Premier acquired 80% of Sanford on June 1, 2010 by issuing its own shares and loan notes to Sanford shareholders. The summarized financial statements of Premier and Sanford for the year ended September 30, 2010 are provided. The question requires preparing a consolidated statement of comprehensive income and statement of financial position for Premier as of and for the year ended September 30, 2010 based on the acquisition and other relevant information provided.
Premier acquired 80% of Sanford on June 1, 2010 by issuing its own shares and loan notes to Sanford shareholders. The summarized financial statements of Premier and Sanford for the year ended September 30, 2010 are provided. The question requires preparing a consolidated statement of comprehensive income and statement of financial position for Premier as of and for the year ended September 30, 2010 based on the acquisition and other relevant information provided.
Premier acquired 80% of Sanford on June 1, 2010 by issuing its own shares and loan notes to Sanford shareholders. The summarized financial statements of Premier and Sanford for the year ended September 30, 2010 are provided. The question requires preparing a consolidated statement of comprehensive income and statement of financial position for Premier as of and for the year ended September 30, 2010 based on the acquisition and other relevant information provided.
Premier acquired 80% of Sanford on June 1, 2010 by issuing its own shares and loan notes to Sanford shareholders. The summarized financial statements of Premier and Sanford for the year ended September 30, 2010 are provided. The question requires preparing a consolidated statement of comprehensive income and statement of financial position for Premier as of and for the year ended September 30, 2010 based on the acquisition and other relevant information provided.
ACCA Qualification - F7 Financial Reporting - International
December 2010 past exam paper 1
On 1 June 2010, Premier acquired 80% of the equity share capital of Sanford. The consideration consisted of two elements: a share exchange of three shares in Premier for every five acquired shares in Sanford and the issue of a $100 6% loan note for every 500 shares acquired in Sanford. The share issue has not yet been recorded by Premier, but the issue of the loan notes has been recorded. At the date of acquisition shares in Premier had a market value of $5 each and the shares of Sanford had a stock market price of $350 each. Below are the summarised draft financial statements of both companies. Statements of comprehensive income for the year ended 30 September 2010 Premier Sanford $000 $000 Revenue 92,500 45,000 Cost of sales (70,500) (36,000)
Equity Equity shares of $1 each Land revaluation reserve 30 September 2010 (note (i)) Other equity reserve 30 September 2009 (note (iv)) Retained earnings
Non-current liabilities
12,000 2,000 500 12,300
5,000 nil nil 4,500
26,800
9,500
Maynard: Financial Reporting, Chapter 1
6% loan notes Current liabilities Total equity and liabilities
3,000
nil
10,000
6,800
39,800
16,300
The following information is relevant:
(i)
At the date of acquisition, the fair values of Sanfords assets were equal to their carrying amounts with the exception of its property. This had a fair value of $12 million below its carrying amount. This would lead to a reduction of the depreciation charge (in cost of sales) of $50,000 in the post-acquisition period. Sanford has not incorporated this value change into its entity financial statements. Premiers group policy is to revalue all properties to current value at each year end. On 30 September 2010, the value of Sanfords property was unchanged from its value at acquisition, but the land element of Premiers property had increased in value by $500,000 as shown in other comprehensive income.
(ii)
Sales from Sanford to Premier throughout the year ended 30 September 2010 had consistently been $1 million per month. Sanford made a mark-up on cost of 25% on these sales. Premier had $2 million (at cost to Premier) of inventory that had been supplied in the post-acquisition period by Sanford as at 30 September 2010.
(iii)
Premier had a trade payable balance owing to Sanford of $350,000 as at 30 September 2010. This agreed with the corresponding receivable in Sanfords books.
(iv)
Premiers investments include some available-for-sale investments that have increased in value by $300,000 during the year. The other equity reserve relates to these investments and is based on their value as at 30 September 2009. There were no acquisitions or disposals of any of these investments during the year ended 30 September 2010.
(v)
Premiers policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose Sanfords share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.
(vi)
There has been no impairment of consolidated goodwill.
Required: (a)
Prepare the consolidated statement of comprehensive income for Premier for the year ended 30 September 2010.
(b)
Prepare the consolidated statement of financial position for Premier as at 30 September 2010.
The following mark allocation is provided as guidance for this question:
(a) 9 marks (b) 16 marks (25 marks)
OUP is grateful to the Association of Chartered Certified Accountants (ACCA) for permission to reproduce past examination questions.
List of Key Financial Ratios: Formulas and Calculation Examples Defined for Different Types of Profitability Ratios and the Other Most Important Financial Ratios
