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  1 On 1 July 2014 Bycomb acquired 80% of Cyclip’s equity shares on the following terms:

  – a share exchange of two shares in Bycomb for every three shares acquired in Cyclip; and

  – a cash payment due on 30 June 2015 of $1·54 per share acquired (Bycomb’s cost of capital is 10% per

  annum).

  At the date of acquisition, shares in Bycomb and Cyclip had a stock market value of $3·00 and $2·50 each

  respectively.

  Statements of profit or loss for the year ended 31 March 2015:

  Bycomb Cyclip

  $’000 $’000

  Revenue 24,200 10,800

  Cost of sales (17,800) (6,800)

  ––––––– –––––––

  Gross profit 6,400 4,000

  Distribution costs (500) (340)

  Administrative expenses (800) (360)

  Finance costs (400) (300)

  ––––––– –––––––

  Profit before tax 4,700 3,000

  Income tax expense (1,700) (600)

  ––––––– –––––––

  Profit for the year 3,000 2,400

  ––––––– –––––––

  Equity in the separate financial statements of Cyclip as at 1 April 2014:

  $’000

  Equity

  Equity shares of $1 each 12,000

  Retained earnings 13,500

  The following information is also relevant:

  (i) At the date of acquisition, the fair values of Cyclip’s assets were equal to their carrying amounts with the

  exception of an item of plant which had a fair value of $720,000 above its carrying amount. The remaining life

  of the plant at the date of acquisition was 18 months. Depreciation is charged to cost of sales.

  (ii) On 1 April 2014, Cyclip commenced the construction of a new production facility, financing this by a bank loan.

  Cyclip has followed the local GAAP in the country where it operates which prohibits the capitalisation of interest.

  Bycomb has calculated that, in accordance with IAS 23 Borrowing Costs, interest of $100,000 (which accrued

  evenly throughout the year) would have been capitalised at 31 March 2015. The production facility is still under

  construction as at 31 March 2015.

  (iii) Sales from Bycomb to Cyclip in the post-acquisition period were $3 million at a mark-up on cost of 20%. Cyclip

  had $420,000 of these goods in inventory as at 31 March 2015.

  (iv) Bycomb’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose

  Cyclip’s share price at that date can be deemed to be representative of the fair value of the shares held by the

  non-controlling interest.

  (v) On 31 March 2015, Bycomb carried out an impairment review which identified that the goodwill on the

  acquisition of Cyclip was impaired by $500,000. Impaired goodwill is charged to cost of sales.

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  Required:

  (a) Calculate the consolidated goodwill at the date of acquisition of Cyclip. (6 marks)

  (b) Prepare extracts from Bycomb’s consolidated statement of profit or loss for the year ended 31 March 2015,

  for:

  (i) revenue;

  (ii) cost of sales;

  (iii) finance costs;

  (iv) profit or loss attributable to the non-controlling interest.

  The following mark allocation is provided as guidance for this requirement:

  (i) 1 mark

  (ii) 3 marks

  (iii) 2½ marks

  (iv) 2½ marks

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  2 Yogi is a public company and extracts from its most recent financial statements are provided below:

  Statements of profit or loss for the year ended 31 March

  2015 2014

  $’000 $’000

  Revenue 36,000 50,000

  Cost of sales (24,000) (30,000)

  ––––––– –––––––

  Gross profit 12,000 20,000

  Profit from sale of division (see note (i)) 1,000 nil

  Distribution costs (3,500) (5,300)

  Administrative expenses (4,800) (2,900)

  Finance costs (400) (800)

  ––––––– –––––––

  Profit before taxation 4,300 11,000

  Income tax expense (1,300) (3,300)

  ––––––– –––––––

  Profit for the year 3,000 7,700

  ––––––– –––––––

  Statements of financial position as at 31 March

  2015 2014

  $’000 $’000 $’000 $’000

  Non-current assets

  Property, plant and equipment 16,300 19,000

  Intangible – goodwill nil 2,000

  ––––––– –––––––

  16,300 21,000

  Current assets

  Inventory 3,400 5,800

  Trade receivables 1,300 2,400

  Bank 1,500 6,200 nil 8,200

  –––––– ––––––– –––––– –––––––

  Total assets 22,500 29,200

  ––––––– –––––––

  Equity and liabilities

  Equity

  Equity shares of $1 each 10,000 10,000

  Retained earnings 3,000 4,000

  ––––––– –––––––

  13,000 14,000

  Non-current liabilities

  10% loan notes 4,000 8,000

  Current liabilities

  Bank overdraft nil 1,400

  Trade payables 4,300 3,100

  Current tax payable 1,200 5,500 2,700 7,200

  –––––– ––––––– –––––– –––––––

  Total equity and liabilities 22,500 29,200

  ––––––– –––––––

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  Notes

  (i) On 1 April 2014, Yogi sold the net assets (including goodwill) of a separately operated division of its business

  for $8 million cash on which it made a profit of $1 million. This transaction required shareholder approval and,

  in order to secure this, the management of Yogi offered shareholders a dividend of 40 cents for each share in

  issue out of the proceeds of the sale. The trading results of the division which are included in the statement of

  profit or loss for the year ended 31 March 2014 above are:

  $’000

  Revenue 18,000

  Cost of sales (10,000)

