Question 1:

Traveler, a public limited company, operates in the manufacturing sector. The draft
statements of financial position are as follows at 30 November 20X1:
Traveler Data Captive
$m $m $m
Assets:
Non-current assets
Property, plant and equipment 439 810 620
Investments in subsidiaries
Data 820
Captive 541
Financial assets 108 10 20
–––––– –––––– ––––––
1,908 820 640
Current assets 1,067 781 350
–––––– –––––– ––––––
Total assets 2,975 1,601 990
–––––– –––––– ––––––
Equity and liabilities:
Share capital 1,120 600 390
Retained earnings 1,066 442 169
Other components of equity 60 37 45
–––––– –––––– ––––––
Total equity 2,246 1,079 604
–––––– –––––– ––––––
Non-current liabilities 455 323 73
Current liabilities 274 199 313
–––––– –––––– ––––––
Total equity and liabilities 2,975 1,601 990
–––––– –––––– ––––––
The following information is relevant to the preparation of the group financial statements:
1 On 1 December 20X0, Traveler acquired 60% of the equity interests of Data, a public
limited company. The purchase consideration comprised cash of $600 million. At
acquisition, the fair value of the non-controlling interest in Data was $395 million.
Traveler wishes to use the ‘full goodwill’ method. On 1 December 20X0, the fair value
of the identifiable net assets acquired was $935 million and retained earnings of Data
were $299 million and other components of equity were $26 million. The excess in
fair value is due to non-depreciable land.
On 30 November 20X1, Traveler acquired a further 20% interest in Data for a cash
consideration of $220 million.
2 On 1 December 20X0, Traveler acquired 80% of the equity interests of Captive for a
consideration of $541 million. The consideration comprised cash of $477 million and
the transfer of non-depreciable land with a fair value of $64 million. The carrying
amount of the land at the acquisition date was $56 million. At the year end, this asset
was still included in the non-current assets of Traveler and the sale proceeds had
been credited to profit or loss.
At the date of acquisition, the identifiable net assets of Captive had a fair value of
$526 million, retained earnings were $90 million and other components of equity
were $24 million. The excess in fair value is due to non-depreciable land. This
acquisition was accounted for using the partial goodwill method in accordance with
IFRS 3 Business Combinations.
3 Goodwill was impairment tested after the additional acquisition in Data on
30 November 20X1. The recoverable amount of Data was $1,099 million and that of
Captive was $700 million.

Required:
(a) Prepare a consolidated statement of financial position for the Traveler Group for
the year ended 30 November 20X1. (25 marks)
Traveler has three distinct business segments. The management has calculated the net
assets, turnover and profit before common costs, which are to be allocated to these
segments. However, they are unsure as to how they should allocate certain common costs
and whether they can exercise judgement in the allocation process. They wish to allocate
head office management expenses; pension expense; the cost of managing properties and
interest and related interest bearing assets. They also are uncertain as to whether the
allocation of costs has to be in conformity with the accounting policies used in the financial
statements.

Required:
(b) Advise the management of Traveler on the points raised in the above paragraph.
(8 marks)
(Total: 33 marks)
Question 2:

Rose, a public limited company, operates in the mining sector. The draft statements of
financial position are as follows, at 30 April 20X1:
Rose Petal Stem
$m $m Dinars m
Assets
Non-current assets
Property, plant and equipment 385 117 430
Investments in subsidiaries
Petal 113
Stem 46
–––– –––– ––––
544 117 430
Current assets 118 100 330
–––– –––– ––––
Total assets 662 217 760
–––– –––– ––––
Equity and liabilities
Share capital 158 38 200
Retained earnings 256 56 300
Other components of equity 7 4 –
–––– –––– ––––
Total equity 421 98 500
–––– –––– ––––
Non-current liabilities 56 42 160
Current liabilities 185 77 100
–––– –––– ––––
Total liabilities 241 119 260
–––– –––– ––––
Total equity and liabilities 662 217 760
–––– –––– ––––
The following information is relevant to the preparation of the group financial statements:
1 On 1 May 20X0, Rose acquired 70% of the equity interests of Petal, a public limited
company. The purchase consideration comprised cash of $94 million. The fair value
of the identifiable net assets recognised by Petal was $120 million excluding the
patent below. The identifiable net assets of Petal at 1 May 20X0 included a patent
which had a fair value of $4 million. This had not been recognised in the financial
statements of Petal. The patent had a remaining term of four years to run at that
date and is not renewable. The retained earnings of Petal were $49 million and other
components of equity were $3 million at the date of acquisition. The remaining
excess of the fair value of the net assets is due to an increase in the value of land.
Rose wishes to use the ‘full goodwill’ method. The fair value of the non-controlling
interest in Petal was $46 million on 1 May 20X0. There have been no issues of
ordinary shares since acquisition and goodwill on acquisition is not impaired.
Rose acquired a further 10% interest from the non-controlling interest in Petal on
30 April 20X1 for a cash consideration of $19 million.
2 Rose acquired 52% of the ordinary shares of Stem on 1 May 20X0 when Stem’s
retained earnings were 220 million dinars. The fair value of the identifiable net assets
of Stem on 1 May 20X0 was 495 million dinars. The excess of the fair value over the
net assets of Stem is due to an increase in the value of land. Rose wishes to use the
‘full goodwill’ method. The fair value of the non-controlling interest in Stem at 1 May
20X0 was 250 million dinars. There have been no issues of ordinary shares and no
impairment of goodwill since acquisition.
The following exchange rates are relevant to the preparation of the group financial
statements:
Dinars to $
1 May 20X0 6
30 April 20X1 5
Average for year to 30 April 20X1 5.8
Required:
(a) Prepare a consolidated statement of financial position of the Rose Group at 30
April 20X1, in accordance with International Financial Reporting Standards,
showing the exchange difference arising on the translation of Stem’s net assets.
Ignore deferred taxation. (22 marks)
(b) The directors of Rose are not fully aware of the requirements of IAS 21 The Effects of
Changes in Foreign Exchange Rates in relation to exchange rate differences. They
would like advice on how exchange differences should be recorded on both
monetary and non-monetary assets in the financial statements and how these differ
from the requirements for the translation of an overseas entity. The directors also
wish advice on what would happen to the exchange differences if Rose sold all of its
equity shares in Stem.

