AC3102 Seminar Outline S1 To S7 Jan2019 April2019 10jan2019

AC3102 Risk Reporting And Analysis
Semester 2 Academic Year 2018/ 2019 (January 2019 to April 2019)

This file contains Seminar Outline for Seminar 1 to Seminar 7.
Section 1: Instructions for submission of Group Project presentation

1. There are 9 group projects (see course outline on “Group Projects”) in this semester. Thus,
each seminar class will have 9 teams comprising about 5 members per team.
2. Each team should submit a written report on the weekly preset cases and questions before the
start of class in each week. See item 11 below for details.
3. The report should contain clear, concise and precise complete sentences. Bonus points will be
awarded to a report that directly and accurately addresses the relevant issues in a clear and
concise manner.
4. The report should be typed based on this format
-Arial font size 11 and 1.5 line spacing
-maximum length of thirty (30) single-sided pages (excluding cover page – see below). In
general, any material beyond page 30 will not be graded. All pages must be numbered.
- If your report contains tables and excel spreadsheets, ensure they are properly formatted in
your word file (e.g. font-size 11) to facilitate printing the entire MS-word document in one-
step.
5. There will be a 30% penalty for non-compliance of the required format.
6. Late submissions will not be graded.
7. Submissions that contain plagiarism will be given zero marks.
8. To be fair to all students, the instructors will not discuss the assignment with any student prior
to the scheduled in-class presentation. The non-presenting students and the instructor will play
an active role in class to comment, challenge and critique the presentation done by the
presenting team. By the third calendar day after the presentation, the presenting team should
update their presentation material (e.g. incorporate in-class comments and rectify errors) and
post their word file on the course website for sharing with all students. Both the presenting
team and the instructors will not bear responsibility for the usage of the posted presentation
material. If you think that the posted presentation material has errors, please resolve directly
with the presenting team before contacting your instructor.
9. To create the appropriate incentive for each student to prepare for the weekly assignment, the
instructors will not be posting any solution to the questions. If you are absent from class, please
follow-up with your class members.
AC3102_Seminar_Outline_S1_to_S7_Jan2019_April2019_10Jan2019.docx Lee Kin Wai 1 / 39

10. Format of cover page:
Date and time of class: Monday 21 January 20x1 (1.30 pm to 5.30 pm )
Venue : Seminar room SR 4
Team number : Three
Full Name of each student in the team as it % contribution**

appears in the class list
1
2
3
4
Total 100%
** State each team member’s contribution to the completion of this project. For example, for
a team of 4 members, if all members have equal contribution, the % stated above will be 25%
for each team member. This means that all 4 members will have the same score for this project.
Unequal contribution means that members within the same team will have different scores.
You are required to be honest in stating each member’s contribution.
10. Email correspondence

We welcome your questions. For efficiency purposes, you should adhere to these guidelines in
your email communication with us:-
1. Write clearly, precisely and concisely using complete words and sentences.
2. Outline your initial views and response to your questions so that we know your current position
and potential problem areas. In general, we will not respond to students who do not outline
their initial views and response to their questions.
3. We will give priority to those who demonstrated initiatives to help themselves.
Due to the recent changes in the financial reporting standards, we will not review (nor
comment) your attempt on
a) past year examination questions
b) additional questions in the textbook that are not covered in seminars.
Where appropriate, we have incorporated several relevant past year examination questions
(such as those that are not superseded by recent changes in the financial reporting standards)

into the weekly discussion questions. We assume that you have been diligently attending the
seminars and following up class discussion with your classmates (if you are absent from
specific seminar).
11. Submission of Group Project report

All presenting and submitting teams for the scheduled week will have to (i) submit their
presentation report (in a MS-word file) by email to their seminar instructor and (ii) to
post their presentation report before the stipulated deadline indicated for the specific
seminar. In general, the deadline is usually on Thursday (9 a.m.) prior to the week of the
scheduled presentation. For example, if the scheduled presentation for a specific team (say
Team 6) falls between Monday 8 August 20X1 to Friday 12 August 20X1, the team will have
(i) to submit their presentation report (in a MS-word file) by email to their seminar instructor
and (ii) to post their presentation report on or before the Thursday 4 August 20x1 (9 a.m.).
Please name your MS Word file as follows AC3102_SemGroupX_TeamY.doc. X is your
seminar group number and Y is the team number. For example, if you are from team 7
in seminar group 1, the file must be labelled as AC3102_SemGroup1_Team7.doc. Late
submissions will NOT be graded.
If there is evidence of cheating (e.g. where the presentations among different groups are
unusually similar), the school’s rules on dealing with cheating will be invoked. To test the
integrity of the presentations, questions will be asked to each presenter to assess his original
preparation. Thus, each presenter must be fully conversant with ALL material submitted in
his team’s presentation report. The rest of the class should prepare properly for the weekly
questions to enhance the quality of the in-class discussion.
Section 2: Instructions for individual participation

1. In the seminar classes without any formal team presentation, students are expected to
participate in class discussion (see course outline on “individual participation scores”)
by preparing and responding to the pre-set in-class discussion questions (excluding the
group projects in the previous section 1).
2. For efficiency, we propose the following team allocation to facilitate individual
participation for the whole semester:
seminar Week starting Team in charge for individual participation
2 Monday 21-1-2019 1, 2, 3
3 Monday 28-1-2019 4, 5, 6

5 Monday 11-2-2019 7, 8, 9
8 Monday 11-3-2019 1, 2, 3
9 Monday 18-3-2019 4, 5, 6
10 Monday 25-3-2019 7, 8, 9
3. The “team in charge for individual participation” should bring their excel file or word
file to lead the discussion of the pre-set in-class discussion questions (excluding the
group projects in the previous section 1). The team need NOT submit their excel file
or word file (on the pre-set in-class discussion questions) to the instructors before the
class. Instead, the “team in charge for individual participation” has to post their revised
report (see section 1 on report format) by the third calendar day after the seminar class
in NTULEARN for sharing with rest of the class. Both the “team in charge for
individual participation” and the instructors will not bear responsibility for the usage
of the posted presentation material.
4. If you think that the posted presentation material has errors, please resolve directly with
the presenting team before contacting your instructor.

Seminar 1: Introduction, Concepts and Context
Week commencing 14-1-2019
Learning objectives
1. Understand the differences between the reporting by legal and economic (group) entities.
2. Understand the economic incentives for the provision of consolidated financial information.
3. Understand the economic context of group reporting — mergers and acquisitions as risk
management strategy and the impact on financial reporting.
4. Understand the concept of “control” and the determination of the parent-subsidiary
relationship.
5. Understand the concept of “significant influence” and the notion of “associate”.
References
TLK chapter 2
SFRS(I) 3
SFRS(I) 10
AMS, WH, ISCA, KPMG
Review recorded lecture and seminar notes on “Introduction, Concepts and Context”.
Self-study material
Illustration 2-1 Relative voting rights – TLK page 43.
Illustration 2-2 Potential voting rights – TLK page 44.
Illustration 2-3 Decision making rights over different activities – TLK page 46.
Illustration 2-4 Potential voting rights – TLK page 50.
The following material is not examinable in this course:-

1) Consolidation theories (TLK page 54 to page 62)

Seminar 1
Acquisition Method and Consolidation as at Acquisition Date
1. Understand the difference between investor’s separate financial statements and the
consolidated statements.
2. Understand the differences in various modes of business combinations.
3. Understand the significance of the acquisition method and its implications for
consolidation.
4. Understand accounting issues concerning control and identification of the acquirer.
5. Examine the key concepts and measure their amounts in the preparation of consolidated
financial statements as at acquisition date:-
• Pre-acquisition reserves
• Fair value differential
• Goodwill
• Non-controlling interests
6. Prepare basic consolidation entries and consolidated financial statements as at acquisition
date.
7. Analyze key accounts and balances in the consolidated financial statements at acquisition
date.
References
TLK chapter 3
SFRS(I) 3
SFRS(I) 10
Review recorded lecture and seminar notes on “Application of the Acquisition Method under
SFRS(I) 3”.
Self-study material
 Illustration 3.2 - Fair value of equity issued - TLK page 86.
 Further issues: pre-existing relationships between acquirer and acquiree and reacquired
rights – TLK page 87
 Illustration 3.3 – recognition of contingent liability and indemnification asset - TLK
page 93.
 Illustration 3.4 – direct acquisition of net assets of a business - TLK page 101.

