The Statements of Financial Position of Penn, a specialist sports goods retailer, and two entities in...

  

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The Statements of Financial Position of Penn, a specialist sports goods retailer, and two entities in which it holds substantial investments are shown below as at 31 March 2014. Non-current Assets Property and plant Investments Current assets Inventories Trade receivables Cash Non-Current Liabilities Loan Notes Current Liabilities Trade Payables Tax Penn ($000s) Overdraft 12,500 18,000 30,500 7,200 6,300 800 14,300 Equity and Liabilities Ordinary share capital 10,000 ($1) Reserves 44,800 14,000 24,000 10,000 8,900 1,300 600 10,800 44,800 Speen (5000s) 4,700 4,700 8,000 4,300 12,300 17,000 5,000 1,000 6,000 3,000 6,700 100 1,200 8,000 17,000 Amersham (5000s) 4,500 1,300 5,800 3.100 2,900 6,000 11,800 2,500 4,300 6,800 4,000 600 400 5,000 11,800 The following notes to the Statements of Financial Position must be considered: Note 1 - Investment by Penn in Speen On 1 April 2012, Penn purchased $2 million loan notes in Speen at par. On 1 April 2012, Penn purchased 4 million of the ordinary shares in Speen for $7.5 million in cash, when Speen's reserves were $1.5 million. At this date the shares of Speen had a market price of $1.50 each. At the date of acquisition of the shares, Speen's property and plant included land recorded at a cost of $920,000. At the date of acquisition, the fair value of the land was $1,115,000. No other adjustments in respect of fair value were required to Speen's assets and liabilities upon acquisition Speen has not recorded the fair value in its own accounting records. Note 2 - Investment by Penn in Amersham On 1 October 2013, Penn acquired 1 million shares in Amersham, a sports goods manufacturer, when the reserves of Amersham were $3.9 million. The purchase consideration was $4.4 million. Since the acquisition, Penn has had the right to appoint two of the five directors of Amersham and can exercise significant influence over Amersham. No fair value adjustments were required in respect of Amersham's assets or liabilities upon acquisition Note 3 Goodwill on acquisition Since acquiring its investment in Speen, Penn has adopted the requirements of IFRS 3 Business Combinations in respect of goodwill on acquisition. During March 2014, it conducted an impairment review of goodwill. As a result, the goodwill element of the investment in Amersham is unaltered, but the value of goodwill on consolidation in respect of Speen is now $1.7 million, ie after impairment. Note 4-- Intra-group trading Speen supplies cricket bats to Penn. On 31 March 2014 Penn's inventories included bats purchased at a total cost of $1 million from Speen. Speen's mark-up on bats is 25% Required: (a) Explain, with reasons, how the investments in Speen and Amersham will be treated in the consolidated financial statements of the Penn group. (5 marks) (b) Prepare the Consolidated Statement of Financial Position for the Penn group at 31 March 2014. Full workings should be shown. (20 marks) The Statements of Financial Position of Penn, a specialist sports goods retailer, and two entities in which it holds substantial investments are shown below as at 31 March 2014. Non-current Assets Property and plant Investments Current assets Inventories Trade receivables Cash Non-Current Liabilities Loan Notes Current Liabilities Trade Payables Tax Penn ($000s) Overdraft 12,500 18,000 30,500 7,200 6,300 800 14,300 Equity and Liabilities Ordinary share capital 10,000 ($1) Reserves 44,800 14,000 24,000 10,000 8,900 1,300 600 10,800 44,800 Speen (5000s) 4,700 4,700 8,000 4,300 12,300 17,000 5,000 1,000 6,000 3,000 6,700 100 1,200 8,000 17,000 Amersham (5000s) 4,500 1,300 5,800 3.100 2,900 6,000 11,800 2,500 4,300 6,800 4,000 600 400 5,000 11,800 The following notes to the Statements of Financial Position must be considered: Note 1 - Investment by Penn in Speen On 1 April 2012, Penn purchased $2 million loan notes in Speen at par. On 1 April 2012, Penn purchased 4 million of the ordinary shares in Speen for $7.5 million in cash, when Speen's reserves were $1.5 million. At this date the shares of Speen had a market price of $1.50 each. At the date of acquisition of the shares, Speen's property and plant included land recorded at a cost of $920,000. At the date of acquisition, the fair value of the land was $1,115,000. No other adjustments in respect of fair value were required to Speen's assets and liabilities upon acquisition Speen has not recorded the fair value in its own accounting records. Note 2 - Investment by Penn in Amersham On 1 October 2013, Penn acquired 1 million shares in Amersham, a sports goods manufacturer, when the reserves of Amersham were $3.9 million. The purchase consideration was $4.4 million. Since the acquisition, Penn has had the right to appoint two of the five directors of Amersham and can exercise significant influence over Amersham. No fair value adjustments were required in respect of Amersham's assets or liabilities upon acquisition Note 3 Goodwill on acquisition Since acquiring its investment in Speen, Penn has adopted the requirements of IFRS 3 Business Combinations in respect of goodwill on acquisition. During March 2014, it conducted an impairment review of goodwill. As a result, the goodwill element of the investment in Amersham is unaltered, but the value of goodwill on consolidation in respect of Speen is now $1.7 million, ie after impairment. Note 4-- Intra-group trading Speen supplies cricket bats to Penn. On 31 March 2014 Penn's inventories included bats purchased at a total cost of $1 million from Speen. Speen's mark-up on bats is 25% Required: (a) Explain, with reasons, how the investments in Speen and Amersham will be treated in the consolidated financial statements of the Penn group. (5 marks) (b) Prepare the Consolidated Statement of Financial Position for the Penn group at 31 March 2014. Full workings should be shown. (20 marks)

Answer rating: 100% (QA)

a Treatment of investments in Speen and Amersham in the consolidated financial statements The invest... View the full answer