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Professional Level – Essentials Module

Corporate Reporting (International)
Tuesday 11 December 2012

Time allowed Reading and planning: Writing:

15 minutes 3 hours

This paper is divided into two sections: Section A – This ONE question is compulsory and MUST be attempted Section B – TWO questions ONLY to be attempted Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Paper P2 (INT)

Section A – THIS ONE question is compulsory and MUST be attempted 1 Minny is a company which operates in the service sector. Minny has business relationships with Bower and Heeny. All three entities are public limited companies. The draft statements of financial position of these entities are as follows at 30 November 2012: Minny $m Assets: Non-current assets Property, plant and equipment Investments in subsidiaries Bower Heeny Investment in Puttin Intangible assets Bower $m Heeny $m

920 730

300

310

320 48 198 –––––– 1,896 –––––– 895 –––––– 2,791 –––––– 920 73 895 –––––– 1,888 –––––– 495 –––––– 408 –––––– 903 –––––– 2,791 –––––– 30 –––––– 650 –––––– 480 –––––– 1,130 –––––– 400 37 442 –––––– 879 –––––– 123 –––––– 128 –––––– 251 –––––– 1,130 –––––– 35 –––– 345 –––– 250 –––– 595 –––– 200 25 139 –––– 364 –––– 93 –––– 138 –––– 231 –––– 595 ––––

Current assets Total assets Equity and liabilities: Share capital Other components of equity Retained earnings Total equity Non-current liabilities Current liabilities Total liabilities Total equity and liabilities

The following information is relevant to the preparation of the group financial statements: 1. On 1 December 2010, Minny acquired 70% of the equity interests of Bower. The purchase consideration comprised cash of $730 million. At acquisition, the fair value of the non-controlling interest in Bower was $295 million. On 1 December 2010, the fair value of the identifiable net assets acquired was $835 million and retained earnings of Bower were $319 million and other components of equity were $27 million. The excess in fair value is due to non-depreciable land. On 1 December 2011, Bower acquired 80% of the equity interests of Heeny for a cash consideration of $320 million. The fair value of a 20% holding of the non-controlling interest was $72 million; a 30% holding was $108 million and a 44% holding was $161 million. At the date of acquisition, the identifiable net assets of Heeny had a fair value of $362 million, retained earnings were $106 million and other components of equity were $20 million. The excess in fair value is due to non-depreciable land. It is the group’s policy to measure the non-controlling interest at fair value at the date of acquisition. 3. Both Bower and Heeny were impairment tested at 30 November 2012. The recoverable amounts of both cash generating units as stated in the individual financial statements at 30 November 2012 were Bower, $1,425 million, and Heeny, $604 million, respectively. The directors of Minny felt that any impairment of assets was due to the poor performance of the intangible assets. The recoverable amount has been determined without consideration of liabilities which all relate to the financing of operations. Minny acquired a 14% interest in Puttin, a public limited company, on 1 December 2010 for a cash consideration of $18 million. The investment was accounted for under IFRS 9 Financial Instruments and was designated as at fair value through other comprehensive income. On 1 June 2012, Minny acquired an additional 2

2.

4.

16% interest in Puttin for a cash consideration of $27 million and achieved significant influence. The value of the original 14% investment on 1 June 2012 was $21 million. Puttin made profits after tax of $20 million and...
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