These are ACCA F3 (FA/FFA) Financial Accounting MCQs for Part-G of the Syllabus ” Preparing simple consolidated financial statements”.

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INFORMATION ABOUT THESE CBE MCQs Test/Quiz

Course:	ACCA – Associations of Chartered Certified Accountants
Fundamental Level:	Knowledge, FIA – Foundation in Accounting
Subject:	Financial Accounting
Paper:	F3 – FA/FFA
Chapter:	Preparing simple consolidated financial statements
Chapter Number:	25 of the Practice and Exam Kit
Syllabus Area:	G – ” Preparing simple consolidated financial statements”
Questions Type:	CBE MCQs
Exam Section:	Section A

Syllabus Area

These Multiple Choice Questions (MCQs) cover the Syllabus Area Part G of the Syllabus; ” Preparing simple consolidated financial statements” of ACCA F3 (FA/FFA) Financial Accounting Module.

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F3 - Chapter 25 - Part G - MCQs

Course: ACCA - FIA
Subject: F3 (FA/FFA) Financial Accounting
Syllabus Area: F - Preparing basic financial statements
Chapter in Kit: 25 - Preparing simple consolidated financial statements
Exam Section: Section A
Questions type: MCQs
Time: No Time Limit

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1 / 13

Swing purchased 80% of Cat's equity on 1 January 20X7 for $120,000 when Cat's retained earnings were $50,000. The fair value of the non-controlling interest on that date was $40,000. During the year, Swing sold goods which cost $80,000 to Cat, at an invoiced cost of $100,000. Cat had 50% of the goods still in inventories at the year end. The two companies' draft financial statements as at 31 December 20X8 are shown below.

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X8

	Swing	Cat
	$'000	$'000
Revenue	5,000	1,000
Cost of sales	2,900	600
Gross profit	2,100	‏‏‎ ‎‏‏‎ ‎400
Other expenses	1,700	320
Net profit	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎400	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎80
Income tax	130	25
Profit for the year	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎270	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎55

STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 20X8

	Swing	Cat
	$'000	$'000
Non-current assets
Investment in Cat	120	-
Tangible non-current assets	1,880	200
	2,000	200
Current assets
Inventory	500	120
Trade receivables	650	40
Bank and cash	390	35
	1,540	195
	3,540	395
Equity and liabilities
Equity
Share capital	2,000	100
Retained earnings	400	200
	2,400	300
Current liabilities
Trade payables	910	30
Tax	230	65
	1,140	‏‏‎ ‎‏‏‎ ‎95
	3,540	395

TASK

What is the amount of the adjustment for unrealised profit on inventory?

2 / 13

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X8

	Swing	Cat
	$'000	$'000
Revenue	5,000	1,000
Cost of sales	2,900	600
Gross profit	2,100	‏‏‎ ‎‏‏‎ ‎400
Other expenses	1,700	320
Net profit	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎400	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎80
Income tax	130	25
Profit for the year	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎270	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎55

STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 20X8

	Swing	Cat
	$'000	$'000
Non-current assets
Investment in Cat	120	-
Tangible non-current assets	1,880	200
	2,000	200
Current assets
Inventory	500	120
Trade receivables	650	40
Bank and cash	390	35
	1,540	195
	3,540	395
Equity and liabilities
Equity
Share capital	2,000	100
Retained earnings	400	200
	2,400	300
Current liabilities
Trade payables	910	30
Tax	230	65
	1,140	‏‏‎ ‎‏‏‎ ‎95
	3,540	395

TASK

What will be the consolidated cost of sales at 31 December 20X8?

3 / 13

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X8

	Swing	Cat
	$'000	$'000
Revenue	5,000	1,000
Cost of sales	2,900	600
Gross profit	2,100	‏‏‎ ‎‏‏‎ ‎400
Other expenses	1,700	320
Net profit	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎400	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎80
Income tax	130	25
Profit for the year	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎270	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎55

STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 20X8

	Swing	Cat
	$'000	$'000
Non-current assets
Investment in Cat	120	-
Tangible non-current assets	1,880	200
	2,000	200
Current assets
Inventory	500	120
Trade receivables	650	40
Bank and cash	390	35
	1,540	195
	3,540	395
Equity and liabilities
Equity
Share capital	2,000	100
Retained earnings	400	200
	2,400	300
Current liabilities
Trade payables	910	30
Tax	230	65
	1,140	‏‏‎ ‎‏‏‎ ‎95
	3,540	395

TASK

Which TWO of the following statements concerning the non-controlling interest are correct?