 Illustration 3.5 –acquisition of a subsidiary - TLK page 105.
 Illustration 3.6– gain on bargain purchase - TLK page 108.
 Illustration 3.7 – acquisition of assets that do not constitute a business- TLK page 111.
The following material is not examinable in this course:-

1) Appendix 3A Investment Entities (TLK page 113 to page 117)
2) Appendix 3B Reverse acquisitions (TLK page 118 to page 122)
3) Appendix 3C Determining what is part of the business combination transaction (TLK page 123
to page 147)
Seminar Questions
Question 1
CQ2.1 Parent-subsidiary relationship - TLK page 63.
Question 2
Company P paid $600,000 to purchase 60% of the share capital of Company S on 31-12-20X1.
Excess of fair value over book value of building of Company S as at acquisition date was
$150,000. Fair value of company S (100%) is $1,000,000 based on its share price.
Fair value of non-controlling interest (NCI) on acquisition date is $400,000. NCI measured at
fair value at acquisition date. Tax rate is 20%.
The balance sheet of P and S at acquisition date is given below.
Balance sheet as at 31-12-20X1 Company P Company S
Cash 200,000 250,000
Account receivable 70,000 280,000
Investment in company S at cost 600,000 0
Building 400,000 90,000
Total assets 1,270,000 620,000
Accounts payable 170,000 20,000
Share Capital 200,000 100,000

Retained earnings 900,000 500,000
Total liabilities and equity 1,270,000 620,000

Prepare the consolidated statement of financial position of P group as at 31-12-20x1.
Question 3
Company P paid $600,000 to purchase 60% of the share capital of Company S on 31-12-20X1.
At acquisition date (31-12-20x1), S has :-
a) Excess of fair value over book value of building of Company S was $150,000.
b) An unrecorded intangible asset in S of $120,000
c) Contingent liability due to a litigation of $30,000
Fair value of company S (100%) is $1,000,000 based on its share price.

Fair value of non-controlling interest on acquisition date is $400,000. NCI measured at fair
value at acquisition date. Tax rate is 20%.
The balance sheet of P and S at acquisition date is given below.
Balance sheet as at 31-12-20X1 Company P Company S
Cash 200,000 250,000
Account receivable 70,000 280,000
Investment in company S at cost 600,000 0
Building 400,000 90,000
Total assets 1,270,000 620,000

Total liabilities and equity 1,270,000 620,000
Prepare the consolidated statement of financial position of P group as at 31-12-20x1.
Question 4
P3.5 Different forms of business combinations - TLK page 153.

Seminar 2
Consolidation: Post-Acquisition
Learning objectives:-
1. Understand the rationale for elimination of investment in subsidiary,
2. Understand the concept of non-controlling interests.
3. Appreciate the alternative measurement basis for non-controlling interests.
4. Prepare consolidation journal entries relating to goodwill, depreciation, and amortization of
differences between book values and fair values of identifiable assets, contingent liabilities of
acquired subsidiaries, and non-controlling interests.
5. Prepare consolidation journal entries to allocate current and past income to non-controlling
interests.
6. Prepare consolidated statement of comprehensive income and consolidated statement of
financial position.
References
TLK chapter 4
SFRS(I) 3
SFRS(I) 10
Review recorded lecture and seminar notes on “Consolidation : Post Acquisition”.
Self-study material
Illustration 4.1 – eliminate investment in subsidiary - TLK page 164.
Illustration 4.2 – determine non-controlling interest (NCI) in goodwill - TLK page 172.
Analytical check on the non-controlling interest balances – TLK page 177-179.
Illustration 4.3A – non-controlling interest as a debit balance - TLK page 179.
Illustration 4.4A – accounting for NCI - TLK page 180.
Illustration 4.5A – amortization of fair value differential - TLK page 186.
Illustration 4.6A – Multi-year consolidation - TLK page 191.
Illustration 4.7 – goodwill impairment tests - TLK page 206.
Appendix 4A – illustrations on NCI measured as a proportion of acquisition date identifiable
net assets.
The following material is NOT examinable in this course:-

1) Appendix 4B – accounting for other components of Non-controlling interests.

Question 1 (adapted from case written by Lee Kin Wai for Singapore Chartered
Accountant Examination Preparation Workshop by NTU in 2018).
Company P paid $925,000 to purchase 70% of the share capital of Company S on 1-1-20x1.
At acquisition date, S has :-
Useful
Book Fair value life
Value Fair value differential (years)
Building 190,000 390,000 200,000 10
Intangible assets 0 80,000 80,000 5
Other net assets 410,000 410,000 0
Net assets 600,000 880,000 280,000
Share capital 100,000

Retained earnings 500,000
Net assets 600,000
Fair value of company S (100%) is $1,000,000 based on its share price.

Fair value of non-controlling interest on acquisition date is $300,000. NCI are to be recognized
at full fair value on acquisition date.
Tax rate is 20%. Consider tax effects where appropriate such as tax effects on fair value
differentials. All dividend is declared and paid out of current year net income.
Financial statements of P (100%) and S (100%) for year ended 31-12-20x3 are given below.
P Ltd S Ltd
Profit and Loss for the period 1-1-20x3 to 31-12-20x3

Sales 600,000 410,000
Cost of goods sold (280,000) (200,000)
Dividend income 42,000 0
Depreciation (100,000) (60,000)
Profit before tax 262,000 150,000
tax expense (52,400) (30,000)
Profit after tax 209,600 120,000
Statement of change in equity

(partial)
Opening retained earnings 1,700,000 800,000
Profit after tax 209,600 120,000
Less dividends declared and paid 0 (60,000)
Closing Retained earnings 1,909,600 860,000

Balance Sheet as at 31-12-20x3
Cash 400,000 90,000
Receivables 858,600 560,000
Investment in Subsidiary (at cost) 925,000
Property, Plant & Equipment 600,000 320,000
total assets 2,783,600 970,000

Share capital 600,000 100,000
Retained earnings 1,909,600 860,000
total liabilities and equity 2,783,600 970,000
Required
a) Prepare consolidation journal entries for P group for year ended 31-12-20x3.
b) Prepare consolidated statement of comprehensive income for year ended 31-12-20x3.
c) Prepare consolidated statement of financial position for year ended 31-12-20x3.
d) Provide analytical check (independent proof of balances) of these items in the consolidated
financial statements for year ended 31-12-20x3:-
i) group net income after tax attributable to shareholders of P Ltd.
ii) net income after tax attributable to non-controlling interests
iii) group retained earnings
iv) non-controlling interests
Question 2
P4.5 acquisition method and non-controlling interest at fair value - TLK page 231.
Additional requirement: Perform analytical check (independent proof of balances) of the group
retained earnings.
Question 3
P4.6 acquisition method and non-controlling interest at proportion of net assets - TLK page
232.

