Prepare the consolidated income statement and the consolidated statement of financial position of Tan Berhad for the year ended 31 December 2011, using the proportionate consolidation method for Ausland Sdn Bhd.

Prepare the consolidated income statement and the consolidated
statement of financial position of Tan Berhad for the year ended 31
December 2011, using the proportionate consolidation method for
Ausland Sdn Bhd.

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Question 5 (Total: 25 marks)
Tan Berhad acquired a 45% interest in Liew Berhad on 1 January 2009 for a sum of
RM13 million. The retained profits of Liew Berhad at the time of the 45% acquisition
were RM9 million. Tan Berhad had no subsidiaries at this time and used equity
accounting to account for Liew Berhad in its accounts. On 1 January 2011, Tan
Berhad acquired control of Liew Berhad by acquiring another 30% of the company
for RM14 million. The price paid reflected the fair value of the shares acquired on
that date.
On 1 January 2011, Tan Berhad and a foreign company incorporated a joint venture
entity, Ausland Sdn Bhd with a paid up capital of RM16 million. Both Tan Berhad
and the foreign company hold a 50% equity interest in Ausland Sdn Bhd and they
both have joint control under the contractual terms over the joint venture.
The draft financial statements for each of the three companies are as follows:
Statement of Comprehensive Income and Retained Profits
for the year ending 31 December 2011
Tan
Berhad
Liew
Berhad
Ausland
Sdn
Bhd
RM000 RM000 RM000
Sales 70,000 40,000 34,000
Cost of sales (45,000) (27,000) (20,000)
Gross Profit 25,000 13,000 14,000
Operating expenses (9,000) (5,000) (5,000)
Profit from operations 16,000 8,000 9,000
Finance costs (5,000) (1,200) (2,000)
Dividend received 2,520 – –
Interest income 2,000 – –
Profit before taxation 15,520 6800 7,000
Taxation (3875) (1,500) (1,600)
Profit after taxation 11,645 5,300 5,400
Retained profits b/fwd 18,500 11,368 –
Dividends paid (4,128) (1,776) (2,376)
Retained profits c/fwd 26,017 14,892 3,024
Statements of Financial Position as at 31 December 2011
Tan
Berhad
Liew
Berhad
Ausland
Sdn
Bhd
RM000 RM000 RM000
Non current assets
Sunway University Business School Sample ACC3054 Final Examination
12
Freehold land at cost 70,000 10,000 6,000
Plant and equipment 80,000 25,000 26,000
Investment in Liew Berhad, at
cost
27,000 – –
Investment in Ausland Sdn
Bhd, at cost 10,000
– –
Loan to Ausland Sdn Bhd 20,000 – –
207,000 35,000 32,000
Current assets
Inventories 25,000 11,000 3,524
Trade receivables 32,020 12,000 3,500
Amount due from Tan Berhad – – 1,200
Bank and cash balances – 500 1,000
57,020 23,500 9,224
Total Assets 264,020 58,500 41,224
Current liabilities
Bank overdraft 13,203 – –
Trade payables 26,000 11,508 –
Amount due to Ausland Sdn
Bhd
1,200 – –
Taxation 3,500 2,100 (1,800)
Bills payables 4,100 – –
48,003 13,608 (1,800)
Non current liabilites
Long term liabilities 80,000 20,000 –
Loan from Tan Berhad (10%
interest) – – 20,000
80,000 20,000 20,000
Total liabilities 128,003 33,608 18,200
Equity
Share capital 60,000 10,000 20,000
Share premium 30,000 – –
Revaluation reserves 20,000 – –
Retained Profits 26,017 14,892 3,024
264,020 58,500 41,224
(i) At 1st January 2011, the freehold land of Liew Berhad had a fair value of
RM25 million. No adjustment has been made in the accounts of Liew
Berhad.
(ii) During the year ended 31 December 2011, Tan Berhad sold to Ausland Sdn
Bhd inventories with an invoice value of RM8 million. Of these inventories,
RM2 million remained in inventories as at 31 December 2011. The profit
margin to Tan Berhad was 25% on sales value.
Sunway University Business School Sample ACC3054 Final Examination
13
(iii) The unsecured loan to Ausland Sdn Bhd from Tan Berhad has an interest
rate of 10%.
(iv) There has been no impairment in the carrying cost of goodwill.
(v) Ignore any tax effects.
Required
(a) Calculate the goodwill on the business combination for the year ended
31 December 2011 in accordance with MFRS 3 para 32. (5 marks)
(b) What is the gain/(loss) on the remeasurement of the previously held
equity interest in Liew Berhad? How should this gain/(loss) be recognized
in the consolidated financial statements? (3 marks)
(c) Prepare the consolidated income statement and the consolidated
statement of financial position of Tan Berhad for the year ended 31
December 2011, using the proportionate consolidation method for
Ausland Sdn Bhd. (12 marks)
(d) Under MFRS 11 – Joint Arrangements (effective 1 January 2013), only
equity accounting for joint ventures will be permissible. Critically discuss
the implications of this change. (5 marks)

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