Financial Accounting Homework: Consolidation, Cash Flow and IFRS

This document presents a comprehensive solution to a financial accounting assignment. Section A focuses on consolidated financial statements, including calculations for goodwill, non-controlling interest (NCI), and the impact of fair value adjustments. It demonstrates the consolidation process, including the calculation of post-acquisition profit and the preparation of a consolidated statement of financial position. Section B explores IFRS 10, emphasizing control assessments and the rights-based approach. It also analyzes a cash flow statement, identifying key issues and the impact of various transactions on cash flow. The assignment further delves into specific accounting treatments for contracts, including revenue recognition, commission calculations, and performance obligations. Finally, it addresses currency conversion and depreciation calculations, offering guidance on accounting for various transactions and providing advice on the appropriate currency to use for financial reporting. This assignment solution is a complete guide for understanding consolidation, cash flow statements, and IFRS principles.

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Table of Contents
SECTION A.....................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................5
SECTION B.....................................................................................................................................7
Question 4....................................................................................................................................7
Question 5....................................................................................................................................8

SECTION A
Question 1
A).
Step 1
Group structure
Parent 70%
NCI 30%
Step 2
Calculate the consideration transferred £000
Cash 220,000
Contingent consideration 20,000
Deferred consideration (200m x 0.83) 166,000
Consideration transferred 406,000
Dr Investment 186,000
Cr Deferred consideration 166,000
Cr Contingent consideration 20,000
Step 3
Calculate Fair value of net assets at the date of acquisition and at the reporting date.
FV of Net
Assets FV of Net Assets
01-04-19 31-03-20
£000 £000
Share capital 100,000 100,000
Retained earnings 24,000 55,000
Fair value adjustment for land (4000 -
5000) (1,000) (1,000)
Fair value adjustment-buildings (10,000 -12,000) (2,000) (2,000)
Reduced depreciation for buildings (-
2000/20) 100
Fair value adjustment-plant (30000-
20000) 10,000 10,000
Additional
depreciation (2,000)

131,000 160,100
Calculate the post acquisition profit of
Mane £000
Fair value of Mane assets at the reporting
date 160,100
Fair value of Mane assets at the date of acquisition (131,000)
Post acquisition profit/loss 29,100
This will be shared between the group and the NCI as follows:
£000
Group (70%) 20,370
NCI
(30%) 8,730
29,100
Step 4: Calculate the goodwill at the date of acquisition and at the
reporting date
£000
Consideration transferred 406,000
Fair value of NCI (30% x 200m x 2) 120,000
526,000
Fair value of net assets at acquisition date (from
step 2) (131,000)
Goodwill arising on
acquisition 395,000
Goodwill
impairment (400,750)
Goodwill at reporting date (5,750)
Step 5
Calculate the NCI at the reporting
date £000
Fair value of NCI at the date of
acquisition 120,000
Add NCI' share of the post acquisition profit of
Mane 8,730
NCI at the reporting date 128,730

Step 6
Calculate the consolidated retained
earnings £000
Klopp's retained earnings 153,000
Unrealized profit on goods sold to Trent (30% x 5m
x 20%) (300)
Add group's share of Associate's profit (30% x(55000-30000) 7,500
Add group's share of the post acquisition loss of
Mane 20,370
Decrease in contingent consideration 5,000
Interest on deferred consideration (10% x166,000) (16,600)
168,970
Step 7: Investment in
Associate £000
Cost of investment in Associate (Note 4) 40,000
Share of Associate's post acquisition
profit 7,500
Less unrealised profit on goods sold to Associate (300)
47,200
Klopp group
Consolidated Statement of Financial Position at
31 March 2016 £000 £000
Non current
assets
Goodwil
l (5,750)
Property plant and equipment(224000+130000+10000-1000-
3000+100) 360,100
Investment in Associate 47,200
Other investment (140000-200000-
40000) (100,000)
301,550
Current assets
Inventory(57000+30000) 87,000

Trade
receivable(30000+26000) 56,000
Cash and cash equivalents (18000+4000+5000) 27,000 170,000
471,550
Equity and
liabilities
Share capital 120,000
Consolidated retained earnings 168,970
288,970
Non-controlling
interest 128,730
417,700
Non-current
liabilities
Long term borrowings (150000+10000) 160,000
Contingent consideration 15,000
Deferred tax (10000+8000) 18,000 193,000
Current liabilities
Trade payables
(30000+22000) 52,000
Deferred consideration (166000+16600) 182,600
Short-term borrowings (6000+6000) 12,000
246,600
857,300
B)
For both of the three important controls listed above, New standard applies to the guidelines.
This is a complete tutorial. The part guide separately may feel that every "link" to other material
requires a definite control evaluation. Bear in mind, though, that all 3 modules are connected and
all components will be monitored.
Strength
IFRS 10 helps clarify the rights are the root of power. The rights represent the force to allow the
venture capitalist to arrange "reasonable exercise" in a specific way, as applicable (see below).
"production output" in this situation may not need the obligation to be automatically exercised.
With that being said, it is necessary to ensure that responsibilities can indeed be practiced before
selecting proper exercising.

