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. ------------------------------------------------------- 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) ? ----------------------------- 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