ARSI UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

Group Assignment of Advanced financial Accounting

Group One members ID
1. Zabiba Abu Milkeso Gs/Ex 0002/15
2. Dereje Asfaw Dessalegn Gs/Ex 0003/15
3. Muktar Adile Degaro Gs/Ex 0013/15

Submitted to: Ermiyas Abera (Ph.D)

Submission Date: April 7/2023
Table of Content

Content page
Part I
1. IAS 1: PRESENTATION OF FINANCIAL STATEMENTS 3

2. IAS 16: PROPERTY, PLANT AND EQUIPMENT 10

3. IAS 36: IMPAIRMENT OF ASSETS 18
PART II .
4. BASIC EXERCISE 7 – PALADIN 20
5. BASIC EXERCISE 12 - HOLMES & DEAKIN GROUP 28
6. COMPREHENSIVE PROBLEM 4 – STANDARD GROUP 32
7. P 18-3 (BEAMS ET AL, ON CORPORATE LIQUIDATION
AND REORGANIZATION) 37
Index
 INTERNATIONAL ACCOUNTING STANDARD 1
(IAS 1):
PRESENTATION OF FINANCIAL STATEMENTS
The Board was established in 2001, replacing the IASC. The IASC produced Standards called
International Accounting Standards (IAS Standards) and its Interpretations were called SIC
Interpretations. One of the first actions of the Board was to adopt all of the IASC’s IAS
Standards and SIC Interpretations as its own. At the same time, the Board started to
develop new Standards and Interpretations, calling each new Standard an IFRS Standard
and each Interpretation an IFRIC Interpretation.
• Accounting standards – are policy documents. Their main aim is to insure transparency
reliability, consistency, and comparability of financial statements.
• International Accounting Standard Board (IASB) to develop standards
• Interpretations-If the Committee decides that an IFRS Standard is not clear and that it
should provide an clarification of the requirements it either develops an Explanation or,
in consultation with the Board, develops a narrow-scope amendment to the IFRS
Standard.
 IAS 1 Overview
Sets out the overall framework for presenting general purpose financial statements,
including guidelines for their structure and the minimum content.
A complete set of financial statements comprises:
• A statement of financial position
• A statement of profit or loss and other comprehensive income
• A statement of changes in equity
• A statement of cash flows
• Notes
Financial statements are generally prepared annually. If the end of the reporting period
changes, and financial statements are presented for a period other than one year,
additional disclosures are required.
A third statement of financial position is required when an accounting policy has been
applied retrospectively or items in the financial statements have been restated or
reclassified
IAS 1 defines what makes information material to the primary users of the financial
statements. It also sets out the line items to be presented in each of the statements (with
the exception of the statement of cash flows, for which IAS 7 sets out the requirements)
and has guidance for when an entity presents additional line items or subtotals
 Statement of Financial Position
In the statement of financial position, assets and liabilities are required to be classified as
current or non-current, unless presenting them in order of liquidity provides reliable and
more relevant information. Assets and liabilities may not be offset unless offsetting is
permitted or required by another IFRS Standard.
 Statement of profit or loss and other comprehensive income
The statement of profit or loss and other comprehensive income includes all items of
income and expense. It can be presented as either a single statement, with a sub-total for
profit or loss, or as separate statements of profit or loss and other comprehensive income.
Within the profit or loss section expenses are presented either by their nature (e.g.
depreciation) or by function (e.g. cost of sales)
Other Comprehensive Income including
1. changes in the revaluation surplus for property, plant and equipment and intangible
assets,
2. certain actuarial gains/losses on defined benefit plans,
3. gains/losses arising on translation of financial statements of foreign operations,
4. gains/losses arising from remeasuring available for sale securities and
5. gains/losses on cash flow hedges.
