Pandar- finance costs

Hello Sir,

1-Regarding the finance costs calculation I understand that the parent finance cost plus the subsidiary finance costs for 6 months but why again there was $2m added what was that.

2-If some body in his answer to the profit and loss statement if he got the profit for the year correctly but within the individual lines there are some variation like if add the associate share to the investment figure i.e the line by line basis is not matching with model answer is there any problem for getting the marks.
Because there could be a problem of classification of the items like investment,finance costs,associate share, impairement of goodwill and so on.

Thanks for help.
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Q

399 PANDAR Walk in the footsteps of a top tutor
On 1 April 20X9 Pandar purchased 80% of the equity sharesin Salva. On the same date Pandar
acquired 40% of the 40 million equity shares in Ambra paying $2 per share.
The statement of profit or loss for the year ended 30 September 20X9 are:
Pandar Salva Ambra
$000 $000 $000
Revenue 210,000 150,000 50,000
Cost of sales (126,000) (100,000) (40,000)
––––––– ––––––– –––––––
Gross profit 84,000 50,000 10,000
Distribution costs (11,200) (7,000) (5,000)
Administrative expenses (18,300) (9,000) (11,000)
Investment income (interest and dividends) 9,500
Finance costs (1,800) (3,000) Nil
––––––– ––––––– –––––––
Profit (loss) before tax 62,200 31,000 (6,000)
Income tax (expense) relief (15,000) (10,000) 1,000
––––––– ––––––– –––––––
Profit (loss) for the year 47,200 21,000 (5,000)
––––––– ––––––– –––––––

The following information is relevant:
(i) The fair values of the net assets of Salva at the date of acquisition were equal to their
carrying amounts with the exception of an item of plant which had a carrying amount
of $12 million and a fair value of $17 million. This plant had a remaining life of five
years (straight?line depreciation) at the date of acquisition of Salva. All depreciation is
charged to cost of sales.
The fair value of the plant has not been reflected in Salva’s financial statements.
No fair value adjustments were required on the acquisition of the investment in
Ambra.
(ii) Immediately after its acquisition of Salva, Pandar invested $50 million in an 8% loan
note from Salva. All interest accruing to 30 September 20X9 has been accounted for
by both entities. Salva also has other loans in issue at 30 September 20X9.
(iii) Salva paid a dividend of $8 million during the year.
(iv) After the acquisition, Pandarsold goodsto Salva for $15 million on which Pandar made
a gross profit of 20%. Salva had one third of these goods still in its inventory at 30
September 20X9. Pandar also sold goods to Ambra for $6 million, making the same
margin. Ambra had half of these goods still in inventory at 30 September 20X9.
(v) The non?controlling interest in Salva is to be valued at its (full) fair value at the date of
acquisition.
(vi) The goodwill of Salva has been impaired by $2 million at 30 September 20X9. Due to
its losses, the value of Pandar’s investment in Ambra has been impaired by $3 million
at 30 September 20X9.
(vii) All items in the above statement of profit or loss are deemed to accrue evenly over the
year unless otherwise indicated.
Required:
(a) Calculate the carrying amount of the investment in Ambra to be included within the
consolidated statement of financial position as at 30 September 20X9.

(4 marks)
(b) Prepare the consolidated statement of profit or loss for the Pandar Group for the
year ended 30 September 20X9. (16 marks)
(Total: 20 marks) ?
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Answer

(b) Pandar Group
Consolidated statement of profit or loss for the year ended 30 September 20X9
$000 $000
Revenue (210,000 + (150,000 × 6
/12) – 15,000 intra?group sales) 270,000
Cost of sales (W1) (162,500)
–––––––
Gross profit 107,500
Distribution costs (11,200 + (7,000 × 6
/12)) (14,700)
Administrative expenses (18,300 + (9,000 × 6
/12) + 2,000
impairment)
(24,800)
Investment income (W2) 1,100
Finance costs (W3) (2,300)
Share of loss from associate (5,000 × 40% × 6
/12) (1,000)
Impairment of investment in associate (3,000)
Unrealised profit in associate (see (a)) (240)
–––––– (4,240)
–––––––
Profit before tax 62,560
Income tax expense (15,000 + (10,000 × 6
/12)) (20,000)
–––––––
Profit for the year 42,560
––––––

$000 $000
Attributable to:
Owners of the parent 41,160
Non?controlling interest (W4) 1,400
–––––––
42,560
–––––––

Workings (figures in brackets in $000)
(W1) Cost of sales
$000
Pandar 126,000
Salva (100,000 × 6
/12) 50,000
Intra?group purchases (15,000)
Additional depreciation: plant (5,000/5 years × 6
/12) 500
Unrealised profit in inventories (15,000/3 × 20%) 1,000
–––––––
162,500
–––––––
(W2) Investment income
$000
Per statement of comprehensive income 9,500
Intra?group interest (50,000 × 8% × 6
/12) (2,000)
Intra?group dividend (8,000 × 80%) (6,400)
––––––
1,100
––––––
(W3) Finance costs
$000
Pandar 1,800
Salva post?acquisition (((3,000 – 2,000) × 6
/12 ) + 2,000) 2,500
Intra?group interest (W2) (2,000)
––––––
2,300
––––––
Tutorial note
The interest on the loan note is $2 million ($50 million × 8% × 6/12). This is in Salva

(W4) Non?controlling interest
Salva’s post?acquisition profit (see tutorial note above) 9,500
Fair value depreciation (W1) (500)
Impairment (W1) (2,000)
–––––
7,000
–––––
Non?controlling interest share at 20% 1,400
–––––
Marking guide
Marks
(a) Carrying amount of Ambra
Cost 1
Share of post?acquisition losses 1
Unrealised profit 1
Impairment charge 1
––––
Maximum 4
––––
(b) Statement of comprehensive income:
Revenue 1½
Cost of sales 3
Distribution costs and administrative expenses ½
Administrative expenses 1½
Investment income 2½
Finance costs 1½
Share of associate’s losses and impairment charge 1½
Income tax 1
Non?controlling interests 3
––––
Maximum 16
––––
Total 20
––––
Examiner’s comments
The main areas where candidates made errors were:
In part (a) calculation of associate:
? the calculation of the carrying amount of the associate was also very good, often
gaining full marks. The main problems were not apportioning (by 6
/12) the losses in the
year of acquisition and not applying the 40% group holding percentage. Some treated
the losses as profits.
The consolidated statement of profit or loss (b). Again well?prepared candidates gained
good marks with most understanding the general principles. The main errors were with the
more complex adjustments:
? a full year’s additional depreciation of the plant was charged, but it should have been
only for the post?acquisition period of six months
? many candidates incorrectly amortised the domain name. Its registration was
renewable indefinitely at negligible cost so it should not have been amortised