B407F Week 6 (student)

B407F Week 6 (student) - B407F Week 6 -Consolidated...

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B407F Week 6 -Consolidated Statement of Income (II) Review Exercise (HKICPA Module A Dec 2010) Note: adjustments on retained earnings due to: acquisition of subsidiary 3 years ago Upstream inter-company sale of inventory with opening inventory Inter-company dividend elimination I have modified it as without tax effect. Papaya Limited (PPY) is a company incorporated in Hong Kong and is principally engaged in the manufacturing of consumer products. PPY acquired 80% of the ordinary shares of Sheffield Limited (SFL) for HK$25,600,000 on 1 April 2007. At the acquisition date, SFL reported retained earnings of HK$12,000,000 and no revaluation reserve. The carrying amount of all assets and liabilities approximated the fair value except for intangible assets. The fair and book values of the intangible assets of SFL (with a remaining life of ten years), excluding deferred tax liability on fair value adjustments, is HK$18,500,000 and HK$16,000,000 respectively at the date of acquisition. Non-controlling interests are measured as the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets as at acquisition date. Investment in SFL was carried at cost. Both companies did not have any reserves other than retained earnings and revaluation reserves. On 1 April 2009, PPY held inventory purchased from SFL during the year ended 31 March 2009 for HK$1,200,000 which had been manufactured by SFL at a cost of HK$800,000. During the year ended 31 March 2010, SFL sold goods costing HK$3,200,000 to PPY for HK$4,800,000. PPY sold the inventory on hand at the beginning of the year, but continued to hold 40% of its 2009 purchases from SFL on 31 March 2010. It is the group’s accounting policy to allocate to non-controlling interests the adjustments to unrealised profits from upstream transactions. The draft financial data of the two companies for the year ended 31 March 2010 are
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B407F Week 6 (student) - B407F Week 6 -Consolidated...

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