 Statement of changes in equity
The statement of changes in equity is required to show the total comprehensive income
for the period; the effects on each component of equity of retrospective application or
retrospective restatement in accordance with IAS 8; and for each component of equity, a
reconciliation between the opening and closing balances, disclosing each change
separately.
This statement presents the following:
1. total comprehensive income
2. for each component of equity, the effects of retrospective application/restatement
3. reconciliation between the carrying amount of each component of equity at the
beginning and end of the period.
 Notes-The notes must include information about the accounting policies followed; the
judgments that management has made in the process of applying the entity’s
accounting policies that have the most significant effect on the amounts recognized in
the financial statements; sources of estimation uncertainty; and management of
capital and compliance with capital requirements
The Elements of Financial Statements
 Asset- an asset is a present economic resource is a set of rights controlled by the entity
as a result of past events.
 liability- a liability is a present obligation of the entity to transfer an economic
resource as a result of past events
 Equity- is the residual interest in the assets of the entity after deducting all its liabilities
 Income- is increases in assets, or decreases in liabilities, that result in increases in
equity, other than those relating to contributions from holders of equity claims.
 Expenses are decreases in assets, or increases in liabilities, that result in decreases in
equity, other than those relating to distributions to holders of equity claims.
Fundamental principles
IAS 1 also sets out the fundamental principles for the preparation of financial
statements, including the going concern assumption, consistency in presentation and
classification and the accrual basis of accounting
 Going concern
An entity shall prepare financial statements on a going concern basis unless
management either intends to liquidate the entity or to stop trading, or has no
realistic alternative but to do so. When management is aware, in making its
assessment of material uncertainties related to events or conditions that may cast
significant doubt upon the entity’s ability to continue as a going concern, the entity
shall disclose those uncertainties.
 Accrual basis of accounting
An entity shall prepare its financial statements, except for cash flow information,
using the accrual basis of accounting. When the accrual basis of accounting is used,
an entity recognizes items as assets, liabilities, equity, income and expenses (the
elements of financial statements) when they satisfy the definitions and recognition
criteria for those elements in the Framework.
Recognition and Derecognition
 Recognition is the process of capturing for inclusion in the statement of financial
position or the statement of financial performance an item that meets the definition
of one of the elements of financial statements—an asset, a liability, equity, income or
expenses.
 Derecognition is the removal of all or part of a recognized asset or liability from an
entity’s statement of financial position and normally occurs when that item no longer
meets the definition of an asset or a liability.
Presentation and Disclosure
• Must display the following
1. the name of the entity
2. whether the financial statements are consolidated or not
3. the date of the balance sheet or period covered
4. the reporting currency and
5. the level of rounding (e.g. ETB 000s)
Presentation and disclosure objectives in Standards can support effective
communication. The Framework requires the Board to consider the balance between
giving entities the flexibility to provide relevant information and requiring information
that is comparable. The statement of profit or loss is the primary source of information
about an entity’s financial performance for the reporting period.
 IAS 16: PROPERTY, PLANT AND EQUIPMENT