  –––––––

  Gross profit 8,000

  Distribution costs (1,000)

  Administrative expenses (1,200)

  –––––––

  Profit before interest and tax 5,800

  –––––––

  (ii) The following selected ratios for Yogi have been calculated for the year ended 31 March 2014 (as reported

  above):

  Gross profit margin 40·0%

  Operating profit margin 23·6%

  Return on capital employed

  (profit before interest and tax/(total assets – current liabilities)) 53·6%

  Net asset turnover 2·27 times

  Required:

  (a) Calculate the equivalent ratios for Yogi:

  (i) for the year ended 31 March 2014, after excluding the contribution made by the division that has been

  sold; and

  (ii) for the year ended 31 March 2015, excluding the profit on the sale of the division. (5 marks)

  (b) Comment on the comparative financial performance and position of Yogi for the year ended 31 March 2015.

  (10 marks)

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  3 The following trial balance relates to Clarion as at 31 March 2015:

  $’000 $’000

  Equity shares of $1 each (note (i)) 30,000

  Retained earnings – 1 April 2014 8,600

  Other component of equity – share premium (note (i)) 5,000

  8% loan notes (note (ii)) 20,000

  Plant and equipment at cost (note (iii)) 85,000

  Accumulated depreciation plant and equipment – 1 April 2014 19,000

  Investments through profit or loss – value at 1 April 2014 (note (iv)) 6,000

  Inventory at 31 March 2015 11,700

  Trade receivables 18,500

  Bank 1,900

  Deferred tax (note (vi)) 2,700

  Trade payables 9,400

  Environmental provision (note (iii)) 4,000

  Finance lease obligation (note (iii)) 4,200

  Revenue 132,000

  Cost of sales 88,300

  Operating lease payments (note (v)) 2,000

  Administrative expenses 8,000

  Distribution costs 7,400

  Loan note interest paid 800

  Suspense account (note (ii)) 5,800

  Bank interest 300

  Dividends paid 3,900

  Investment income (note (iv)) 500

  Current tax (note (vi)) 400

  –––––––– ––––––––

  237,700 237,700

  –––––––– ––––––––

  The following notes are also relevant:

  (i) The equity shares and share premium balances in the trial balance above include a fully subscribed 1 for 5 rights

  issue at $1·60 per share which was made by Clarion on 1 October 2014. The market value of Clarion’s shares

  was $2·50 on 1 October 2014.

  (ii) On 31 March 2015, one quarter of the 8% loan notes were redeemed at par and six months’ outstanding loan

  interest was paid. The suspense account represents the double entry corresponding to the cash payment for the

  capital redemption and the outstanding interest.

  (iii) Property, plant and equipment:

  Included in property, plant and equipment are two major items of plant acquired on 1 April 2014:

  Item 1 had a cash cost $14 million, however, the plant will cause environmental damage which will have to be

  rectified when it is dismantled at the end of its five year life. The present value (discounting at 8%) on 1 April

  2014 of the rectification is $4 million. The environmental provision has been correctly accounted for, however,

  no finance cost has yet been charged on the provision.

  Item 2 was plant acquired with a fair value of $8 million under a five-year finance lease. This required an initial

  deposit of $2·3 million and annual payments of $1·5 million on 31 March each year. The finance lease

  obligation in the trial balance above represents the fair value of the plant less both the deposit and the first annual

  payment. The lease has an implicit interest rate of 10% and the asset has been correctly capitalised in plant and

  equipment.

  No depreciation has yet been charged on plant and equipment which should be charged to cost of sales on a

  straight-line basis over a five-year life (including leased plant). No plant is more than four years old.

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  (iv) The investments through profit or loss are those held at 31 March 2015 (after the sale below). They are carried

  at their fair value as at 1 April 2014, however, they had a fair value of $6·5 million on 31 March 2015. During

  the year an investment which had a carrying amount of $1·4 million was sold for $1·6 million. Investment

  income in the trial balance above includes the profit on the sale of the investment and dividends received during

  the year.

  (v) Clarion renewed an operating lease on a property on 1 April 2014. The operating lease payments represent an

  annual payment (in advance) of $1 million and a lease premium of $1 million. The lease is for four years and

  operating lease expenses should be included in cost of sales.

  (vi) A provision for current tax for the year ended 31 March 2015 of $3·5 million is required. The balance on current

  tax in the trial balance above represents the under/over provision of the tax liability for the year ended 31 March

  2014. At 31 March 2015, the tax base of Clarion’s net assets was $12 million less than their carrying amounts.

  The income tax rate of Clarion is 25%.

  Required:

  (a) Prepare the statement of profit or loss for Clarion for the year ended 31 March 2015.

  (b) Prepare the statement of changes in equity for Clarion for the year ended 31 March 2015.

  (c) Prepare the statement of financial position for Clarion as at 31 March 2015.

  Notes to the financial statements are not required.

  The following mark allocation is provided as guidance for these requirements:

  (a) 10 marks

  (b) 3 marks

  (c) 10 marks

  (23 marks)

  (d) Calculate the basic earnings per share of Clarion for the year ended 31 March 2015. (3 marks)

  (e) Prepare extracts from the statement of cash flows for Clarion for the year ended 31 March 2015 in respect

  of cash flows from investing (ignore investment income) and financing activities. (4 marks)

  (30 marks)

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