On 1 April 2020, Avon Ltd acquired 60% of the equity share capital of Savoi at 9.6
Question:
On 1 April 2020, Avon Ltd acquired 60% of the equity share capital of Savoi at 9.6 million. Below are the summarised draft financial statements of both companies.
Avon and Savoi
Statements of Profit or Loss
For the year ended 31 March 2021
$'000 | $'000 | |
Revenue | 85,000 | 42,000 |
Cost of sales | (63,000) | (32,000) |
Gross profit | 22,000 | 10,000 |
Distribution costs | (2,000) | (2,000) |
Administrative expenses | (6,000) | (3,200) |
Finance costs | (300) | (400) |
Profit before tax | 13,700 | 4,400 |
Income tax expense | (4,700) | (1,400) |
Profit for the year | 9,000 | 3,000 |
Avon and Savoi
Statements of Financial Position
As at 31 March 2021
Assets | $'000 | $'000 |
Non-current assets | ||
Property, plant and equipment | 40,600 | 12,600 |
Investment | 9,600 | 2,000 |
Current assets | 16,000 | 6,600 |
Total assets | 66,200 | 21,200 |
Equity and liabilities | ||
Equity shares of $1 each | 10,000 | 4,000 |
Retained earnings | 35,400 | 6,500 |
45,400 | 10,500 | |
Non-current liabilities | ||
10% loan notes | 12,600 | 6,000 |
Current liabilities | 8,200 | 4,700 |
Total equity and liabilities | 66,200 | 21,200 |
The following information is relevant.
(i) At the date of acquisition, the fair values of Savoi's property plant and equipment had a fair value of $2 million in excess of its carrying amount. It had a remaining life of five years at that date (straight-line depreciation is used). Savoi has not adjusted the carrying amount of its property plant and equipment.
(ii) Sales from Savoi to Avon in the post-acquisition period were $8 million. Savoi made a mark-up on cost of 40% on these sales. Avon had sold $5.2 million (at cost to Avon) of these goods by 31 March 2021.
(iii) Savoi's trade receivables at 31 March 2021 include $600,000 due from Avon.
(iv) Avon has a policy of accounting for any non-controlling interest at full fair value. The fair value of the non-controlling interest in Savoi at the date of acquisition was estimated to be $5.9 million.
(v) Consolidated goodwill was not impaired at 31 March 2021.
Required
(a) Prepare the consolidated statement of profit or loss for for the year ended 31 March 2021 2020.
(b) Prepare the consolidated statement of financial position as at 31 March 2021.
Expert Answer:
Consolidated statement of profit or loss For for the year ended 31 March 2021 000 Revenue 119000 Cost of sales 88120 Gross profit 30880 Distribution c... View the full answer