Overview –IAS 16 Sets out the principles of accounting for property, plant and equipment
(PP&E).
Property, plant and equipment are tangible items that are: held for use in the production
or supply of goods or services, for rental to others or for administrative purposes
This Standard does not apply to:
Non current Asset held for sale (IFRS 5) and investment property (IAS 40)
 Inventories (IAS 2)
Biological assets (IAS 41)
Mineral Resources and Mineral rights (IFRS 6)
 Basic terminologies

Cost is the amount of cash or cash equivalents paid or the fair value of the other
consideration given to acquire an asset at the time of its acquisition or construction.
Entity specific value is the present value of the cash flows an entity expects to arise
from the continuing use of an asset and from its disposal at the end of its useful life.
Carrying amount is the amount at which an asset is recognized in the statement of
financial position after deducting any accumulated depreciation and accumulated
impairment losses.
Residual value is the net amount which the entity expects to obtain for an asset at the
end of its useful life after deducting the expected costs of disposal.
An impairment loss is the amount by which the carrying amount of an asset exceeds its
recoverable amount.
 Initial recognition and measurement

Property, plant and equipment should only be recognised as an

asset if, and only if:
• It is probable that future economic benefits associated with the
item will flow to the entity; and
• cost of the item can be measured reliably
It is generally easy to measure the cost of an asset as the transfer
amount on purchase, i.e. what was paid for it.
Self-constructed assets - adding together the purchase price of all
the constituent parts (labor, material etc) paid to external parties.
 An item of property, plant and equipment which qualifies for
recognition as asset should initially be measured at its cost
 Cost comprises:
 Purchase price, including import duties and non-refundable
purchase taxes
 Less trade discounts and rebates
 Costs directly attributable to bringing the asset to the
location and condition
 Costs directly and necessarily incurred for item to operate in
the intended manner
 Anticipated costs of dismantling/removing the asset,
together with any site restoration costs
 Cost of financing (IAS 23 Borrowing Costs
• Initial recognition is at cost, which includes all costs necessary to get the asset ready for
its intended use. Interest on amounts borrowed for the purposes of constructing an asset
are included in its cost—see IAS 23.
• Exchanges of PP&E are measured at fair value, including exchanges of similar items,
unless the exchange transaction lacks commercial substance or the fair value of neither
the asset received nor the asset given up can be measured reliably.
• After initial recognition PP&E is either carried at cost less accumulated depreciation and
impairment or measured at fair value less accumulated depreciation and impairment
between revaluations.
• Any revaluation surplus on disposal of an asset remains in equity and is not reclassified to
profit or loss.

Depreciation
o Depreciation is charged systematically over the useful life of the asset, using a method
that reflects the pattern of benefit consumption, to its residual value.
o Different depreciation methods are acceptable (including straight-line, diminishing
balance and units of production), but not a method that is based on the revenue the
asset generates.
o Components of an asset with differing patterns of benefits are depreciated separately.
o The residual value is the amount the entity would receive currently if the asset were
already of the age and condition expected at the end of its useful life.
 The Revaluation Model
 Carry at fair value at date of revaluation less subsequent accumulated depreciation
and impairment losses
 Fair value is usually market value as determined by professionally qualified valuers.
 Revaluations shall be made with sufficient regularity The frequency of valuation
depends on the volatility of the fair values of individual items of property, plant and
equipment.
 The more volatile the fair value, the more frequently revaluations should be carried
out. Where the current fair value is very different from the carrying value then a
revaluation should be carried out.
When an item of property, plant and equipment is revalued, the whole class of assets to
which it belongs should be revalued. Why?
All the items within a class should be revalued at the same time, to prevent selective
revaluation of certain assets and to avoid disclosing a mixture of costs and values from
different dates in the financial statements.
Revalued assets must continue to be depreciated
The revaluation model is used only if the fair value of the item can be measured reliably.
 Derecognition
 The carrying amount of an item of PPE should be derecognised
when it is disposed of/traded-in or when no future economic
benefits are expected from its use
 The proceeds from the sale of the asset (or trade-in allowance) is
compared with the carrying amount of the asset and a profit or
loss recognised
 Gains or losses arising from the Derecognition of an item of
property, plant and equipment are:
 the difference between the net disposal proceeds, and the

carrying amount of the asset,

 Asset Exchange Transactions

 Acquired asset will be measured at fair value if:

