QUIZ 1 CONSOLIDATED ACCOUNT WITH INTRAGROUP TRANSACTIONS

On I January 2007, Putra Bhd (Putra) acquired an 80% interest in the equity capital of Siman Bhd
(Siman) for a cash consideration of RM11 million. On this date, the net assets of Siman were stated in its
accounts at fair value and the balance of the retained profits were RM3 million.

The draft accounts of the two companies for the year ended 31 December 2010 were as follows:
Draft Income Statements and Retained Profits.

Putra Siman
RM000 RM000
Sales 26,000 19,000
Opening inventories (3,400) (2,800)
Purchases (17,000) (11,000)
Closing inventories 4,400 3,600
Gross profit 10,000 8,800
Operating and administrative expenses (including depreciation) (5,200) (4,100)
Operating profit 4,800 4,700
Dividend income (net) 960 -
Profit before taxation 5,760 4,700
Taxation (1,400) (1,200)
Profit after taxation 4,360 3,500
Retained profits brought forward 6,500 4,700
Dividends paid (1,800) (1,200)
Retained profits carried forward 9,060 7,000

Draft Balance Sheets
Putra Siman
RM000 RM000 RM000 RM000
Share capital of RM1 each 23,000 10,000
Retained profits 9,060 7,000
32,060 17,000
Current liabilities
Trade and other payables 5,150 7,270
Taxation 1,580 1,420
38,790 25,690

Property, plant and equipment, at net
book value

18,980

16,530
Investment in Siman, at cost 11,000
Current assets:
Inventories 4,200 3,100
Trade and other receivables 3,410 3,600
Bank 1,200 2,460
8,810 9,160
38,790 25,690

Additional information:

1. During the year ended 31 December 2010, Siman sold inventories to Putra for invoices totaling
RM1.5 million. Of this amount RM400,000 remained in the closing inventories of Putra. The
corresponding intragroup sales and closing inventories in the prior year were RM2 million and the
RM600,000 respectively. The profit margin to Siman was 20% on selling price.

2. In the prior year 2009, Putra completed the construction of a warehouse at a cost of RM1.2 million
for the use of Siman. The transfer price was RM2.2 million and this amount was recorded as a
property, plant and equipment by Siman. The warehouse was depreciated at 10% per annum on the
straight-line basis in accordance with the groups policy, charging a full years depreciation in the
year of purchase.

3. Putra carries purchased goodwill at cost less accumulated impairment losses. There is no necessity to
provide any impairment loss to date.

4. Assume an income tax rate of 26%. Ignore tax effects for unrealized profits on intragroup
transactions.

Required:

Prepare the Consolidated Statement of Financial Position and Income Statement for the year ended 31
December 2010 of Putra Bhd.

Your answers must include the following workings:

(i) The amount of goodwill on acquisition
(ii) Consolidated retained profit
(iii) Non-controlling interest,







Solution Quiz 1

Putra Bhd and its Subsidairy
Consolidated Income Statement for the year ended 31 December 2010
RM000
Sales (26,000 + 19,000 -1500) 43,500
Opening inventories (3,400 + 2,800) (6,200)
Unrealised profit b/f 120
Purchases (17,000 + 11,000 - 1,500) (26,500)
Closing inventories (4,400 + 3,600) 8,000
Unrealised profit c/f (80)
Gross profit 18,840
Operating and administrative expenses (5,200 + 4,100 - 100) (9,200)
Profit before taxation 9,640
Taxation (1,400 + 1,200) (2,600)
Profit after taxation 7,040

Attributable to:
Minority interest (3,500 + 120 80 + 100) x 0.2 728
Equity holders of the Parent company 6,312
7,040


Consolidated Balance Sheet as at 31 December 2010
RM000
Property, plant and equipment
(18,980 + 16,530 1,000 + 200)

34,710
Goodwill arising on consolidation - Working (i) 600
35,310
Current assets
Inventories (4,200 + 3,100 80) 7,220
Trade and other receivables (3,410 + 3,600) 7,010
Bank balances (1,200 + 2,460) 3,660
53,200
Financed by:
Share capital of RM1 each 23,000
Retained profits 11,376
Minority interest -Working (i) 3,404
Current liabilities:
Trade and other payables (5,150 + 7,270) 12,420
Taxation (1,580 + 1,420) 3,000
53,200





W (i) Analysis of equity of Siman


Parent (80%)
Minority
Interest
Total Pre-acq Post-acq (20%)
RM000 RM000 RM000 RM000
Share capital 10,000 8,000 2,000
Retained profits:
Pre-acquisition 3,000 2,400 600
Post-acquisition 4,000
Less: unrealized profit (80)
Add: overprovided depn 100
4,020 3,216 804
10,400 3,136 3,404
Cost of shares 11,000
Goodwill on acquisition 600

W (ii) Retained profits brought forward and carried forward

RM000
Balance brought forward 6,500 + 0.8 (4,700 3,000) 7,860
Unrealized profits brought forward 120 x 0.8 (96)
Unrealised profit carried on PPE (1,000)
Profit realized on depreciation adjustment 100
Profit for the year 6,312
Dividends paid (1,800)
Retained profits carried forward 11,376