20% of Cat's profit after tax will be allocated to the non-controlling interest

20% of Swing's consolidated retained earnings will be allocated to the non-controlling interest

Non-controlling interest describes shares in the subsidiary not held by the parent

Non-controlling interest describes shares in the consolidated entity not held by the parent

4 / 13

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X8

	Swing	Cat
	$'000	$'000
Revenue	5,000	1,000
Cost of sales	2,900	600
Gross profit	2,100	‏‏‎ ‎‏‏‎ ‎400
Other expenses	1,700	320
Net profit	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎400	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎80
Income tax	130	25
Profit for the year	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎270	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎55

STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 20X8

	Swing	Cat
	$'000	$'000
Non-current assets
Investment in Cat	120	-
Tangible non-current assets	1,880	200
	2,000	200
Current assets
Inventory	500	120
Trade receivables	650	40
Bank and cash	390	35
	1,540	195
	3,540	395
Equity and liabilities
Equity
Share capital	2,000	100
Retained earnings	400	200
	2,400	300
Current liabilities
Trade payables	910	30
Tax	230	65
	1,140	‏‏‎ ‎‏‏‎ ‎95
	3,540	395

TASK

What is the amount of the Goodwill?

5 / 13

The following are the financial statements relating to Black, a limited liability company, and its subsidiary company Bury.

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 OCTOBER 20X5

	Black‏‏‎ ‎	Bury‏‏‎ ‎
	$'000‏‏‎ ‎	$'000‏‏‎ ‎
Sales revenue	245,000‏‏‎ ‎	95,000‏‏‎ ‎
Cost of sales	(140,000)	(52,000)
Gross profit	‏‏‎ ‎‏‏‎ ‎105,000‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎43,000‏‏‎ ‎
Distribution costs	(12,000)	(10,000)
Administrative expenses	(55,000)	(13,000)
Dividend income from Bury	7,000‏‏‎ ‎	–‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎ ‎‎‏‏‎ ‎
Profit before tax	‎‏‏‎ ‎‏‏‎ ‎45,000‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎20,000‏‏‎ ‎
Tax	(13,250)	(5,000)
Profit for the year	‎‏‏‎ ‎‏‏‎ ‎31,750‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎15,000‏‏‎ ‎

STATEMENTS OF FINANCIAL POSITION AS AT 31 OCTOBER 20X5

	Black	Bury
	$'000	$'000
Assets
Non-current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Property, plant and equipment	110,000	40,000
Investments
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎21,000,000 $1 ordinary shares in Bury at cost	21,000	–‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎
	131,000	40,000
Current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Inventory, at cost	13,360	3,890
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Trade receivables and dividend receivable	14,640	6,280
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Bank	3,500	2,570
*Total assets*	162,500	52,740

Equity and liabilities
Equity
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎$1 Ordinary shares	100,000	30,000
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Retained earnings	33,500	10,280
	133,500	40,280
Current liabilities
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Payables	9,000	2,460
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Dividend	20,000	10,000
*Total equity and liabilities*	162,500	52,740

Additional information

Black purchased its $1 ordinary shares in Bury on 1 November 20X0. At that date the balance on Bury's retained earnings was $2 million. The fair value of the non-controlling interest at the date of acquisition was $11,800,000. Goodwill on acquisition was $800,000.
During the year ended 31 October 20X5 Black sold goods which originally cost $12 million to Bury.
Black invoiced Bury at cost plus 40%. Bury still has 30% of these goods in inventory at 31 October 20X5.
Bury owed Black $1.5 million at 31 October 20X5 for some of the goods Black supplied during the year.

TASK

Black purchased its shares in Bury on 1 November 20X0. Goodwill on acquisition was $800,000.