• Exchange has commercial substance.
• Fair value of the asset acquired can be measured reliably.
 Acquired asset will be measured at carrying amount of the
asset given up if:
• Exchange lacks commercial substance.
• Fair value of the asset acquired can not be measured reliably.
 3. IAS 36: IMPAIRMENT OF ASSETS
Overview
• Sets out requirements to ensure that assets are carried at no more than their recoverable
amount and to prescribe how recoverable amount and an impairment loss or its reversal
are calculated.
• Impairment = is sudden reduction in value of an individual non-current asset.
Impairment ‘concept’: an asset should not be measured at an amount greater than the entity
expects to recover from its sale or use
 Identifying impairments
• At the end of each reporting period, assets are reviewed to look for any indication that
they may be impaired.
• Intangible assets with an indefinite useful life and goodwill must be tested annually
irrespective of whether there is any indication of impairment.
 Recognition
• An impairment loss is recognized when the carrying amount of an asset exceeds its
recoverable amount.
• An impairment loss is recognized in profit or loss for assets carried at cost and treated
as a revaluation decrease for assets carried at the revalued amount.
• Reversal of prior years’ impairment losses is required in some cases, but is prohibited
for goodwill.
 Recoverable amount
• Recoverable amount is the higher of an asset’s fair value less costs of disposal and its
value in use.
• Value in use is the present value of estimated future cash flows expected to arise from
the continuing use of an asset and from its disposal at the end of its useful life.
 Goodwill
• The impairment test for goodwill is performed at the lowest level within the entity at
which goodwill is monitored for internal management purposes, provided that the unit
or group of units to which goodwill is allocated is not larger than an operating segment
as reported in accordance with IFRS 8.
 Part II 1. Basic Exercise 7 – Paladin
On 1 October 2010,Paladin secured a majority equity shareholding in Saracen on the
following terms:
An immediate payment of $4 per share on 1 October 20X0; and a further amount deferred
until 1 October 20X1 of $5•4 million. The immediate payment has been recorded in Paladin’s
financial statements, but the deferred payment has not been recorded. Paladin’s cost of
capital is 8% per annum, giving the deferred payment a current cost at 1october 2010 of $5
million.
On 1 February 20X1, Paladin also acquired 25% of the equity shares of Augusta paying $10
million in cash. Augusta made a profit of $1.2 million for the year ended 30 September 20X1.
The summarized statements of financial position of the three companies at 30
Paladin Saracen Augusta
$’000 $’000 $’000
Assets
Non-current assets
Property, plant and equipment 40,000 31,000 30,000
Intangible assets 7,500
Investments – Saracen (8 million shares at $4 each) 32,000
- Augusta 10,000 nil nil
89,500 31,000 30,000
Current assets
Inventory 11,200 8,400 10,000
Trade receivable 7,400 5,300 5,000
Bank 3,400 nil 2,000
Total assets 111,500 44,700 47,000
 
Equity and liabilities
Equity
Equity shares of $1 each 50,000 10,000 10,000
Retained earnings – at 1 October 20X0 25,700 12,000 31,800
– For year ended 30 Sep 20X1 9,20 6,000 1,200
84,900 28,000 43,000
Non-current liabilities
Deferred tax 15,000 8,000 1,000
Current liabilities
Bank nil 2,500 nil
Trade payable 11,600 6,200 3,000
Total equity and liabilities 111,500 44,700 47,000
September 20X1 are: The following information is relevant:
I. Paladin’s policy is to value the non-controlling interest at fair value at the date of
acquisition. The director of Paladin consider the fair value of the non-controlling
interest Saracen’s to be $7 million
II. At the date of acquisition, the fair values of Saracen’s property, plant and equipment
was Equal to its carrying amount with the exception of Saracen’s plant which had a fair
value of $4 million above its carrying amount at that date the plant had a remaining
life of four years. Saracen uses straight-line depreciation for plant assuming a nil
residual value. Also at the date of acquisition, Paladin valued Saracen’s customer
relationships as an intangible asset at fair value of $3 million. Saracen has not
accounted for this asset trading relationships with Saracen’s customers last on average
for six years.
III. At 30 September 20X1, Saracen’s inventory included goods bought from Paladin (at
cost to Saracen) of $2•6 million. Paladin had marked up these goods by 30% on cost.
Palandin agree account balance owned by, Saracen’s 30 September 20X1 was 1.3
million
IV. Impairment tests were carried out on 30 September 20X1 which concluded that
Consolidated goodwill was not impaired, but, due to disappointing earnings, the value
of the Investment in Augusta was impaired by $2•5 million.
V. Assume all profits accrue evenly through the year.
Required:
Prepare the consolidated statement of financial position for Paladin as at 30 September
20X1.
Answer to Paladin Basic exercise 7
Consolidated statement of financial position of Paladin as at 30 September 2011
$’000 $’000
Assets
Non-current assets:
Property, plant and equipment (40,000 + 31,000 + 4,000 – 1,000) 74,000
Intangible assets (w (i))
– Goodwill 15,000
– Other intangibles (7,500 + 3,000 – 500) 10,000

