unrealized profit or loss on
intragroup transactions should be ignored.

REQUIRED:

(a) Calculate the goodwill for the TRM Bhd group.

(b) Record all the consolidation journal entries of TRM Bhd and its subsidiaries for the year
ended 30 June 2017.

(c) Prepare the Consolidated Statement of Comprehensive Income of TRM Bhd and its
subsidiaries for the year ended 30 June 2017.

(d) Prepare the Consolidated Statement of Financial Position of TRM Bhd and its
subsidiaries as at 30 June 2017.