What was the amount paid by Black to acquire the shares? (see the information in note 1)

$ _______

6 / 13

The following are the financial statements relating to Black, a limited liability company, and its subsidiary company Bury.

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 OCTOBER 20X5

	Black‏‏‎ ‎	Bury‏‏‎ ‎
	$'000‏‏‎ ‎	$'000‏‏‎ ‎
Sales revenue	245,000‏‏‎ ‎	95,000‏‏‎ ‎
Cost of sales	(140,000)	(52,000)
Gross profit	‏‏‎ ‎‏‏‎ ‎105,000‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎43,000‏‏‎ ‎
Distribution costs	(12,000)	(10,000)
Administrative expenses	(55,000)	(13,000)
Dividend income from Bury	7,000‏‏‎ ‎	–‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎ ‎‎‏‏‎ ‎
Profit before tax	‎‏‏‎ ‎‏‏‎ ‎45,000‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎20,000‏‏‎ ‎
Tax	(13,250)	(5,000)
Profit for the year	‎‏‏‎ ‎‏‏‎ ‎31,750‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎15,000‏‏‎ ‎

STATEMENTS OF FINANCIAL POSITION AS AT 31 OCTOBER 20X5

	Black	Bury
	$'000	$'000
Assets
Non-current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Property, plant and equipment	110,000	40,000
Investments
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎21,000,000 $1 ordinary shares in Bury at cost	21,000	–‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎
	131,000	40,000
Current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Inventory, at cost	13,360	3,890
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Trade receivables and dividend receivable	14,640	6,280
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Bank	3,500	2,570
*Total assets*	162,500	52,740

Equity and liabilities
Equity
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎$1 Ordinary shares	100,000	30,000
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Retained earnings	33,500	10,280
	133,500	40,280
Current liabilities
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Payables	9,000	2,460
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Dividend	20,000	10,000
*Total equity and liabilities*	162,500	52,740

Additional information

Black purchased its $1 ordinary shares in Bury on 1 November 20X0. At that date the balance on Bury's retained earnings was $2 million. The fair value of the non-controlling interest at the date of acquisition was $11,800,000. Goodwill on acquisition was $800,000.
During the year ended 31 October 20X5 Black sold goods which originally cost $12 million to Bury.
Black invoiced Bury at cost plus 40%. Bury still has 30% of these goods in inventory at 31 October 20X5.
Bury owed Black $1.5 million at 31 October 20X5 for some of the goods Black supplied during the year.

TASK

What is the amount of the unrealized profit on the intragroup sale?

$ _______

7 / 13

The following are the financial statements relating to Black, a limited liability company, and its subsidiary company Bury.

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 OCTOBER 20X5

	Black‏‏‎ ‎	Bury‏‏‎ ‎
	$'000‏‏‎ ‎	$'000‏‏‎ ‎
Sales revenue	245,000‏‏‎ ‎	95,000‏‏‎ ‎
Cost of sales	(140,000)	(52,000)
Gross profit	‏‏‎ ‎‏‏‎ ‎105,000‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎43,000‏‏‎ ‎
Distribution costs	(12,000)	(10,000)
Administrative expenses	(55,000)	(13,000)
Dividend income from Bury	7,000‏‏‎ ‎	–‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎ ‎‎‏‏‎ ‎
Profit before tax	‎‏‏‎ ‎‏‏‎ ‎45,000‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎20,000‏‏‎ ‎
Tax	(13,250)	(5,000)
Profit for the year	‎‏‏‎ ‎‏‏‎ ‎31,750‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎15,000‏‏‎ ‎

STATEMENTS OF FINANCIAL POSITION AS AT 31 OCTOBER 20X5

	Black	Bury
	$'000	$'000
Assets
Non-current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Property, plant and equipment	110,000	40,000
Investments
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎21,000,000 $1 ordinary shares in Bury at cost	21,000	–‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎
	131,000	40,000
Current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Inventory, at cost	13,360	3,890
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Trade receivables and dividend receivable	14,640	6,280
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Bank	3,500	2,570
*Total assets*	162,500	52,740