Investment in associate (w (ii)) 7,700
106,700
Current assets
Inventory (11,200 + 8,400 – 600 URP (w (iii))) 19,000
Trade receivables (7,400 + 5,300 – 1,300 intra-group (w (iii))) 11,400
Bank 3,400
33,800
Equity and liabilities
Equity attributable to owners of the parent
Equity shares 50,000

Retained earnings (w (iv)) 35,200

85,200
Non-controlling interest (w (VI)) 7,900

Total equity 93,100

Non-current liabilities
Deferred tax (15,000 + 8,000) 23,000

Current liabilities
Bank overdraft 2,500
Workings (figures in brackets are in $’000)
(i) Goodwill in Saracen
$’000 $’000
Controlling interest (see below)
Immediate cash 32,000

Deferred consideration (5,400 x 100/108) 5,000

Non-controlling interest (10,000 x 20% (see below) x $3·50) 7,000

44,000
 
Equity shares 10,000

Pre-acquisition reserves:
At 1 October 2010 12,000

Fair value adjustments – plant 4,000

– Intangible

Equity shares 10,000

Pre-acquisition reserves:
At 1 October 2010 12,000
The cost of the majority shareholding in Saracen was $32 million. Paladin acquired eight 
million shares and Saracen has
10 million shares, this gives a controlling interest of 80% and a non-
controlling interest of 20%.
The customer relationship asset is recognized as an intangible asset in the consolidated fi
nancial statements under FRS 103
(ii)  Carrying amount of Augusta at 30 September 2011
$’000
Cash consideration 10,000
Share of post-acquisition profits (1,200 x 8/12 x 25%) 200
Impairment loss (2,500)
7,700
(iii) Unrealized profit (URP) in inventory/intra-group current accounts
The URP in Saracen’s inventory (supplied by Paladin) of $2·6 million is $600,000 (2,600 x 3
0/130). The current account
Balances of Paladin and Saracen should be eliminated from trade receivables and payable
s at the agreed amount of $1·3 million.

 
(iv) Consolidated retained earnings:
$’000
Paladin’s retained earnings (25,700 + 9,200) 34,900
Saracen’s post-acquisition profits (4,500 (w (v)) x 80%) 3,600
Augusta’s post-acquisition profits (w (ii) 200
Augusta’s impairment loss (2,500)
URP in inventory (w (iii)) (600)
Finance cost of deferred consideration (5,000 x 8%) (400)
35,200
(v)  Post-acquisition adjusted profit of Saracen is:
$’000
Profit as reported 6,000
Additional depreciation of plant (4,000/4 ye (1,000)
Additional amortization of customer relationship asset (3,000/6 years) (500)
4,500
(vi) Non-controlling interest
$’000
Fair value on acquisition (w (i)) 7,000
Post-acquisition profits (4,500 (w (v)) x 20%) 900
7,900
 2. Basic Exercise 12 - Holmes & Deakin Group
Holmes, a public limited company, has owned 85% of the ordinary share capital of Deakin,
a public limited company, for some years. The shares were bought for $255m and Deakin
reserves at the time of purchase were$20m.
On 28 February 20X3 Holmes sold 40m of the Deakin shares for $160m. The only entry
made in respect of this transaction has been the receipt of the cash, which was credited to
the 'investment in subsidiary' account. No dividends were paid by either entity in the
period.
The following draft summarized financial statements are available:
HOLMES GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31.5.X3
$m
Non-current assets
Property, plant and equipment 713.00
Goodwill w - 1 68.00
781.00
Current assets
Inventories 510
Trade receivables 425
Cash 169
1,104
Total Asset 1,885.00
Equity
$1 ordinary shares 500.00
Retained earnings w - 493.50
993.50
Non-controlling interest w - 129.50
Total equity 1,123.00
Current liabilities
Trade payables 466
Income tax payable (80+60+30) 170
Provisions 126
762
Total 1, 885.00
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MAY 20X3
$m
Profit before gain on disposal of shares in subsidiary 190.00
Tax (40 + 20) (90.00)
Profit for the year 100.00
Other comprehensive income, net of tax 30.00
Total comprehensive income for the year 130.00
Profit attributable to:
Owners of the parent 92.00
Non-controlling interests (40x9/12)x15% + (40x3/12)x35% 8.00
100.00
Total comprehensive income attributable to: 120.00
Owners of the parent 10.00
Non-controlling interests (50x9/12)x15% + (50x3/12)x35% 130.00
STATEMENT OF CHANGES IN EQUITY AS AT 31.5.X3
Share capita Retained earnings Subtotal NCI Total
Balance at 1 June 20X2 500.00 285.00 785.00 48.00 833.00
Adjustment arising on sale of
shares to NCI (net of tax) 88.50 88.50 71.50 160.00
Total comprehensive 120.00 120.00 10.00 130.00
Balance at 31 May 20X3 500.00 493.50 993.50 129.50 123.00
Working – 1
Cost of control
Balance 255
Share capital 170
Pre-acquisition retained earnings 17
Goodwill 68
255

