question archive The Following information relate to the Grace plc group of companies as at 31 October 2012
The Following information relate to the Grace plc group of companies as at 31 October 2012
Subject:AccountingPrice: Bought3
The Following information relate to the Grace plc group of companies as at 31 October 2012. The summarized statements of financial position of these three companies at 31 October 2012 were as follows:.9px;=”” 12px=””>Non-current AssetsGrace plc $’mPoise plc $’mLeisure plc $’mProperty plant equipment2,1401,063720Investment in subsidiary –at cost1,452500-Other investments200100-Current assetsInventory350212108Trade receivables21312782Cash and bank 26Total assets 2,028.9px;=”” 12px=””>Equity shares –k1 shares500200100Retained earnings3,2151,330510Total equity3,7151,530610Non-current liabilitiesDeferred tax500300200Current liabilitiesTrade payables26215192Taxation payable 47Total equity and 2,028 liabilities Additional InformationOn 1 November 2011 Grace Plc. acquired 160 million of the equity shares and voting rights of Poise plcPoise plc. Acquired 75 million of the equity shares and voting rights of Leisure plc on 1 November 2008At the dates of share purchases the following information is known:Company earnings Date Equity shares Retained $’m $,m Poise plc 1 November 2009 200 560 Poise plc 1 November 2011 200 800Leisure plc 1 November 2009 100 240 Leisure plc 1 November 2011 100 1. With the following exceptions the fair value of assets of investee companies closely approximated their book value at the relevant acquisition dates:Company Asset Book Values Fair Value $,m $,m Poise plc Inventory* 147 197 Poise plc Equipment** 200 400*all of this inventory had been sold by 31 October 2012**this equipment was purchased in 2010 and is depreciated over its five year life on a straight line basis. It is still held by Poise plc.2. During 2012, the following intra group trading took place: Selling company Buying company Sale at transfer price Profit on sales$,m Poise plc Grape plc 280 40% on costPoise plc has levied a management charge of $10 million per annum on Leisure plc for services which it provides. In 2012 Leisure plc has neither paid this charge nor accrued it as outstandingThe dividends payable were declared before the statement of financial position date and are therefore included as liabilities. No dividends receivable has been accrued by parent companies.In the year of purchase a full year’s depreciation is provided in respect of non-current assets and no deprecation is provided in the year of disposal.Required:Prepare a Consolidate Statement of Financial Position of Grace plc as at 31 October 2013 (20 marks)Explain why the fair value of a company’s assets is used in the preparation of consolidated financial statement.