Equity and liabilities
Equity
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎$1 Ordinary shares	100,000	30,000
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Retained earnings	33,500	10,280
	133,500	40,280
Current liabilities
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Payables	9,000	2,460
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Dividend	20,000	10,000
*Total equity and liabilities*	162,500	52,740

Additional information

Black purchased its $1 ordinary shares in Bury on 1 November 20X0. At that date the balance on Bury's retained earnings was $2 million. The fair value of the non-controlling interest at the date of acquisition was $11,800,000. Goodwill on acquisition was $800,000.
During the year ended 31 October 20X5 Black sold goods which originally cost $12 million to Bury.
Black invoiced Bury at cost plus 40%. Bury still has 30% of these goods in inventory at 31 October 20X5.
Bury owed Black $1.5 million at 31 October 20X5 for some of the goods Black supplied during the year.

TASK

Bury owed Black $1.5 million for goods supplied. How will this be accounted for in the consolidated financial statements?

DEBIT Receivables $1.5m, CREDIT Payables $1.5m

DEBIT Payables $1.5m, CREDIT Receivables $1.5m

8 / 13

The following are the financial statements relating to Black, a limited liability company, and its subsidiary company Bury.

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 OCTOBER 20X5

	Black‏‏‎ ‎	Bury‏‏‎ ‎
	$'000‏‏‎ ‎	$'000‏‏‎ ‎
Sales revenue	245,000‏‏‎ ‎	95,000‏‏‎ ‎
Cost of sales	(140,000)	(52,000)
Gross profit	‏‏‎ ‎‏‏‎ ‎105,000‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎43,000‏‏‎ ‎
Distribution costs	(12,000)	(10,000)
Administrative expenses	(55,000)	(13,000)
Dividend income from Bury	7,000‏‏‎ ‎	–‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎ ‎‎‏‏‎ ‎
Profit before tax	‎‏‏‎ ‎‏‏‎ ‎45,000‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎20,000‏‏‎ ‎
Tax	(13,250)	(5,000)
Profit for the year	‎‏‏‎ ‎‏‏‎ ‎31,750‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎15,000‏‏‎ ‎

STATEMENTS OF FINANCIAL POSITION AS AT 31 OCTOBER 20X5

	Black	Bury
	$'000	$'000
Assets
Non-current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Property, plant and equipment	110,000	40,000
Investments
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎21,000,000 $1 ordinary shares in Bury at cost	21,000	–‏‏‎ ‎‏‏‎ ‎‏‏‎ ‏‏‎
	131,000	40,000
Current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Inventory, at cost	13,360	3,890
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Trade receivables and dividend receivable	14,640	6,280
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Bank	3,500	2,570
*Total assets*	162,500	52,740

Equity and liabilities
Equity
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎$1 Ordinary shares	100,000	30,000
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Retained earnings	33,500	10,280
	133,500	40,280
Current liabilities
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Payables	9,000	2,460
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Dividend	20,000	10,000
*Total equity and liabilities*	162,500	52,740

Additional information

Black purchased its $1 ordinary shares in Bury on 1 November 20X0. At that date the balance on Bury's retained earnings was $2 million. The fair value of the non-controlling interest at the date of acquisition was $11,800,000. Goodwill on acquisition was $800,000.
During the year ended 31 October 20X5 Black sold goods which originally cost $12 million to Bury.
Black invoiced Bury at cost plus 40%. Bury still has 30% of these goods in inventory at 31 October 20X5.
Bury owed Black $1.5 million at 31 October 20X5 for some of the goods Black supplied during the year.

TASK

Non-controlling interest will appear in both the consolidated statement of profit or loss (SPL) and the consolidated statement of financial position (SFP).

The amount of non-controlling interest in the consolidated SPL is $ _______

9 / 13

Prestend is the parent company of Northon. The following are the statements of financial position for both companies as at 31 October 20X7.