Seminar 3
Consolidation : Intra-group Transactions

Learning objectives:
1. Understand the principles underlying the elimination of intra-group balances and transactions
in consolidation;
2. Understand the rationale for consolidation adjustments to opening retained earnings.
3. Appreciate the significance of upstream versus downstream transactions and the
consequential impact on non-controlling interests.
4. Prepare the consolidation adjustments with respect to unrealized profit or loss arising from
typical intra-group transactions such as intercompany transfers of inventory and fixed assets.
5. Prepare consolidated statement of comprehensive income and consolidated statement of
financial position.
References
TLK chapter 5
SFRS(I) 3
SFRS(I) 10
Review recorded lecture and seminar notes on “Consolidation : Intra-group Transactions”
Self-study material
Illustration 5.1 – upstream sale - TLK page 253.
Illustration 5.2 – multi period effects of upstream sale and downstream sale - TLK page 257.
Illustration 5.3 –downstream sale fixed assets - TLK page 269.
Illustration 5.3 –extension – upstream sale fixed assets - TLK page 272.
Illustration 5.4 – comprehensive example with intercompany transfers - TLK page 280.
Illustration 5.4 extension – comprehensive example with intercompany transfers- TLK page
288.
Illustration 5.5 – loss from intra-group transfers - TLK page 290.
Illustration 5.6 – transfers at a loss - TLK page 292.

Question 1
P5.1 consolidation adjustments and worksheet – TLK page 298.
Question 2
For each of the following scenarios, discuss the effects of the elimination of the intra-group
transactions on each of the following items in the 20x8 Consolidated Statement of Profit or
Loss and Other Comprehensive Income:
 Consolidated Profit after Tax; (assume tax rate of 20%)
 Profit after Tax attributable to Non-controlling Interests; and
 Profit after Tax attributable to Members of Parent.
(a) During the year ended 31 December 20x8, a 90%-owned Subsidiary sells a piece of inventory
which it bought for $10,000 to its Parent company for $15,000. Subsequently (during the year
20x8), the Parent company sells the goods to an outsider for $18,000.
(b) During the year ended 31 December 20x8, a Parent company sells a piece of inventory which
it bought for $10,000 to its 80%-owned Subsidiary company for $15,000 cash. As at 31
December 20x8, that piece of inventory is still with the Subsidiary company.
(c) During the year ended 31 December 20x8, a 70%-owned Subsidiary company sells a piece of
inventory which it bought for $10,000 to its Parent company for $15,000 cash. As at 31
December 20x8, that piece of inventory is still with the Parent company.
(d) During the year ended 31 December 20x8, a Parent company pays interest of $10,000 to its
60%-owned Subsidiary company. The Subsidiary recognises the interest as income whilst the
Parent company recognises the interest paid as an expense.
(e) During the year ended 31 December 20x8, a Parent company pays interest of $10,000 to its
60%-owned Subsidiary company. The Subsidiary recognises the interest as income whilst the
Parent company properly capitalises the interest paid as part of the cost of its construction
work-in-progress in accordance with SFRS (I) 1- 23: Borrowing Costs.
Question 3
C Ltd acquired 90% of D Ltd in 20x1. In 20x7, D Ltd sold goods invoiced at $300,000 to C
Ltd. The cost of these goods to D Ltd was $200,000. C Ltd sold 80% of these goods to
outsiders in 20x7 and the remaining 20% in 20x8. The 20x8 profits after tax of C Ltd and D
Ltd were $600,000 and $500,000 respectively. The tax rate is 20%.
In C Ltd’s 20x8 consolidated financial statements:

(a) The “profit after tax attributable to shareholders of the parent”
(b) The “profit after tax attributable to non-controlling interest”

Question 4
P Ltd acquired 90% of Q Ltd in January 20x1 when Q Ltd’s retained profit was $100,000. For
the year ended 31 December 20x8, the profit after tax of P Ltd and Q Ltd were respectively
$200,000 and $100,000. The profit after tax of P Ltd included dividend income of $9,000
received from Q Ltd in December 20x8. As at 31 December 20x8, the retained profits of P Ltd
and Q Ltd were respectively $900,000 and $800,000.
In P Ltd’s 20x8 consolidated financial statements:
(a) The “profit after tax attributable to shareholders of the parent”
(b) The “retained profits”
Question 5
H Ltd acquired 80% interest of J Ltd on 1-1-20x7. On 1-1-20x7, H Ltd disclosed a contingent
liability of $80,000 under which there was a 40% probability that it had to pay damage of
$200,000. On 1-1-20x7, J Ltd each disclosed a contingent liability under which there was a
30% probability that it had to pay damage of $100,000. The two cases were under judicial
process.
During 20x8, H Ltd settled its contingent liabilities by paying $77,000, as ordered by the court.
During 20x8, J Ltd settled its contingent liabilities by paying $50,000, as ordered by the court.
(a) In H Ltd’s 20x7 consolidated financial statements, “provision for litigation loss” is
(b) In H Ltd’s 20x8 separate financial statements, “litigation loss”
(c) In H Ltd’s 20x8 consolidated financial statements, “litigation loss”

Seminar 4
Week commencing Monday 4-2-2019
Equity accounting and Joint Arrangements
This seminar will be done via e-learning.
Thus, there is no physical class from 4-2-2019 to 8-2-2019 unless indicated otherwise by
your instructor.
Learning objectives
1. Understand the concept of significant influence and joint control.
2. Understand the differences between equity method and consolidation.
3. Apply the equity method in accounting for investment in an associate and joint venture.
4. Appreciate the nature of joint arrangements and apply the appropriate accounting treatment
for joint arrangements.
References
TLK chapter 6
FRS 28
Review recorded lecture and seminar notes on “Equity accounting and joint
arrangements”
Self-study material
Illustration 6.1 equity accounting – TLK page 343.
Illustration 6.2 comprehensive problem – TLK page 351.
Illustration 6.3 comprehensive problem – TLK page 359.
Illustration 6.4 accounting for joint arrangement – TLK page 376.
Illustration 6.5 accounting for joint operations – TLK page 378.
Illustration 6.6 accounting for joint operations – TLK page 381.

Seminar 5
Complex group structures
Learning objectives
1. Appreciate the implications of indirect ownership interests on consolidation and
equity accounting.
2. Prepare consolidation adjustments and equity accounting entries for multi-tier group
structures.
3. Prepare consolidated financial statements for multi-tier group structures.
References
TLK chapter 7
SFRS(I) 10
Review recorded lecture and seminar notes on “complex group structures”.
Self-study material
Illustration 7-1 – Simultaneous consolidation – TLK page 427.
Illustration 7-2 – extension of sequential consolidation – TLK page 432.
Illustration 7-3 – Simultaneous consolidation of an existing sub-group of companies – TLK
page 437.
Illustration 7-4 – Simultaneous consolidation with fair value adjustments – TLK page 446.
Illustration 7-5 – Indirect holding of an associate through a subsidiary – TLK page 459.

Seminar 5
Accounting for changes in ownership interests
Learning objectives
1. Understand business combinations achieved in stages and changes in ownership
interests in a subsidiary.
2. Prepare consolidation adjustments for changes in ownership interests in a subsidiary,
with and without change in control.
3. Understand the differences in profit recognition arising from the cost, consolidation,
and equity methods.
References
TLK chapter 7
SFRS(I) 3
SFRS(I) 10
Review recorded lecture and seminar notes on “Accounting for changes in ownership
interests”.
Self-study material
Illustration 7-6 – Business combination achieved in stages – TLK page 467.
Scenario 1: Loss of control – from 90% to 30% - TLK page 472.
Scenario 2: Gain of control – from 30% to 80% - TLK page 475.
Scenario 3 : No loss or gain of control - from 90% to 95% -TLK page 477. This example only
shows the CJE on date of change of control. There is insufficient data to work out CJE to
eliminate investment on 1-1-20x8 (when P buys 80% of S) and CJE post-acquisition change
in retained earnings (as there is no data on retained earnings of S). You should supplement with
seminar example on increased in ownership without any change in control.
Scenario 4 : No loss or gain of control – from 90% to 60% - TLK page 478.
Appendix 7C: Change in significant influence.
Illustration 7-7 – transfer asset between a subsidiary and an associate – TLK page 481.
Illustration 7-8 – comparison of cost, equity methods and consolidation – TLK page 487.

