Question 1
Laurel acquired 80% of the ordinary share capital of Hardy for $160,000 and 40% of the
ordinary share capital of Comic for $70,000 on 1 January 2007 when the retained earnings
balances were $64,000 in Hardy and $24,000 in Comic. Laurel, Comic and Hardy are public
limited companies.
The statements of financial position of the three companies at 31 December 2009 are set out
below:
Laurel Hardy Comic
$'000 $'000 $'000
Non-current assets
Property, plant and equipment 220 160 78
Investments 230 ___ __
450 160 78
Current assets
Inventories 384 234 122
Trade receivables 275 166 67
Cash at bank 42 10 34
701 410 223
1,151 570 301
Equity
Contributed Equity 416 99 80
Retained earnings 278 128 97
non694 227 177
Current liabilities
Trade payables 457 343 124
1,151 570 301
You are also given the following information:
1. On 30 November 2009 Laurel sold some goods to Hardy for cash for $32,000. These goods
had originally cost $22,000 and none had been sold by the year-end.
2. On 1 January 2007 Hardy owned some items of equipment with a book value of $45,000 that
had a fair value of $57,000. These assets were originally purchased by Hardy on 1 January 2005
and are being depreciated over 6 years.
3. Group policy is to measure non-controlling interests at acquisition at fair value. The fair value
of the non-controlling interests in Hardy on 1 January 2007 was calculated as $39,000.
4. Cumulative impairment losses on recognized goodwill amounted to $15,000 at 31 December
2009. No impairment losses have been necessary to date relating to the investment in the
associate.
Required
a) Prepare a consolidated statement of financial position for Laurel and its subsidiary as at 31
December 2009.
b) A financial assistant has observed that the fair value exercise means that a subsidiary's net
assets are included at acquisition at their fair (current) values in the consolidated statement of
financial position. The assistant believes that it is inconsistent to aggregate the subsidiary's net
assets with those of the parent because most of the parent's assets are carried at historical cost.
Laurel acquired 80% of the ordinary share capital of Hardy for $160,000 and 40% of the
ordinary share capital of Comic for $70,000 on 1 January 2007 when the retained earnings
balances were $64,000 in Hardy and $24,000 in Comic. Laurel, Comic and Hardy are public
limited companies.
The statements of financial position of the three companies at 31 December 2009 are set out
below:
Laurel Hardy Comic
$'000 $'000 $'000
Non-current assets
Property, plant and equipment 220 160 78
Investments 230 ___ __
450 160 78
Current assets
Inventories 384 234 122
Trade receivables 275 166 67
Cash at bank 42 10 34
701 410 223
1,151 570 301
Equity
Contributed Equity 416 99 80
Retained earnings 278 128 97
non694 227 177
Current liabilities
Trade payables 457 343 124
1,151 570 301
You are also given the following information:
1. On 30 November 2009 Laurel sold some goods to Hardy for cash for $32,000. These goods
had originally cost $22,000 and none had been sold by the year-end.
2. On 1 January 2007 Hardy owned some items of equipment with a book value of $45,000 that
had a fair value of $57,000. These assets were originally purchased by Hardy on 1 January 2005
and are being depreciated over 6 years.
3. Group policy is to measure non-controlling interests at acquisition at fair value. The fair value
of the non-controlling interests in Hardy on 1 January 2007 was calculated as $39,000.
4. Cumulative impairment losses on recognized goodwill amounted to $15,000 at 31 December
2009. No impairment losses have been necessary to date relating to the investment in the
associate.
Required
a) Prepare a consolidated statement of financial position for Laurel and its subsidiary as at 31
December 2009.
b) A financial assistant has observed that the fair value exercise means that a subsidiary's net
assets are included at acquisition at their fair (current) values in the consolidated statement of
financial position. The assistant believes that it is inconsistent to aggregate the subsidiary's net
assets with those of the parent because most of the parent's assets are carried at historical cost.