	Prestend	Northon
	$'000	$'000
Assets
Non-current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Property, plant and equipment	4,200	3,000
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Investments: shares in Northon at cost	3,345	–

Current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Inventory	1,500	800
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Receivables	1,800	750
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Bank	600	350
*Total assets*	11,445	5,200

Equity and liabilities
Equity
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎$1 ordinary shares	9,000	4,000
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Retained earnings	525	200
	9,525	4,200
Current liabilities
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Payables	1,220	200
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Tax	700	800
*Total equity and liabilities*	11,445	5,200

The following information is also available.

Prestend purchased 2,800,000 shares in Northon a year ago when Northon had retained earnings of $60,000. The fair value of the non-controlling interest at the date of acquisition was $1,415,000.
During the year Prestend sold goods with an invoice value of $240,000 to Northon. These goods were invoiced at cost plus 20%. Half of the goods are still in Northon's inventory at the year end.
Northon owes Prestend $30,000 at 31 October 20X7 for goods it purchased during the year.

TASK

What is the unrealised profit on intragroup sales?

$40,000

$20,000

$48,000

$24,000

10 / 13

Prestend is the parent company of Northon. The following are the statements of financial position for both companies as at 31 October 20X7.

	Prestend	Northon
	$'000	$'000
Assets
Non-current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Property, plant and equipment	4,200	3,000
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Investments: shares in Northon at cost	3,345	–

Current assets
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Inventory	1,500	800
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Receivables	1,800	750
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Bank	600	350
*Total assets*	11,445	5,200

Equity and liabilities
Equity
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎$1 ordinary shares	9,000	4,000
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Retained earnings	525	200
	9,525	4,200
Current liabilities
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Payables	1,220	200
‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎Tax	700	800
*Total equity and liabilities*	11,445	5,200

The following information is also available.

Prestend purchased 2,800,000 shares in Northon a year ago when Northon had retained earnings of $60,000. The fair value of the non-controlling interest at the date of acquisition was $1,415,000.
During the year Prestend sold goods with an invoice value of $240,000 to Northon. These goods were invoiced at cost plus 20%. Half of the goods are still in Northon's inventory at the year end.
Northon owes Prestend $30,000 at 31 October 20X7 for goods it purchased during the year.

TASK

A parent-subsidiary relationship is based on control.

Which TWO of the following would signify that one entity controls another?

Ability to exert significant influence over policies

Power to appoint or remove the majority of board members

Ownership of more than 50% of equity shares

Ownership of 40% of equity shares and 80% of preference shares

11 / 13

The summarised statements of profit or loss of two companies, Liverton and Everpool, for the year ended 31 May 20X6 are provided below. Liverton acquired 3,000,000 ordinary shares in Everpool for $3,500,000 on 1 June 20X4. At that time, the retained earnings of Everpool were $200,000 and the fair value of the non-controlling interest in Everpool was $1,000,000.

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 MAY 20X6

	Liverton‏‏‎ ‎	Everpool‏‏‎ ‎
	$'000‏‏‎ ‎	$'000‏‏‎ ‎
Sales revenue	6,400‏‏‎ ‎	2,600‏‏‎ ‎
Cost of sales	(3,700)	(1,450)
Gross profit	‎‏‏‎ ‎‏‏‎ ‎2,700‏‏‎ ‎	‏‏‎ ‎‏‏‎ ‎1,150‏‏‎ ‎
Distribution costs	(1,100)	(490)
Administrative expenses	(700)	(320)
Profit from operations	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎900‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎340‏‏‎ ‎
Dividends received from Everpool	150‏‏‎ ‎	–‏‏‎ ‎
Profit before tax	‏‏‎ ‎‏‏‎ ‎1,050‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎340‏‏‎ ‎
Tax	(400)	(80)
Profit for the year	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎650‏‏‎ ‎	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎260‏‏‎ ‎

The following information is also available.

Everpool's total share capital consists of 4,000,000 ordinary shares of $1 each.
During the year ended 31 May 20X6 Liverton sold goods costing $120,000 to Everpool for $200,000.
At 31 May 20X6, 60% of these goods remained in Everpool's inventory.