Question 1
Assume that the net assets of 3 companies, X Ltd, Y Ltd and Z Ltd are represented by their
respective share capital (SC) and retained earnings (RE), as follows:
SC RE
As at 1 April 20x4: $’000 $’000
X Ltd 100 300
Y Ltd 100 200
Z Ltd 100 100
As at 30 June 20x6:
X Ltd 100 400
Y Ltd 100 250
Z Ltd 100 120
As at 31 December 20X8:
X Ltd 100 500
Y Ltd 100 320
Z Ltd 100 150
For each of the following independent scenarios, compute the following balances in the
Consolidated Statement of Financial Position of X Ltd as at 31 December 20x8:
(i) group Retained Earnings; and
(ii) Non-controlling Interests.
Scenario I:
X Ltd acquires 90% of Y Ltd on 1 April 20x4 and Y Ltd acquires 80% of Z Ltd on 30 June
20x6.
Scenario II:
Y Ltd acquires 80% of Z Ltd on 1 April 20x4, and X Ltd acquires 90% of Y Ltd on 30 June
20x6.
Scenario III:
On 1 April 20x4, X Ltd acquires 90% of Y Ltd and 10% of Z Ltd, and Y Ltd acquires 80% of
Z Ltd.
Question 2
The paid-up share capital of X Ltd, Y Ltd and Z Ltd were respectively $300,000, $200,000,
and $100,000.
X Ltd paid $400,000 to acquire 80% of Y Ltd and paid $200,000 to acquire 70% of Z Ltd. Y
Ltd paid $25,000 to acquire 10% of Z Ltd. All these share acquisitions were transacted on 5
May 20x5, when the retained earnings of X Ltd, Y Ltd and Z Ltd were $300,000, $200,000,
and $100,000 respectively.
As at 31 December 20x8, the retained profits of X Ltd, Y Ltd and Z Ltd were $600,000,
$300,000, and $150,000 respectively.
In X Ltd’s 20x8 consolidated financial statements,:

(a) Goodwill on consolidation =
(b) Non-controlling interests =
(c) Retained earnings =
Question 3
TLK P7.3
The accounting policy is to measure non-controlling interest at acquisition-date at its fair value.
Additional requirement:
4. Perform an analytical check for Non-controlling Interests in the Consolidated Statement of
Financial Position of P Ltd as at 31 December 20x2.
Question 4
TLK P7.4
The accounting policy is to measure non-controlling interest at acquisition-date at its fair value.
Additional requirement:
4. Perform an analytical check for Non-controlling Interests in the Consolidated Statement of
Financial Position of P Ltd as at 31 December 20x2.
Question 5
P Ltd invested in S Ltd as follows:
Number of Shares Cost Retained Earnings

$’000 $’000
1 January 20x1 10,000 15,000 20,000
1 January 20x2 20,000 40,000 30,000
1 January 20x3 25,000 75,000 100,000
55,000 130,000
The number of shares in S Ltd is 100,000 and had not changed since incorporation.
Prior to 1 January 20x3, P Ltd had established that it had no Significant Influence in S Ltd and
its investment in S Ltd was measured at Cost because the fair value of the investment could not
be reliably measured.
On 1 January 20x3, P Ltd obtained Control of S Ltd and the fair value of S Ltd was established
to be $3.00.
The policy of P Ltd Group is to measure Non-controlling Interests at Acquisition-date Fair Value.
The (summarised) Statements of Financial Position of P Ltd and S Ltd for the year ended 31
December 20x3 are as follows:
P Ltd S Ltd
$’000 $’000
Property, Plant and Equipment 700,000 100,000
Investment in S Ltd 130,000 -
Current Assets 170,000 200,000
1,000,000 300,000

Retained Earnings 300,000 120,000
Non-current Liabilities 100,000 60,000
Current Liabilities 100,000 20,000
1,000,000 300,000
Required:
(i) Compute the following:
(a) Goodwill on Consolidation

(b) Group Retained Earnings as at 31 December 20x3
(c) Non-controlling Interests as at 31 December 20x3
(ii) Prepare the necessary consolidation journal entries for the preparation of the consolidated
financial statements of P Ltd as at 31 December 20x3.
(iii) Show the Consolidated Statement of Financial Position of P Ltd as at 31 December

20x3.
Question 6
P Ltd (which has acquired another subsidiary in 20X1) acquires a 70% interest in S Ltd (whose
share capital of $100 million comprises 100 million ordinary shares) for $70 million when S Ltd
was incorporated in February 20X2.
In August 20X4, when S Ltd’s net assets is represented by share capital of $100 million and
retained profit of $400 million, and when S Ltd’s shares are traded at $7 per share, P Ltd disposes
of some shares in S Ltd.
Required:
(a) Compute the profit or loss on disposal of S Ltd’s shares, as to be presented in the 20X4
Consolidated Statement of Profit or Loss and Other Comprehensive income, under the
following independent scenarios:
(i) P Ltd disposes of 70 million of S Ltd’s shares
(ii) P Ltd disposes of 60 million of S Ltd’s shares
(iii) P Ltd disposes of 50 million of S Ltd’s shares
(iv) P Ltd disposes of 10 million of S Ltd’s shares
(b) Comment on your answers to (a) above
Question 7
TLK 7.10

Seminar 6
Group 1 to submit Project #1 by email to instructor before 14-2-2019 (9 am).
Follow the submission instructions and guidelines on group project.
Project #1
Company PRINCE, Company YENY and Company ZORO are listed in Singapore. Unless
stated otherwise, assume that:
(i) The companies are incorporated in Singapore with 31 December accounting year-end,
applying Singapore Financial Reporting Standards (International) [SFRS(I)] that are
effective as at 1 January 2018, and adopting the group policy of measuring non-
controlling interest at acquisition date based on its fair value.
(ii) Over the years, there is no change in the issued share capital of the companies, and no
change in the parent’s shareholding interest in subsidiary.
(iii) Shareholding of more than 50% will give rise to having control.
(iv) Shareholding of 20% to 50% will give rise to having significant influence.
On 1 January 20x4, Company PRINCE acquired 90% interests in Company YENY.

On 1 January 20x5, Company PRINCE acquired 30% interests in Company ZORO.
All amounts shown are in $ except where otherwise indicated.

Details of the acquisition are shown below.
YENY ZORO
1 January 1 January
Date of acquisition
20x4 20x5
90% 30%
Percentage acquired by PRINCE
Shareholders' equity at date of acquisition
Share capital 600,000 400,000
1,300,000 900,000
388,000
Fair value of non-controlling interests
At the respective dates of acquisition, the fair and book values of identifiable net assets of
YENY and ZORO are as follows:
YENY YENY ZORO ZORO
Book value Fair value Book value Fair value
Inventory 250,000 590,000 0 0
Contingent liability 0 0 0 (100,000)
Other net assets 1,050,000 1,050,000 900,000 900,000
Total net assets 1,300,000 1,640,000 900,000 800,000
The financial statements for PRINCE, YENY and ZORO for the year ended 31 December 20x6
are as follows:

Income Statement and Statement of Changes in Equity (partial) for year ended 31
December 20x6
PRINCE YENY ZORO
Profit before tax 3,100,000 2,800,000 950,000
Tax (1,280,000) (600,000) (200,000)
Profit after tax 1,820,000 2,200,000 750,000
Dividends declared (700,000) (300,000) (100,000)
Profit retained 1,120,000 1,900,000 650,000
Retained earnings, 1 Jan 20x6 2,300,000 1,500,000 900,000
Retained earnings, 31 Dec 20x6 3,420,000 3,400,000 1,550,000
Statement of Financial Position as at 31 December 20x6

PRINCE YENY ZORO
Cash 200,000 700,000 320,000
Accounts receivable 70,000 200,000 400,000
Inventory 800,000 900,000 670,000
Fixed assets, net book value 2,700,000 3,300,000 2,620,000
Investment in YENY, at cost 3,000,000 0 0
Investment in ZORO, at cost 800,000 0 0
Non-current receivable from PRINCE 0 555,000 0
Non-current receivable from ZORO 99,000 0 0
7,669,000 5,655,000 4,010,000
Accounts payable 1,694,000 1,655,000 1,961,000

Non-current payable to PRINCE 0 0 99,000
Non-current payable to YENY 555,000 0 0
Share capital 2,000,000 600,000 400,000
Retained earnings 3,420,000 3,400,000 1,550,000
7,669,000 5,655,000 4,010,000
Additional information:
(1) Undervalued inventory of YENY was sold in 20x4.