Working – 2
Deakin retained earning
Pre-acquisition reserves 17.00
Balance 170.00
NCI - up to disposal (120+(50*9/12)) x15% 23.63
NCI - after disposal 50x3/12x35% 4.38
Consolidated reserves 125.00
170.00
Working – 3 NCI
Share capital 30.00
Retained earnings 28.00
Goodwill - -
Adjustment to NCI for disposal 71.50
Consolidated reserves 129.50
Working – 4
Consolidated Retained Earning
Holme's balance 310.00
Tax on profit on disposal 30.00
Deakin retained earnings 125.00
Adjustment for NCI 88.50
Balance C/D 493.50
523.50
Working - 5
Gain on disposal in parent's separate financial statements $m
Fair value of consideration received 160.00
Less: original cost of shares (255 × 20%/85%) (60)
100.00
Less: tax on parent's gain (30%) (30.00)
70

Working - 6
Adjustment to parent's equity on disposal $m
Fair value of consideration received 160.00
Increase in NCI in net assets at disposal *370 – (50 × 3/12)) x 20%) (71.50) 88.50
 Comprehensive Problem 4 – Standard Group
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
For the year ended 20x6
Standard Odense Rate Odense Consolidate
$000 kr000 $000 $000
Non current asset
Property, plant and equipment 1,285 4,400 8.1 543 1,828
Investment in Odense 520 - - -
Goodwill (W2) - - - 222
1,805 4,400 - 543 2,050
Current assets 410 2,000 8.1 247 657
Total 2,215 6,400 790 2,707
Equity
Share capital 500 1,000 9.4 106 500
Retained earnings (W3) 1,115 - - - 1,411
 For the year ended 20x6
  Standard Odense Rate Odense Consol
  $'000 Kr'000   $'000 $'000
           
  1,125 5200 8.4 619 1744
Revenue

Cost of sales (410) (2,300) 8.4 (274) (684)

Gross profit 715 2,900   345 1,060

Other expenses (180) (910) 8.4 (108) (288)

Impairment loss (W2)         (18)

Dividend from Odense 40       –

Profit before tax 575 1,990   237 754

Income tax expense (180) (640) 8.4 (76) (256)

Profit for the year 395 1,350   161 495

Pre-acquisition - 2,500 9.4 265 -
Post-acquisition - 1,800 9.4 298 -
1,615 5,300 563 2045
Non-controlling interest (W6) 200 300 8.1 37 237
Loans 400 800 8.1 99 499
Current liabilities 600 1,100 136 736
2,215 6,400 790 2,781
Other Comprehensive income

Exchange difference on translating foreign operations (W4) 72

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 395 1,350 161 567

Owners of the parent 463

Non controlling interest (161*20%) 32
Total comprehensive income for the year attributable to 495
Owner of the parent 525
Non controlling interest (161+46)*20% 42 567
 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (EXTRACT)
Retained earnings $'000
Balanceat20X6 1,065
Dividends paid (195)
Total comprehensive income for the year (SPLOCI) 525
Balanceat31/12/X6(W3)/(W5) 1,391
 
