- 30 Marks
CR – Nov 2016 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)
Prepare a Consolidated Statement of Financial Position for Bata Plc and subsidiaries; explain IAS 21 principles for translating foreign subsidiaries.
Question
a. Bata Plc, which operates in the manufacturing sector, has been surviving the challenges operating in the Nigerian economic environment. The draft Statements of Financial Position of Bata Plc and its subsidiaries as at October 31, 2016, are as follows:
| Bata | N’million | Jewe | N’million | Gaba | N’million |
|---|---|---|---|---|---|
| Non-current assets | Property, plant, and equipment | 4,320 | 360 | 420 | |
| Investments in subsidiaries | 1,110 | 600 | – | ||
| Financial assets | 500 | – | – | ||
| Total Non-current assets | 5,930 | 960 | 420 | ||
| Current assets | 1,050 | 570 | 540 | ||
| Total assets | 6,980 | 1,530 | 960 | ||
| Equity | Share capital – N1 ordinary shares | 2,400 | 600 | 300 | |
| Retained earnings | 3,410 | 540 | 390 | ||
| Other components of equity | 450 | – | – | ||
| Total equity | 6,260 | 1,140 | 690 | ||
| Current liabilities | 720 | 390 | 270 | ||
| Total liabilities and equity | 6,980 | 1,530 | 960 |
Additional Information:
- Acquisition of Subsidiaries:
- Bata Plc acquired 60% of the share capital of Jewe Plc on November 1, 2012, and 10% of Gaba Plc on November 1, 2013. The costs of the combinations were N852 million and N258 million, respectively.
- Jewe Plc acquired 70% of the share capital of Gaba Plc on November 1, 2013.
- Retained Earnings Balances:
| Date | Jewe Plc (N’million) | Gaba Plc (N’million) |
|---|---|---|
| November 1, 2012 | 270 | – |
| November 1, 2013 | 360 | 240 |
- Fair Value Adjustments:
- At acquisition dates, the fair value of the net assets was N930 million for Jewe Plc and N660 million for Gaba Plc. The difference in the fair value and book value relates to non-depreciable land.
- The fair value of non-controlling interest (NCI) was N390 million for Jewe Plc and N330 million for Gaba Plc. Bata Plc adopts the full goodwill method under IFRS 3 to account for NCI.
- Impairment Testing:
- Jewe Plc suffered an impairment loss of N60 million.
- Gaba Plc did not suffer any impairment loss.
- Intra-group Inventory Sales:
- During the year ended October 31, 2016, Bata Plc sold inventory to Jewe Plc and Gaba Plc.
- The invoiced prices of the inventories were N480 million and N360 million, respectively.
- Bata Plc invoices goods to achieve a markup of 25% on cost to all third parties, including group companies.
- At the year-end, half of the inventory sold to Jewe Plc remained unsold, but the entire inventory sold to Gaba Plc had been sold to third parties.
- Financial Asset:
- Bata Plc purchased a deep discount bond for N500 million on November 1, 2015.
- The bonds will be redeemed in 3 years for N740.75 million and are carried at amortized cost in line with IAS 39.
- The Accountant has not passed the correct entries to reflect amortized cost valuation at year-end, and the financial asset is shown at N500 million.
Compound sum of N1: (1 + r)^n
| Year | 12% | 14% |
|---|---|---|
| 1 | 1.1200 | 1.1400 |
| 2 | 1.2544 | 1.2996 |
| 3 | 1.4049 | 1.4815 |
| 4 | 1.5735 | 1.6890 |
Required:
- Prepare a Consolidated Statement of Financial Position for Bata Plc and its subsidiaries as at October 31, 2016. (25 Marks)
- Explain to the directors of Bata Plc how the assets, liabilities, income, and expenses of a foreign subsidiary, including the resulting goodwill, are translated for consolidation purposes under IAS 21. (5 Marks)
(Total: 30 Marks)
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