Townsend, a public limited company, operates in the manufacturing sector. Townsend has investments in two other companies. The draft statements of financial position at 31 May 2019 are as follows:

The following information is relevant to the preparation of the group financial statements:

	Townsend KShs’m	Playpool KShs’m	Courtyard KShs’m
Assets:
Non-current assets
Property, plant and equipment	1,440	1,100	1,300
Investments in subsidiaries
Playpool	1,250
Courtyard	310	1,270
Financial assets	320	21	141
	3,320	2,391	1,441
Current assets	895	681	150
Total assets	4,215	3,072	1,591
Equity and liabilities:
Share capital	1,750	1,210	800
Retained earnings	1,240	930	350
Other components of equity	125	80	95
Total equity	3,115	2,220	1,245
Non-current liabilities	985	765	150
Current liabilities	115	87	196
Total liabilities	1,100	852	346
Total equity and liabilities	4,215	3,072	1,591

1.   On 1 June 2017, Townsend acquired 14% of the equity interests of Courtyard for a cash consideration of KShs260 million and Playpool acquired 70% of the equity interests of Courtyard for a cash consideration of KShs1,270 million. At 1 June 2017, the identifiable net assets of Courtyard had a fair value of KShs990 million, retained earnings were KShs190 million and other components of equity were KShs52 million. At 1 June 2018, the identifiable net assets of Courtyard had a fair value of KShs1,150 million, retained earnings were KShs240 million and other components of equity were KShs70 million. The excess in fair value is due to non-depreciable land. 
The fair value of the 14% holding of Townsend in Courtyard was KShs280 million at 31 May 2018 and KShs310 million at 31 May 2019. The fair value of Playpool’s interest in Courtyard had not changed since acquisition. 

2.   On 1 June 2018, Townsend acquired 60% of the equity interests of Playpool, a public limited company. The purchase consideration comprised cash of KShs1,250 million. On 1 June 2018, the fair value of the identifiable net assets acquired was KShs1,950 million and retained earnings of Playpool were KShs650 million and other components of equity were KShs55 million. The excess in fair value is due to non-depreciable land. 
It is the group’s policy to measure the non-controlling interest at acquisition at its proportionate share of the fair value of the subsidiary’s net assets. 

3.   Goodwill of Playpool and Courtyard was impairment tested at 31 May 2019. There was no impairment relating to Courtyard. The recoverable amount of the net assets of Playpool was KShs2,088 million. There was no impairment of the net assets of Playpool before this date and any impairment loss has been determined to relate to goodwill and property, plant and equipment. 

4.   Townsend has made a loan of KShs50 million to a charitable organisation for the building of new sporting facilities. The loan was made on 1 June 2018 and is repayable on maturity in three years’ time. Interest is to be charged one year in arrears at 3%, but Townsend assesses that an unsubsidised rate for such a loan would have been 6%. The only accounting entries which have been made for the year ended 31 May 2019 are the cash 
entries for the loan and interest received which have resulted in a balance of KShs48·5 million being shown as a financial asset.
5.   On 1 June 2017, Townsend acquired office accommodation at a cost of KShs90 million with a 30-year estimated useful life. During the year, the property market in the area slumped and the fair value of the accommodation fell to KShs75 million at 31 May 2018 and this was reflected in the financial statements. However, the market recovered unexpectedly quickly due to the announcement of major government investment in the area’s transport infrastructure. On 31 May 2019, the valuer advised Townsend that the offices should now be valued at KShs105 million. Townsend has charged depreciation for the year but has not taken account of the upward valuation of the offices. Townsend uses the revaluation model and records any valuation change when advised to do so. 

6.   Townsend has announced two major restructuring plans. The first plan is to reduce its capacity by the closure of some of its smaller factories, which have already been identified. This will lead to the redundancy of 500 employees, who have all individually been selected and communicated with. The costs of this plan are KShs9 million in redundancy costs, KShs4 million in retraining costs and KShs5 million in lease termination costs. The second plan is to re-organise the finance and information technology department over a one-year period but it does not commence for two years. The plan results in 20% of finance staff losing their jobs during the restructuring. The costs of this plan are KShs10 million in redundancy costs, KShs6 million in retraining costs and KShs7 million in equipment lease termination costs. No entries have been made in the financial statements for the above plans. 


7. The following information relates to the group pension plan of Townsend:

1 June 2018 (KShs’m)       31 May 2019(KShs’m)

Fair value of plan assets                                         28                                29

Actuarial value of defined benefit obligation     30                                35

The contributions for the period received by the fund were KShs2 million and the employee benefits paid in the year amounted to KShs3 million. The discount rate to be used in any calculation is 5%. The current service cost for the period based on actuarial calculations is KShs1 million. The above figures have not been taken into account for the year ended 31 May 2019 except for the contributions paid which have been entered in cash and the defined benefit obligation.

Required: .

Prepare the group consolidated statement of financial position of Townsend as at 31 May 2019.

Answer rating: 100% (QA)

SOLUTION PARENT COMPANY TOWNSEND SUBSIDIARY COMPANY PLAYPOOL SUBSIDIARY COMPANY COURTYARD CONSOLI... View the full answer