Staverton Staverton is a public company with a year end of 31 December 20x6. The company has several subsidiaries.
Requirement
Adjust the spreadsheet for the three transactions listed below. Then compare your answer to the model answer.
Transaction 1
On 1 January 20x6, Staverton sold half of its investment in Nappers Co, a 100% subsidiary. As from that date, it could exercise significant influence (but not control).
The cash proceeds were credited to a suspense account. Nappers Co has been consolidated as a 100% subsidiary for the whole year, but it should have been treated as a 50% associate.
The following figures had been consolidated – revenue $200m, cost of sales $100m, operating expenses $50m. The profit on the sale of the subsidiary was $20m. Nappers Co is not considered to be a discontinued operation. Ignore tax on this transaction.
Transaction 2
Deferred taxation has not been recognized on the following transactions. These transactions were entered into by the parent company.
A provision for reorganization of $50m has been set up. This will not be allowed for tax until the reorganization actually takes place in the following year.
A revaluation upwards of PPE of $150m. Tax rate is 20%.
Transaction 3
The remeasurement gain on the defined benefit pension plan of $50m has been incorrectly credited to cost of sales. However, tax has been correctly accounted for on this transaction.