TASK

Calculate the unrealised profit on Liverton's sales to Everpool $ _______

12 / 13

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 MAY 20X6

	Liverton‏‏‎ ‎	Everpool‏‏‎ ‎
	$'000‏‏‎ ‎	$'000‏‏‎ ‎
Sales revenue	6,400‏‏‎ ‎	2,600‏‏‎ ‎
Cost of sales	(3,700)	(1,450)
Gross profit	‎‏‏‎ ‎‏‏‎ ‎2,700‏‏‎ ‎	‏‏‎ ‎‏‏‎ ‎1,150‏‏‎ ‎
Distribution costs	(1,100)	(490)
Administrative expenses	(700)	(320)
Profit from operations	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎900‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎340‏‏‎ ‎
Dividends received from Everpool	150‏‏‎ ‎	–‏‏‎ ‎
Profit before tax	‏‏‎ ‎‏‏‎ ‎1,050‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎340‏‏‎ ‎
Tax	(400)	(80)
Profit for the year	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎650‏‏‎ ‎	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎260‏‏‎ ‎

The following information is also available.

Everpool's total share capital consists of 4,000,000 ordinary shares of $1 each.
During the year ended 31 May 20X6 Liverton sold goods costing $120,000 to Everpool for $200,000.
At 31 May 20X6, 60% of these goods remained in Everpool's inventory.

TASK

What is the goodwill on the acquisition of Everpool?

13 / 13

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 31 MAY 20X6

	Liverton‏‏‎ ‎	Everpool‏‏‎ ‎
	$'000‏‏‎ ‎	$'000‏‏‎ ‎
Sales revenue	6,400‏‏‎ ‎	2,600‏‏‎ ‎
Cost of sales	(3,700)	(1,450)
Gross profit	‎‏‏‎ ‎‏‏‎ ‎2,700‏‏‎ ‎	‏‏‎ ‎‏‏‎ ‎1,150‏‏‎ ‎
Distribution costs	(1,100)	(490)
Administrative expenses	(700)	(320)
Profit from operations	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎900‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎340‏‏‎ ‎
Dividends received from Everpool	150‏‏‎ ‎	–‏‏‎ ‎
Profit before tax	‏‏‎ ‎‏‏‎ ‎1,050‏‏‎ ‎	‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎340‏‏‎ ‎
Tax	(400)	(80)
Profit for the year	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎650‏‏‎ ‎	‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎260‏‏‎ ‎

The following information is also available.

Everpool's total share capital consists of 4,000,000 ordinary shares of $1 each.
During the year ended 31 May 20X6 Liverton sold goods costing $120,000 to Everpool for $200,000.
At 31 May 20X6, 60% of these goods remained in Everpool's inventory.

TASK

What is the consolidated statement of profit or loss (after tax) for the year?

Your score is

	$'000‏‏‎ ‎
Swing	2,900‏‏‎ ‎
Cat	600‏‏‎ ‎
Intragroup purchases	(100)
Unrealised profit	10‏‏‎ ‎
	‏‏‎ ‎3,410‏‏‎ ‎

	$‏‏‎ ‎‏‏‎	$'000
Fair value of consideration transferred		120
Plus fair value of non-controlling interest at acquisition		40
Less fair value of net assets acquired as represented by
Ordinary share capital	100
Retained earnings	‏‏‎ ‎‏‏‎ ‎50
		(150)
Goodwill		‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎10‏‏‎ ‎

	$'000‎
Fair value at acquisition	11,800
Share of post-acquisition retained earnings ((10,280 – 2,000) × 30%)	2,484
Total	14,284

	$'000‏‏‎ ‎‎
Sales revenue (6,400 + 2,600 – 200)	8,800‏‏‎ ‎
Cost of sales (3,700 + 1,450 – 200 + 48)	(4,998)
Gross profit	‎‏‏‎ ‎‏‏‎ ‎3,802‏‏‎ ‎
Distribution costs (1,110 + 490)	(1,590)
Administration expenses (700 + 320)	(1,020)
Profit before tax	‎‏‏‎ ‎‏‏‎ ‎1,192‏‏‎ ‎
Tax (400 + 80)	(480)
Profit for the year	‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎‏‏‎ ‎712‏‏‎ ‎

F3 (FA/FFA) – Chapter 25 – PART G – CBE MCQs – ACCA