Workings
1 Group structure Standard 80% Pre-acquisition retained earnings 2,500,000 Krone
Odense
2. Goodwill
Kr'000 Kr'000 Rat$'000
Consideration transferred (520 * 9.4) 4,888 520
Non-controlling interests (3,500 * 20%) 700 74
Share capital 1,000 9.4
Reserves 2,500 (3,500) (372) 208 222
Exchange differences Jan, 20X5-Dec,20X5 – Β 52
At 31.12.X5 2,088 8.8 274
Impairment losses 20X6 (148) 8.1 (18)
Exchange differences 20X6 – Β 24
At 31.12.X6 2,260 8.1 280
3 Consolidated retained earnings carried forward
Standard 1,115
Group share of post-acquisition reserves at Odense (298*80%) 238 1,353
Less goodwill impairment losses (W2) (18)
Exchange on differences on goodwill (52 + 24) 76 1,411
4. Consolidated retained earnings before proof $'000

Standard 915
Add post-acquisition retained earnings of Odense
(4,355@8.8–3,500@9.4)*80% 4339
Less goodwill impairment losses (W2) 0
Exchanged differences on good will (W 52
5202

$000
On translation of net asset
Closing NA 654
Opening NA (5,300-1,350+405=4355) 495

Less retained profit as translated 111

Non controlling interest(statement of financial position )
NCI at acquisition (W2) 66
NCI share of post acquisition reserves of Odense (341*20%) 68 134
 4. P 18-3 (Beams et al, on Corporate
Liquidation and Reorganization)
Claims rankings and cash distribution upon liquidation Fabulous Fakes Corporation is being
liquidated under Chapter 7 of the bankruptcy act.
All assets have been converted into cash, and $374,500 cash is available to pay the
following claims:
1. Administrative expenses of preserving and liquidating the debtor corporation’s estate $
12,500
2. Merchandise creditors 99,000
3. Local government for property taxes 4,000
4. Local bank for unsecured loan (principal is $30,000 and interest is $4,500) 34,500
5. State government for gross receipts taxes 3,000
6. Employees for unpaid wages during the month before filing (includes $5,000 for the
company president and less than $4,000 for each of the other employees) 48,000
7. Customers for prepaid merchandise that was not delivered 1,500
8. Holders of the first mortgage on the company’s real estate that was sold for $240,000
(includes $220,000 principal and $8,500 interest) 228,500 Assume that all the claims are
allowed and that they were timely filed.
Required
1. Rank the claims according to priority under the bankruptcy act.
2. Show how the available cash will be distributed in final liquidation of the corporation.
Solution for P 18-3 on beams
1, Ranking of claims
Fully secured
8. Holders of first Mortgages and related interest $228,500
Unsecured priority
1, Administrative expense $12,500
6, Wages payable up to $ 11,725 per employee ($ 48,000($ 12,275- 11,725)) 47,450
7, Customer claims for Merchandise paid for and not delivered
(Maximum $2,600 per individual) 1500
5, State Government for gross receipts taxes $ 3000
3, Local Governments for property taxes $4,000 7,000
Total unsecured priority Claims 68,450
Unsecured non priority $ 99,000
2, Merchandise creditors
4, Local bank for principal loan $ 30,000
6, President for salary Due over $ 11,725 550 129,550
4, Interest on unsecured bank Loan 4,500
Total Unsecured non priority Claims 134,500
Total all claims 431,000
Distribution of available Cash 228,500
1st Mortgage Holders (100%) 12,500
2nd Administrative expense (100%)
3rd Employers (up to $ 11,725 each) (100%) 47,450
4thCustomer Merchandise not delivered (100%) 1,500
5th State Government (100%) $3,000
Local Government (100%) $4,000 7000
Remaining Cash ( $ 374,500-$ 296,950 of $77,550/ ($129,550 claims of next rank=$.5986
return on dollar)
6th Merchandise creditor ($ 99,000x.5986) $59,261
Local Bank principal ($ 30,000x.5986) $ 17,958
Company president ($550x.5986) 329 77,548
Total distrusted (equal to available cash) 374,498
Rounding error should be $374,500