Contingent liability of ZORO was paid off in 20x6 with an expense recorded by ZORO
to its profit and loss statement.
(2) On 1 January 20x1, YENY purchased an equipment for $500,000 (assume straight line
depreciation, useful life of 8 years and zero residual value).
On 1 January 20x5, YENY sold the equipment to PRINCE for $330,000.
On 1 January 20x5, the equipment had a remaining useful life of 4 years and zero
residual value. PRINCE uses straight line depreciation for its equipment.
(3) In 20x5, PRINCE sold inventory to ZORO as follows:

Transfer price from PRINCE to ZORO 190,000
Original cost of inventory to PRINCE 80,000
% of inventory resold to third parties during 20x5 60%

% of inventory resold to third parties during 20x6 30%
% of unsold inventory at 31 December 20x6 10%
(4) On 3 May 20x6, PRINCE sold inventory (original cost of $50,000) to YENY for
$140,000. The inventory remained unsold in YENY’s warehouse as at 31 December
20x6.
(5) Assume a tax rate of 20%. Recognise deferred tax effects, where appropriate.
Required:
(a) Based on SFRS(I), prepare the consolidation and equity accounting entries for PRINCE
group for the year ended 31 December 20x6.
(b) Using analytical check (independent proof of balances), determine the following
balances to be reported in the consolidated financial statements of PRINCE group for
the year ended 31 December 20x6:
(i) Non-controlling interests in the Consolidated Statement of Financial Position
(ii) Investment in company ZORO
Question 2
Discuss whether Pro Ltd, in each separate and unrelated case below, needs to consider any
other evidence to conclude whether it has power over the Sub Ltd.
(a) Pro Ltd holds 40% of the ordinary shares of Sub Ltd. 10 other shareholders each hold
6% of the ordinary shares of Sub Ltd. None of the other shareholders has any
contractual arrangements to consult each other or to make collective decisions.
(b) As provided in their contractual arrangement, Pro Ltd has unilateral ability to direct the
manufacturing and marketing of the products in Sub Ltd. Another shareholder has
unilateral ability to direct the regulatory and financing activities. Pro Ltd is not related
to the other shareholder.

(c) Pro Ltd and another shareholder currently hold 40% and 60% respectively of the voting
ordinary shares of Sub Ltd. Pro Ltd has a call option to acquire 50% of the other
shareholder’s interests in Sub Ltd. The option is exercisable at any time in the next two
years at a fixed price but it is currently and expected to continue to be deeply out of the
money. Currently, the other shareholder is actively directing the relevant activities of
Sub Ltd.
Company CARL is a public company which has grown substantially in the recent five years by
acquiring established firms. The following financial statements for two potential target companies
(ABC and XYZ) are shown below. Both companies operate in the same industry. CARL intends
to acquire 100% of the share capital of the proposed target.

Statement of Comprehensive Income for year ended 31-12-20x1
Figures in $'000 ABC XYZ
Revenue 25,000 40,000
Cost of sales (19,000) (32,800)
Gross Profit 6,000 7,200
Distribution expenses (700) (1,900)
Administrative expenses (550) (400)
Interest expense (250) (900)
Net income before tax 4,500 4,000
Tax expense (900) (1,000)
Net income after tax 3,600 3,000
Statement of Financial Position

Figures in $'000 ABC XYZ
Inventory 1,600 3,400
Account receivables 2,100 5,100
Cash 1,100 200
Total Current Assets 4,800 8,700
Building at cost 3,000 5,000
Less: Accumulated depreciation (800) (2,000)
Net book value - Buildings 2,200 3,000
Equipment at cost 4,000 8,000

Less: Accumulated depreciation (1,400) (700)
Net book value - Equipment 2,600 7,300
Total Non-Current assets 4,800 10,300

Total Assets 9,600 19,000
Account Payables 1,250 2,100

Operating accruals 150 1,000
Tax payable 600 1,100
Total Current Liabilities 2,000 4,200
Long term bonds 5,000 9,200

Total Non-Current Liabilities 5,000 9,200
Total Liabilities 7,000 13,400
Ordinary Share Capital 1,000 2,900

Retained Earnings 1,600 2,700
Total Equity 2,600 5,600

Total Liabilities and Equity 9,600 19,000
Part A
Compute the following financial ratios for both companies:
a. Gross profit margin
b. Net profit margin
c. Return on assets
d. Return on equity
e. Current ratio
f. Quick ratio
g. Days in inventory
h. Days in receivables
i. Days in payables
j. Cash conversion cycle
k. Asset turnover
l. Liabilities to assets ratio
m. Debt-to-equity ratio
You should clearly define the above financial ratios and show your workings.
Part B
Based on your computations in part A, assess the relative financial performance and financial
position of ABC and XYZ to assist the CEO of company CARL to make an acquisition
decision.
Part C
Suppose the proposed target per your analysis is selected. Use the following data to perform a
valuation of the proposed target:-
 Forecast future cash flow is $4,100,000 per year.
 Growth rate of forecast future cash flow is 5% per year.
 Risk-free rate is 2%, expected return on market is 12% and the beta (systematic risk)
of the target is 1.60.
Part D
Same facts as Part C except where the growth rate is 5% per year only for the first 5 years in the
forecast horizon and then the growth rate is reduced to 1% per year from the start of year 6.
Re-compute the valuation of the proposed target.
Note: Part C and D provide a revision for the “Business Valuation and Governance” module.
# END OF PROJECT #

Seminar 6
Project #2
Question 1
(adapted from Examination Sem 2 AY17-18)
Company PLUTO, Company SOLAR, Company WARK and Company ZANU are listed in
Singapore. Unless stated otherwise, assume that:
(i) the companies are incorporated in Singapore with 31 December accounting year-end,
applying Singapore Financial Reporting Standards (International) that are effective as
at 1 January 2018
(ii) Over the years, there is no change in the issued share capital of the companies, and no
change in the parent shareholding interest in subsidiary.
(iii) Shareholding of more than 50% will give rise to having control.
(iv) Shareholding of 20% to 50% will give rise to having significant influence.
On 1 January 20x2, Company PLUTO acquired 90% interests in Company SOLAR.

On 1 January 20x3, Company SOLAR acquired 70% interests in Company WARK.
On 1 January 20x4, Company POLAR acquired 40% interests in Company ZANU.
All amounts shown are in $ except where otherwise indicated.
Details of the acquisition of are shown below.

