General ACCAAdvanced Accounting Assignment Comprehensive Problem

Comprehensive Problem In recent years Mystic has acquired a reputation for buying modestly performing business and selling them at a substantial profit within a period of two to three years of their acquisition. On July 1 2013 Mystic acquired 80% of the ordinary share capital of Ulric at a cost of $10,280,000. On the same date it also acquired 50% of Ulric’s 10% loan notes at par. The summarized draft financial statements of both companies are: INCOME STTEMENTS FOR YEAR ENDED 31 MARCH 2014 Mystic Ulric $’000 $’000 Sales revenue 60,000 24,000 Cost of sales (42,000) (20,000) Gross profit 18,000 4,000 Operating expenses (6,000) (200) Loan interest received (paid) 75 (200) Profit before tax 12,075 3,600 Income tax expense (3,000) (600) Profit for year 9,075 3,000 STATEMENT OF FINANCIL POSITION AS AT 31 MARCH 2014 Mystic Ulric $’000 $’000 Assets Tangible non-current Assets 19,320 8,000 Investments 11280 Nil 30,000 8,000 Current assets 15,000 8,000 Total assets 45,600 16,000 Mystic Ulric $’000 $’000 Equity and liabilities Equity Ordinary shares of $1 each 10,000 2,000 Retained earnings 25,600 8,400 35,600 10,400 Non-current Liabilities 10% loan note Nil 2,000 Current liabilities 10,000 3,600 Total equity and liabilities 45,600 16,000 The following information is relevant: 1) The fair values of Ulric’s assets were equal to their book values with the exception of its plant, which had a fair value $3.2 million in excess of its book value at the date of acquisition. The remaining life of all Ulric’s plant at the date of its acquisition was four years and this period has not changed as a result of the acquisition. Depreciation of plant is on a straight-line basis and charged to cost of sales. Ulric has not adjusted the value of its plant as a result of the fair value exercise. 2) In the post-acquisition period Mystic sold goods to Ulric at a price of $12 million. These goods had cost Mystic $9 million. During the period Ulric sold $10 million (at cost to Ulric) of these for $15 million. 3) Mystic bears almost all of the administration cost incurred on behalf of the group (invoicing, credit control etc.) It does not charge Ulric for this service as to do so would have a material effect on the group profit. 4) Revenues and profit should be deemed to accrue evenly throughout the year. 5) The current accounts of the two companies were reconciled at the year-end with Ulric owing Mystic $750,000. 6) The goodwill was reviewed for impairment at the end of the reporting period and had suffered an impairment loss of $300,000, which is to be treated as an operating expense. 7) Mystic’s opening retained earnings were $16,525,000 and Ulric’s were $5,400,000. No dividends were paid or declared by either entity during the year. 8) It is the group policy to value the non-controlling interest at acquisition at fair value. The director’s valued the non-controlling interest at $2.5 million at the date of acquisition. Required a) Prepare a consolidated comprehensive income statement and a statement of financial position for Mystic for the year ended March 31, 2014