Required:
Provide a brief memo for the directors of Rose which identifies the correct
accounting treatment for the various issues raised. (8 marks)
(Total: 30 marks)
Question 3:

The following extracts from draft financial statements relate to Bubble, a public limited
company, and Tyslar, a company in which it has an investment.
Extracts from draft statements of financial position as at 31 October 20X5
Bubble Tyslar
$m Dinars m
Assets
Non-current assets
Property, plant and equipment 280 390
Investment in Tyslar 46 –
Financial assets 122 98
–––– ––––
Total non-current assets 448 488
–––– ––––
Equity
Equity shares ($1 each) 80 210
Retained earnings 230 292
Other components of equity 40 –
–––– ––––
Total equity 350 502
–––– ––––
The following information is relevant to the preparation of the consolidated statement of
financial position:
1 Bubble owns 60% of the equity shares of Tyslar, a company located overseas which
has presented its financial statements in dinars. The shares in Tyslar were acquired
on 1 November 20X4.
At the date of acquisition, retained earnings were 258 million dinars and Tyslar had
no other components of equity. On this date, non-depreciable land was carried in the
financial statements of Tyslar at 50 million dinars but it had a fair value of 70 million
dinars.
The non-controlling interest at acquisition is to be calculated at fair value by
reference to the quoted share price of Tyslar. At the acquisition date, the quoted
share price was 2.62 dinars per share.
An impairment review of goodwill was undertaken as at 31 October 20X5. The
goodwill of Tyslar is to be impaired by 20%. Tyslar has not issued any equity shares
since acquisition.
2 Bubble wished to expand its overseas operations and on 1 May 20X5 acquired an
overseas property with a fair value of 58.5 million dinars. In exchange for the
building, Bubble paid the supplier with land which Bubble had held but for which it
had yet to determine its use. The carrying amount of the land was $5 million but it
had an open market value of $7 million. Bubble was unsure as to how to deal with
this transaction and so has transferred $5 million from investment properties to
property, plant and equipment. The transaction has commercial substance.
 In addition, Bubble spent $0.5 million to help relocate staff to the new property and
added this amount to the cost of the building. Bubble has made no other entries in
its financial statements in relation to the property. Bubble has a policy of
depreciating properties over 35 years and follows the revaluation model under IAS 16
Property, Plant & Equipment. As a result of a surge in the market, it is estimated that
the fair value of the property is 75 million dinars as at 31 October 20X5.
3 The following exchange rates have been provided:
Dinars to $
1 November 20X4 8
1 May 20X5 9
31 October 20X5 9.5
Average for the year to 31 October 20X5 8.5

Required:
(a) (i) Calculate, with supporting explanations, the value of goodwill arising on the
acquisition of Tyslar that should be reported in the consolidated statement
of financial position as at 31 October 20X5. (7 marks)
(ii) Explain why foreign exchange differences arise on the retranslation of Tyslar
and how they are accounted for in the consolidated financial statements. As
part of your answer you should calculate the balance on the group
translation reserve as at 31 October 20X5. (10 marks)
(iii) Advise the directors of Bubble on how to correct the accounting treatment of
the overseas property (note 2), showing the adjustments needed, and
calculate the ‘property, plant and equipment’ balance as it would appear in
the consolidated statement of financial position as at 31 October 20X5.
(8 marks)
(b) Tyslar operates a mine. Its income is denominated and settled in dinars. The output
of the mine is routinely traded in dinars and its price is determined initially by local
supply and demand. Tyslar pays 40% of its costs and expenses in dollars with the
remainder being incurred locally and settled in dinars. Tyslar’s management has a
considerable degree of authority and autonomy in carrying out the operations of
Tyslar and is not dependent upon group companies for finance.
Required:
Discuss and apply the principles set out in IAS 21 The Effects of Changes in Foreign
Exchange Rates in order to determine the functional currency of Tyslar. (8 marks)
(Total: 33 marks)