SOLAR WARK ZANU
1 January 1 January 1 January
Date of acquisition
20x2 20x3 20x4
Percentage acquired by company PLUTO 90% 0% 40%
Percentage acquired by Company SOLAR 0% 70% 0%
Shareholders' equity at date of acquisition
Share capital 800,000 600,000 100,000
Retained earnings 150,000 200,000 60,000
950,000 800,000 160,000
Fair value of non-controlling interests at
435,000 110,000
acquisition date
At the respective dates of acquisition, the fair and book values of identifiable net assets of
SOLAR, WARK and ZANU are as follows:
SOLAR SOLAR WARK WARK ZANU ZANU
Book Fair
Book value Fair value Book value Fair value
value value
Inventory 0 0 70,000 130,000 0 0
Fixed assets 50,000 250,000 0 0 90,000 90,000
Other net assets 900,000 900,000 730,000 730,000 70,000 70,000
Total Net assets 950,000 1,150,000 800,000 860,000 160,000 160,000

The financial statements for PLUTO, SOLAR, WARK and ZANU for year ended 31 December
20x7 are as follows:
Income Statement and partial Statement of Changes in Equity for the year ended 31
December 20x7
PLUTO SOLAR WARK ZANU
Profit before tax 900,000 700,000 500,000 300,000
Tax (180,000) (140,000) (100,000) (60,000)
Profit after tax 720,000 560,000 400,000 240,000
Dividends declared (280,000) (200,000) (170,000) (80,000)
Profit retained 440,000 360,000 230,000 160,000
Retained earnings, 1 January 20x7 1,500,000 900,000 820,000 400,000
Retained earnings, 31 December 20x7 1,940,000 1,260,000 1,050,000 560,000
Statement of Financial Position as at 31 December 20x7

PLUTO SOLAR WARK ZANU
Cash 670,000 29,000 333,000 20,000
Accounts receivable 300,000 410,000 222,000 70,000
Inventory 200,000 72,000 177,000 80,000
Fixed assets, net book value 600,000 840,000 950,000 500,000
Investment in SOLAR, at cost 910,000 0 0 0
Investment in ZANU , at cost 470,000 0 0 0
Investment in WARK , at cost 0 850,000 0 0
Non-current Receivable from SOLAR 55,000 0 0 0
Total Assets 3,205,000 2,201,000 1,682,000 670,000
Accounts payable 65,000 86,000 32,000 10,000

Non-current Payable to PLUTO 0 55,000 0 0
Share capital 1,200,000 800,000 600,000 100,000
Retained earnings 1,940,000 1,260,000 1,050,000 560,000
Total Liabilities and Equity 3,205,000 2,201,000 1,682,000 670,000
1. The remaining useful life of the under-valued fixed assets of SOLAR as at

acquisition date was five years. Salvage value was zero.
2. The under-valued inventory of WARK was sold in May 20x6.

3. During August 20x6, SOLAR sold inventory to PLUTO for $70,000 when the original
cost was $10,000. Subsequently, the inventory was:
a) 30% re-sold to third parties in 20x6;
b) 60% re-sold to third parties in 20x7; and
c) 10% unsold as at 31 December 20x7.

4. PLUTO purchased an equipment from ZANU 1 July 20x6 at an invoiced price of
$140,000. The equipment was manufactured by ZANU at a cost of $60,000. The useful
life of the equipment was four years at the date of sale.
5. Assume tax rate was 20%. Consider deferred tax effects where appropriate.
6. PLUTO recognizes non-controlling interests at fair value at acquisition date.
Required:
(a) Based on SFRS(I), prepare the consolidation and equity accounting entries for the
PLUTO group for the year ended 31 December 20x7.
(b) Using analytical check (independent proof of balances), determine the following
balances to be reported in the consolidated financial statements of PLUTO group for
the year ended 31 December 20x7:
(i) Consolidated net profit after tax attributable to shareholders of PLUTO; and
(ii) Investment in company ZANU.
Question 2
(adapted from Mid-term Quiz Sem 1 AY16-17)
On 31 December 20x1, Holding Ltd invested in the following companies and particulars of
Holding Ltd’s investment as well as the share capital and retained profits of those companies
as at that date were as follows:
Holding E F G
Ltd Ltd Ltd Ltd
Interest acquired 60% 60% 60%
Cost of investment $2,000,000 $2,000,000 $2,000,000
$ $ $ $
Share Capital 1,000,000 1,000,000 1,000,000 1,000,000
Retained Profit 5,000,000 1,000,000 1,000,000 1,000,000
6,000,000 2,000,000 2,000,000 2,000,000
Property, Plant and Equipment

- Land
Carrying amount 800,000 800,000 800,000 800,000
Fair value 1,250,000 1,250,000 1,250,000 1,250,000
Each of the companies had one piece of land classified as Property, Plant and Equipment
(“PPE”) and accounted for at Cost less accumulated depreciation and accumulated impairment
loss. Particulars about the land as at 31 December 20x1 are shown in table above. The
remaining useful lives of all the land above is 16 years.
Prior to investing in these companies, Holding Ltd did not have any other investments.
Excess payments for those investments were for fair value adjustments of the land in the table
above and goodwill, if any.

In Holding Ltd’s 20x1 Consolidated Statement of Financial Position:
(a) Land = $................................................................................................................
(b) Non-controlling Interests = $................................................................................
On 1 January 20x2, the following transactions pertaining to the land occurred in the following
companies:
E Ltd changed its accounting policy for PPE to state land at Revalued amount less subsequent
accumulated depreciation and accumulated impairment loss and had recognised a “Revaluation
Surplus” for the year of $450,000 in “Other Comprehensive Income”. E Ltd shall revalue its
land at regular interval of three years. The Group and other companies continued to state the
land at Cost less accumulated depreciation and accumulated impairment loss.
F Ltd disposed of its land for $1,088,000 on 1 January 20x2.
There had been no change in useful lives or impairment of those land and the other companies
continued to depreciate their land accordingly.
Assume that the applicable tax laws do not apply to land.
In Holding Ltd’s 20x2 Consolidated Statement of Profit or Loss and Other Comprehensive
Income:
(a) Revaluation Surplus = $........................................................................................
(b) Gain on Disposal of Land = $...............................................................................
(c) Depreciation Expense = $.....................................................................................
Refer to Keppel Corporation Ltd’s Annual report 2017.
Part A
Compute the following ratios based on Keppel Group’s consolidated financial statements for year
ended 31-12-2017 and 31-12-2016.
a. Net profit margin
b. Return on assets
c. Return on equity
d. Current ratio
e. Cash flow from operations to net profit after tax

f. Asset turnover
g. Liabilities to assets ratio
Part B
SFRS(I) 12 “Disclosure of Interests in Other Entities” require companies to disclose summarized
financial statements of the Group’s subsidiaries that have material non-controlling interests
(“NCI”). Re-do part A by excluding the financial performance of the Group’s subsidiaries that
have material non-controlling interests (“NCI”). State your assumptions where appropriate and if
there is insufficient information to do part B, clearly describe the nature of the missing
information.
Part C
Compare and contrast the results in part A and part B.
Explain (in 2 pages maximum) the financial implications of excluding the Group’s subsidiaries
that have material NCI.
In other words, is the Group’s financial performance better, same or worse if we excluding the
Group’s subsidiaries that have material NCI?
# END OF PROJECT #

Seminar 7
Project #3
Question 1
(adapted from Mid-term Test Sem 2 AY16-17)
Unless stated otherwise, assume the following:
(i) the companies are Singapore-incorporated, present annual financial statements with 31
December accounting year-ends in accordance with Singapore Financial Reporting
Standards (International) that are effective as at 1 January 2018, and that over the years,
there is no change in their respective issued share capital since the respective acquisition
date;
(ii) the companies account for investments at cost in their separate financial statements;
(iii) the group adopts the policies of measuring non-controlling interests at acquisition date
based on their proportionate share of the fair value of identifiable net assets of
subsidiaries acquired, and the full proportionate method;
(iv) the companies and the group adopt the straight-line method to depreciate its property,
plant, and equipment and records depreciation as operating expense;
(v) other income account consists of dividend income, interest income, and other
miscellaneous income;
(vi) the fair value reserves relate to revaluation of Fair Value through Other Comprehensive
Income (FVOCI) financial assets held by companies in the group;
(vii) a more-than-50% shareholding will give rise to control, and a 20%-to-50%
shareholding will give rise to significant influence; and
(viii) applicable income tax rate is 20%.
Harry Ltd (H) acquired 75% of the voting rights in Severus Ltd (S) on 1 January 20x5 and 40%
of the voting rights in Albus Ltd (A) on 31 December 20x5.
The summarised financial statements of the respective companies for the financial year ended
31 December 20x8 are as follows:
Statement of Comprehensive Income
For the financial year ended 31 December 20x8
H S A
$'000 $'000 $'000
Sales 46,000 28,800 10,300
Cost of sales (28,400) (20,800) (6,300)
Gross profit 17,600 8,000 4,000
Other income 3,200 2,500 1,200
Operating expense (15,000) (6,873) (5,400)
Finance expense (200) (127) (100)

