PART A: SHORT CASE STUDY [TOTAL MARKS: 15] This part of the question is compulsory and must be answered

Harris Ltd. purchased 30% of the equity shares of Trump Ltd. while the existing management of Trump Ltd. retained 70% of the company. It was decided that Harris Ltd will have significant influence over the company and they can also have influence over the operating and financial policy decisions of Trump Ltd.

Requirements: (Marks: 5+5+5= 15)

1. Giving appropriate reasons determine whether Trump Ltd. would be classed as a Financial Asset, Associate or a Subsidiary?

2. Based on your answer above, identify the accounting standards that would be applicable in accounting this transaction?

3. Based on your answer above, state what will be the appropriate Accounting treatment for Harris Ltd as a parent company?

PART B: PROBLEM SOLVING [MARKS: 15 *1 = 15] Answer any ONE [1] from the two questions provided below:

Problem 1

A acquired 80% of B 1 year ago for $7000, 000 when the balance on the retained earnings of B was $650,000. The following summarized statements of financial position are provided for A and B as at January 31, 2018.

Details A ($ 000) B ($ 000)

Non-current Assets 18,000 10,000

Investment in S 7000

Current Assets: Inventory 1600 750

Receivables 1900 1000

Cash 900 200

Total Assets 29400 11950

Share Capital 16000 4,000

Share Premium 2870 1950

Retained Earnings 7100 5000

Current Liabilities:

Payables 3170 1000

Liabilities and Equity 29400 11950.

Additional Information

It is a group policy to value NCI at proportion of net asset method on the reporting date.

A sells goods to B at a markup of 30%. As a result at the reporting date, Bs records show a payable due to A of $50,000. However, this disagreed to As receivables balance of $60,000 due to cash in transit.

At the reporting date, B held $50,000 of goods in inventory that had been purchased from A.

There has been $40,000 impairment of goodwill reported.

Required (Marks: 15)

Prepare a Consolidated Statement of Financial Position for A Group as at January 31, 2018.

Problem 2

Below are the statements of profit or loss for X and its subsidiary Y for the year ended 30 June 2010:

Details X ($ 000) Y ($ 000)

Revenue 19,000 8,200

Cost of Sales (8100) (3500)

Gross Profit 10,900 4700

Operating Expenses (1700) (1100)

Profit before tax 9200 3600

Income tax expense (750) (450)

Profit for the year 8450 3150

Additional Information:

X acquired 80% of Ys equity shares on 1st June 2009 paying $8 million. At this date, value of Ys net assets was $6 million.

It is Xs group policy to value NCI at acquisition using the fair value method.

As at June 30, 2010, it was determined that goodwill on acquisition had been impaired by 10%. No impairment loss had arisen previously.

During the year ended 30th June 2010, X sold $2 million of goods to Y at a margin of 20%. Two third of these goods remained in the inventory of Y at the reporting date.

Required (Marks: 15)

Prepare a Consolidated Statement of Comprehensive Income for the X Group for the year ended 30 June 2010.