Question

Please give the working. much appreciated

The Statement of Comprehensive Income of Hudson Bhd and its investments Sydney Bhd and Cameron Bhd for the year ending 30 June 2013 are as follows Hudson RM'000 100,000 4,000 (50,000) 54,000 (16,000) 38,000 (15,000) 23,000 11,400 34,400 Sydney RM'000 Cameron RM'000 25,800 Sales revenue Dividend from Sydney (net) Operating costs Profit before taxation Taxation Profit after taxation Dividend Retained profit for the year Retained profit as at 30 June 2012 Retained profit as at 30 June 2013 55,500 (12,900) 12,900 (4,300) 8,600 (4,000) 4,600 5,400 10,000 (27,750) 27,750 (9,250) 18,500 (5,000) 13,500 6,500 20,000 Their statements of financial position as at 30 June 2013 are as follows Sydney RM'000 Hudson RM'000 Cameron RM'000 24,000 (18,900) 59,300 64,400 Investment (Note 1) Suspense account (Note 2) Other net assets Total assets 30,000 30,00040 20,000 20,000 Share capital Retained earnings 10,000 10,000 20,000 30,000 34,400 64,400 10,000 20,000 30,000 Note 1. On 30 June 2004, Hudson acquired 8m shares in Sydney for RM13,000,000 when the retained earnings of Sydney were RM5,000,000. Hudson also acquired 7.5m shares in Cameron on 30 June 2006 for RM1,000,000 when the retained earnings of Cameron were RM4,000,000 2. The suspense account balance represents the sale proceeds of all the shares held in Cameron which were sold on 31 March 2013. A corporation tax liability of RM1,300,000 is expected to be payable in connection with the disposal of shares. This liability has not yet been provided for by Hudson Required Prepare a consolidated financial statement for Hudson Bhd as at 30 June 2013

Answer 1

1- Before preparing Consolidated Statement, Sale Proceeds on the sale of shares is to be deducted from investment and added to Income on cost and income basis, Corporation Tax Liability on the sale of shares of Cameron is to be provided first in the Financial Statement of Holding Hudson.

Reinstated Financial Statement of Hudson as on June 30, 2013.

Statement of Comprehensive Income (Reinstated) Hudson RM000 Sales revenue Profit on Sale of shares of Cameron Dividend from Sydney (net) Operating costs Profit before Taxation Corporation Tax Taxation Profit after Taxation Dividend Retained Profit for the Year Retained profit as at 30 June 2012 Retained profit as at 30 June 2013 100000 7900 4000 50000 61900 1300 16000 44600 15000 29600 11400 41000 Statement of Financial Position (Reinstated) Hudson RM000 13000 59300 72300 Investment Other net Asset Total Asset Corporaion Tax Liability Share Capital Retained Earnings 1300 30000 41000 72300

2-

Now we will prepare Consolidated Statements.

The Consolidation is done for the entities in which we hold the controlling Interest (More than 50% Voting Shares) as on the closing date of the period.

So in the given question, we will consolidate only Sydney with Hudson as the shares of Cameron has already been sold.

Note-1 Calculation of Pre and Post Acquisition Profit Particulars Retained Earning Less: Minority interest (20%) Pre RMPost RM 5000000 15000000 1000000 3000000 trf to Min. Interest 4000000 12000000 trf to Cost trf to Consolidated of Control Retained Earning For the purpose of consolidated balance sheet preparation, all reserves and profits (or losses) of subsidiary company should be classified into pre and post-acquisition reserves and profits (or losses). Profits (or losses) earned (or incurred) by subsidiary company upto the date of acquisition of the shares by the holding company are pre acquisition or capital profits (or loss) Similarly, all reserves of subsidiary company upto the date of acquisition are capital reserves from the view point of holding company. If the holding interest in subsidiary is acquired during the middle or some other period of the current year, pre-acquisition profit should be calculated accordingly Calculation of Cost of Control and Minority Interest On 30th June 2004 when Hudson Acquired Sydney's 8M shares Per Sh RM 1 Capital of Sydney was Retained Earning of Sydney was 10000000 Shares 10000000 RM 5000000 RM Note-2 Cost of Control (80%) 80% Capital of Sydney Pre-Acq Retained Earnings Total Investment Purchased Since Investment is more than the Net worth of Shares purchased it will be treated as goodwill RM 8000000 4000000 12000000 13000000 1000000 Goodwill

From the net income of the subsidiary, amount proportionate to minority interest is calculated and adjusted with the group income i.e. it is deducted from the profit & loss account balance and added to minority interest, so that the income of the group belonging to the parent is identified separately Minority Interest in the Net Asset Consists of (i) The amount of equity attributable to minorities at the date on which investment in a subsidiary is made and (ii) The minorities' share of movements in equity since the date the parent-subsidiary relationship came in existence RM Note- 3 Calculation Of Minority Interest 20% Share Capital Pre-acq. Profit Share Post-Acq Profit Share Minority Interest 2000000 1000000 3000000 6000000 Note 4 Consolidate Retained Earning Retained Earning of Hudson Co. (after Reinstatement) Add: Post Acq Profit of Sydney Total RM 41000000 12000000 3000000

Consolidated Comprehensive Income Statement Hudson With Sydney RM'000 Notes 144400 7900 0 72200 80100 1300 23400 59400 515000 Sales revenue Profit on Sale of shares of Cameron Dividend from Sydney (net) Operating costs Profit before Taxation Corporation Tax Taxation Profit after Taxation Dividend Retained Profit for the Year Retained profit as at 30 June 2012 Retained profit as at 30 June 2013 6 12600 53000 Note-5 Dividend Paid by Sydney is received by Hudson thus giving Nil Efect. Note 6 Out of retained Earning of Sydney of 6500 Rm 5000('000) is pre acquisition thus only 1500 is post acquisition and will be added to Consolidated Income Statement on proportionate basis i.e. 1200 Note -7 Sydney's Proportionate Balances (80%) is cnnsolidated with Hudson. Consolidated Statement of Financial Position (Reinstated) Hudson With Sydney RM'000 Notes Goodwill Other net Asset Total Asset 1000 89300 90300 Corporaion Tax Liability Share Capital Minority Interest Consolidated Retained Earnings 1300 30000 6000 53000 90300 4