Profit (Loss) before tax 5,600 3,500 (300)
Tax expense (1,800) (1,100) (700)
Profit (Loss) after tax 3,800 2,400 (1,000)
Other comprehensive income (loss) 500 (400) 300
Total comprehensive income 4,300 2,000 (700)
Statement of Financial Position As at 31 December 20x8

H S A
$'000 $'000 $'000
Non-current assets
Property, plant and equipment 6,550 3,800 1,600
Investment in S (at cost) 3,800 0 0
Investment in A (at cost) 1,200 0 0
FVOCI financial assets 1,100 2,600 1,000
12,650 6,400 2,600
Current Assets
Inventories 2,400 1,500 900
Trade and other receivables 3,220 1,900 1,000
Cash and cash equivalents 1,080 1,200 830
6,700 4,600 2,730
Total Assets 19,350 11,000 5,330
Equity
Share capital 4,000 1,200 1,000
Fair value reserves 850 800 700
Retained profits 9,700 6,900 2,510
14,550 8,900 4,210
Current liabilities
Trade and other payables 2,800 1,400 920
Provision for tax 2,000 700 200
4,800 2,100 1,120
Total Equity and Liabilities 19,350 11,000 5,330
Statement of changes in equity (extract)

For the financial year ended 31 December 20x8

H S A
Fair Retained Fair Retained Fair Retained

value profits value profits value profits
reserves reserves reserves
$’000 $’000 $’000 $’000 $’000 $’000
Balance as at 1/1/x8 350 7,500 1,200 5,300 400 4,010
Total comprehensive 500 3,800 (400) 2,400 300 (1,000)

income
Dividend paid 0 (1,600) 0 (800) 0 (500)
Balance as at 31/12/x8 850 9,700 800 6,900 700 2,510
Other information:
1. When H acquired S on 1 January 20x5, S’s retained profits and fair value reserves were
$2,200,000 and $400,000 respectively. On that date, S’s manufacturing plant, which was
carried at net book value of $3,000,000, was assessed with a fair value of $4,000,000.
As at that date, the remaining useful life of the plant was five years.
2. Since 1 January 20x7, S has sold goods to H at cost plus 30%. As at 31 December 20x7,
$1,300,000 of these inventories remained in the store of H. These inventories were
subsequently sold by H to external customers in January 20x8. For the financial year
ended 31 December 20x8, S sold inventories to H for $1,950,000 and 40% of these
inventories remained in the store of H as at 31 December 20x8.

3. On 31 December 20x8, H made a payment of $60,000 for the inventories purchased from
S in September 20x8, but S did not receive this payment. As at 31 December 20x8, H’s
trade payables account included an amount of $240,000 payable to S, whereas S’s trade
receivables account had an amount of $300,000 receivable from H.

4. On 1 April 20x8, H advanced a short-term loan of $720,000 to S at 5% per annum. The

interest expense owed by S to H for the financial year ended 31 December 20x8 was fully
repaid while the entire loan amount remained outstanding as at 31 December 20x8. The
outstanding loan amount was recorded in trade and other receivables account of H’s
books and trade and other payables account of S’s books.

5. During the financial year ended 31 December 20x7, impairment loss of $125,000 was
recognised against goodwill arising from the acquisition of S. There was no additional
impairment loss recognised for the financial year ended 31 December 20x8.


6. When H purchased a 40% stake in A on 31 December 20x5 for cash consideration of
$1,200,000, the fair value of A’s net assets were represented by share capital of
$1,000,000 and retained profits of $2,000,000.

7. During the financial year ended 31 December 20x8, A sold goods to H at cost plus 15%.
On 31 December 20x8, H’s inventories included goods invoiced by A amounting to
$345,000.

Required:
(a) Prepare all the consolidation journal entries necessary for the preparation of the 20x8
consolidated financial statements for Harry Ltd Group.
(b) Prepare the following consolidated financial statements for Harry Ltd Group:
(i) Consolidated Statement of Comprehensive Income for the financial year ended 31
December 20x8.
(ii) Consolidated Statement of Financial Position as at 31 December 20x8.
Question 2
On 1 January 20x1, Company ABC acquired Shirley Limited at a cash consideration of $70,000
in exchange for 25% interest in Shirley. At the acquisition date, the carrying amount of Shirley’s
net assets was $160,000, which was approximate their fair values, except that the fair value of a
machine with a remaining useful life of 5 years and a carrying amount of $20,000 should be
$30,000. At the year-end of 31 December 20x1, Shirley had generated a net profit after tax of
$12,000 and distributed a total dividend of $4,000.
Required
Determine how ABC’s consolidated financial statements should account for the investment in
Shirley for the year ended 31 December 20x1. Your response should also include a brief
discussion on impairment test requirements for the investment in Shirley in ABC’s consolidated
financial statements for the year ended 31 December 20x1. Ignore tax effects.
Refer to Singapore Telecommunication Limited’s Annual report for year ended 31 March 2018.
Part A

Compute the following ratios based on Singapore Telecommunication Group’s consolidated
financial statements for year ended 31 March 2018 and 31 March 2017.
a. Net profit margin

b. Return on assets
c. Return on equity
d. Current ratio
e. Cash flow from operations to net profit after tax
f. Asset turnover
g. Liabilities to assets ratio
Part B
SFRS(I) 12 “Disclosure of Interests in Other Entities” require companies to disclose summarized
financial statements of the Group’s material/ significant associates. Re-perform part A by
excluding the financial performance of the Group’s material associates. State your assumptions
where appropriate and if there is insufficient information to do part B, clearly describe the nature
of the missing information.
Part C
Compare and contrast the results in part A and part B.
Explain (in 2 pages maximum) the financial implications of excluding the Group’s material
associates.
In other words, is the Group’s financial performance better, same or worse if we exclude the
Group’s material associates?
# END OF PROJECT #

Seminar 7
Project #4
Question 1
(adapted from Singapore CA Qualification Dec 2017)
From date of initial investment to 31 December 20x6, P Co has “control” over Silver Co
(Silver) and “significant influence” over Ace Co (Ace). The abridged 20x6 financial
statements of P Co and its investees are shown below.
Income Statement and partial Statement of Changes in Equity for the year ended 31
December 20x6 (in $’000)
P Co Silver Co Ace Co
Profit before tax 2,500 1,570 600
Tax (500) (314) (120)
Profit after tax 2,000 1,256 480
Dividends declared (230) (56) (30)
Profit retained 1,770 1,200 450
Retained earnings, 1 Jan 20x6 7,290 964 590
Retained earnings, 31 Dec 20x6 9,060 2,164 1,040
Statement of Financial Position as at 31 December 20x6 (in $’000)

Investment in Silver Co, at cost 1,650 - -
Investment in Ace Co, at cost 700 - -
Amount owing from Silver Co 320 - -
Amount owing from Ace Co 100 - -
Other assets 16,910 3,687 1,910
Total assets 19,680 3,687 1,910
Amount owing to P Co - 320 100

Other liabilities 4,620 283 370
Share capital 6,000 800 400
Retained earnings 9,060 2,164 1,040
Revaluation reserves - 120 -
Equity and total liabilities 19,680 3,687 1,910
1. Apply a tax rate of 20% on fair value differentials and other adjustments, where
appropriate. Dividend income is tax-exempt.
2. Information on the ownership interests in Silver is as follows:

Date of acquisition 1 Jan 20x3
% acquired by P Co on date of acquisition 90%
Shareholders’ equity at date of acquisition $’000

Share capital 800
Retained earnings 420
Revaluation reserves 90
1,310
Fair value of non-controlling interests as at date of acquisition 165
Non-controlling interests are to be recognised at full fair value on acquisition date.
On 1 January 20x3, the net identifiable assets of Silver were at fair value, except for the
inventory of building materials, which were under-valued by $30,000. Subsequent to
acquisition, the movement of the inventory was as follows:
Sold to third parties prior to 1 January 20x6 40%
Used for construction of own building during 20x6 50%
(The building was completed on 1 July 20x7 with a useful life of 20 years)
Unsold as at 31 December 20x6 10%
3. On 1 January 20x5, P Co purchased a warehouse from a third party for $10,000,000, which
had an estimated useful life of 20 years from purchase date. The warehouse was rented
out to Silver on a two-year lease in 20x5 and 20x6 for storage of building materials by
Silver for production purposes. The lease commencement date was 1 January 20x5 and
the annual lease payment is paid at the start of each lease period. The warehouse was
recognised by P Co as an investment property in accordance with Singapore Financial
Reporting Standard (International) SFRS(I) 1-40 Investment Property. P Co chose to
apply the fair value model to measure its investment properties. However, P Co’s and the
Group’s accounting policy is to apply the historical cost model for its property, plant and
equipment. P Co and Silver accounted for the rental agreement as an operating lease under
SFRS(I) 1-17 Leases. Silver had recognised an annual rental expense of $500,000 in 20x5
and 20x6 as charged and earned by P Co.
The fair value of the warehouse at each financial year end was as follows:
As at 31 December 20x5 $11,200,000
As at 31 December 20x6 $. 9,820,000
The business model of P Co was to hold the warehouse purely for rental income and there was
no intention to re-sell the warehouse. P Co applied the appropriate tax treatment in accordance
with SFRS(I) 1 – 12 Income Taxes.
4. Revaluation reserves of Silver on 1 January 20x6 was $140,000.
5. Information on the ownership interests in Ace is as follows:

Date of acquisition 1 Jan 20x5
% acquired by P Co on date of acquisition 30%
Shareholders’ equity of Ace at date of acquisition $’000
Share capital 400
Retained earnings 520
920
6. Prior to 1 January 20x5, Ace had invested and accounted for $100,000 in research
expenditure and $140,000 in development expenditure. The development expenditure did
not qualify for capitalisation under SFRS(I) 1-38 Intangible Assets. On 1 January 20x5,

due diligence reviews showed that Ace had intellectual property with fair value of
$500,000 arising from its past research and development activities. The intellectual
property had an indefinite useful life and its benefits will be realised through use by Ace.
P Co applied the cost model in accounting for intangible assets.
The recoverable amount of the intellectual property on the following dates was as follows:
At 31 December 20x5 $540,000
At 31 December 20x6 $450,000
Required:
Apply Singapore Financial Reporting Standard (International) SFRS(I) 3 Business

Combinations, SFRS(I) 10 Consolidated Financial Statements, and SFRS(I) 1-28 Investments
in Associates and Joint Ventures to answer the following.
(a) Prepare the relevant consolidation entries and equity accounting entries for the year ended
31 December 20x6.
(b) Analytically determine (proof of balances) the balance of Investment in Ace Co in the
consolidated statement of financial position of P Co as at 31 December 20x6,
independently of the equity accounting entries in (a) above. Do not list the equity
accounting entries to support the above balance.
(c) On 2 January 20x7, P Co obtained “control” of Ace Co by acquiring additional interests.

Details on 2 January 20x7 are as follows:
Date of additional investment 2 Jan 20x7
Additional interests acquired by P Co on 2 Jan 20x7 50%
$’000
Purchase consideration for the additional interests in Ace Co 2,250
Fair value of previously-held interests in Ace Co 1,050
Fair value of non-controlling interests in Ace Co 700
On 2 January 20x7, the fair values of identifiable net assets of Ace Co are close to their
carrying amounts (book values) except for the intellectual property whose fair value is
close to the recoverable amount on 31 December 20x6, as shown in the case.
(i) Prepare the consolidation entry or entries to show the adjustments to previously-held
interests in Ace Co as of 2 January 20x7.
(ii) Prepare the consolidation entry to eliminate the investment in Ace Co as of 2 January
20x7.
Question 2 (adapted from case written by Lee Kin Wai for MBA 2018 financial statement
analysis class).
Select a listed company in the world (that prepares its financial accounts using IFRS) that
disposed its shareholding in a subsidiary that resulted in the loss of control of its subsidiary.

Bring the soft copy of the annual report to class. You may wish to consider the
“Announcements” made by companies listed on the Singapore Exchange (SGX) pertaining to
“Asset Acquisitions and Disposals” (see company information/ announcements/ Asset
Acquisitions and Disposals).
Required:
Part A
Show extracts from the financial statements (including notes to the accounts) that relate to the
disposal of the subsidiary.
Part B
Based on the reported figures in the consolidated financial statements, compute the following
ratios in the year of disposal of the subsidiary (that resulted in a loss of control of the subsidiary)
and the year just before the disposal of the subsidiary
(i) net profit after tax margin
(ii) ratio of cash flow from operations to net profit after tax
(iii) total liabilities to total assets ratio
Part C
Financial analysts such as credit analysts and equity analysts typically undo the effect of
“transitory items” such as excluding the gain/ loss on disposal of subsidiaries. Re-perform Part A
if we exclude the financial effects of the disposal of the subsidiary in the year of disposal.
Part D
Based on the preceding analysis, discuss the implications and distortions that arise if financial
analysts fail to undo the effect of “transitory items” such as excluding the gain/ loss on disposal
of subsidiaries. You should also cite specific provisions in the financial reporting standards and
disclosure requirements that help financial analysts to identify the financial effects of disposal of
subsidiaries.
# END OF PROJECT #

AC3102 Seminar Outline S1 To S7 Jan2019 April2019 10jan2019

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AC3102 Risk Reporting And Analysis

Semester 2 Academic Year 2018/ 2019 (January 2019 to April 2019)

Section 1: Instructions for submission of Group Project presentation

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Full Name of each student in the team as it % contribution**

10. Email correspondence

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11. Submission of Group Project report

Section 2: Instructions for individual participation

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The following material is not examinable in this course:-

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The following material is not examinable in this course:-

Accounts payable 170,000 20,000

Share Capital 200,000 100,000

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Fair value of company S (100%) is $1,000,000 based on its share price.

Accounts payable 170,000 20,000

Prepare the consolidated statement of financial position of P group as at 31-12-20x1.

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The following material is NOT examinable in this course:-

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Share capital 100,000

Fair value of company S (100%) is $1,000,000 based on its share price.

Profit and Loss for the period 1-1-20x3 to 31-12-20x3

Statement of change in equity

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Accounts payable 274,000 10,000

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Consolidation : Intra-group Transactions

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In C Ltd’s 20x8 consolidated financial statements:

(b) The “profit after tax attributable to non-controlling interest”

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In P Ltd’s 20x8 consolidated financial statements:

(a) The “profit after tax attributable to shareholders of the parent”

(b) The “retained profits”

(b) In H Ltd’s 20x8 separate financial statements, “litigation loss”

(c) In H Ltd’s 20x8 consolidated financial statements, “litigation loss”

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In X Ltd’s 20x8 consolidated financial statements,:

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Number of Shares Cost Retained Earnings

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(i) Compute the following:

(a) Goodwill on Consolidation

(iii) Show the Consolidated Statement of Financial Position of P Ltd as at 31 December

(b) Comment on your answers to (a) above

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On 1 January 20x4, Company PRINCE acquired 90% interests in Company YENY.

All amounts shown are in $ except where otherwise indicated.

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Statement of Financial Position as at 31 December 20x6

Accounts payable 1,694,000 1,655,000 1,961,000

(1) Undervalued inventory of YENY was sold in 20x4.

(3) In 20x5, PRINCE sold inventory to ZORO as follows:

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