Dependent contribution visibility or privileges
To still be in charge of a financial specialist, in return for the operator, he should have open or
adjustable privileges. Variable gains were increasingly recognized and go well beyond valuation
real estate profits.
Capacity to leverage control in order to manipulate returns
The third section of the examination seems to be that a hedge fund manager will affect his
income (in some cases referred to as a "link"). This relation refers to the capability of the finance
specialist to organise the simulations (dynamic rights). It is up to a bigger portion through equity
to link a power to an impossible transition to a regular parent-helper partnership. Similarly, in
these situations no objective study is appropriate. In all cases, this third part of controls is
relevant if a speculator holds competitive rights owing, for once, to a corporation or
infrastructure solutions, to an operational arrangement or a competitive project.
Question 2
Profit before tax 2950
Interest payable (250)
Interest receivable 0
Amortization of government grants 0
Depreciation of buildings 150
Profit on the sale of plant 120
Depreciation of plant 340
Operating profit before working capital adjustments
Increase in inventory 3000
Increase in trade receivables 800
Decrease in accounts payable 1550
Cash generated from operations 4,530
Interest paid 350
Tax paid 480
Net cash inflow from operating activities 3,835
Investing activities
Cash paid for investments

Cash paid for plant 250
Cash received from the sale of plant 120
Cash paid for buildings (870)
Government grants received 250
Interest received 440
Net cash outflow for investing activities 190
Financing activities
Dividends paid (4,64
5)
Finance lease obligations -340
Cash from issue of shares 1,600
-
3585
Decrease in cash (210)
Cash and bank at the beginning of the year 70
Cash and bank at the end of the year (140)
Reconciliation of cash and cash equivalents 201
1
2010 Inflow
/
(outfl
ow)
Bank 50 150 (100)
Overdraft (19
0)
(80) (110)
(14
0)
70 (210)
b)
The primary issues found in the profit and loss account by Firmino are now the unfavourable
balance between all spending and funding operations, which in total makes the three factors a
detrimental balancing. Those same two operations were therefore the key problems revealed by
cash flow statement. As these operations result in a capital outflow again from financial accounts
of the organisation which are represented throughout the reduction in marketable securities.
c)
Operations and maintenance earnings or cash flow in operations are the key factors of
shareholder returns across 2020. The activities benefit has been taken into account in
determining the return on the employed money. Where employed resources are mixed into

sources of finance. One such contributing factor to something like the corporation's performance
is gross income between depreciation and amortization.
SECTION B
Question 4
A) Price of contract = £600,000
Interest rate = 10%
The accounting treatment for the contract between king and customers is as follows:
01/01/2019 Cash a/c £600,000
01/01/2019 Contract Liability £600,000
31/12/2020 Contract liability £660,000
31/12/2020 Revenue to king £600,000
Interest received £60000
B) Rate of commission = 10% of sales price
Total sales for computer4u in year 2020 = £500,000.
Carrying amount before impairment
500,000.0
0
Rate of commission 50000.00
Carrying amount at 31 December if impairment had not taken place in
2018 450000
C)
Klopp has two performance obligations:
• Solar system procurement
• Five years in use of the facilities.
The net selling price is actually a fixed portion of £1.8m as well as a discretionary variable of
£100,000 or £200,000. The dependent component is used in the full speed throughout the term of
chance that it occurs. Thus, it should have contained a conditional variable of £100,000 and a
total contract price of £190,000. The current value should be allocated to production obligations
in compliance with that renewable values. That's £1,700,000: £300,000 all year long. Therefore,

a procurement charge of £1.615,000 (£1.700,000 / 2.000,000) x 1.900,000 is required in the
scheme and a guarantee of 5 years of operation to the plant.
The responsibility and will provide the built equipment is met in full during quarter ending on 31
December 2016 and revenue of £1,615,000 for this provision could also be recalled.
In fact, 7/60 (1 December to 31 December is 7 months) of duty liability has been met, and as a
consequence of this supply revenue will now be recognised at £ 33,250 (£ 285,000 x 7/60). The
study notes that the fiscal year ends 31 December 2016. Klopp will accept £1,900,000 on 1 June
2016, according to the correct valuation of the contract. On 31 December 2016, Klopp's collected
earnings was recalled to be £251.750 (€1.9 million – £1.615 thousand – 33250). The current debt
will be 57,000 pounds (251, 750 x 12/53 pounds). The outstanding £194,750 (£251,750-57000)
is a non-current responsibility.
53 = 60 months = 7 months (1 June 2016 to 31 Dexcember 2016 is a period of 7 months).
(b) The purchase rates contain varying concentrations of goods that can be returned by the buyer.
Since this is correctly measured, tax is projected and net income is estimated at £4.320,000 (90
percent x 800x £6,000). Transaction for £4,800,000 (800 x 6,000 £), is regarded as accounts
receivable.
The refund fee is GBP 480,000 (GBP 48,000 – GBP 43,20000). This is viewed as an existing
responsibility. Gross values for the sold items (800 x £3,500) were £2.8 million. The gross
number is just £2520,000 (90% x 800x £3500). It is used in expenses for revenue. Remaining
assets Remaining on investment accounts is considered to be £2,800,000 (€2,520,000).
Question 5
(A)
The accounting treatment for the building on 31 December 2020
Purchasing of building: £20 million
Useful economic life: 50 Years
F.V of building: £24 million
F.V of the building: £14 million
Calculation of depreciation (Straight line method): Cost of assets-Salvage value/useful
life
Cost of assets £20 million
Salvage value £14 million

Useful life 50 Years
Calculation of depreciation (20-14)/50
Depreciation 120000
(B) Advice about which currency need to utilize:
People must exchange pounds, since all the required content is available from your parent
company headquartered throughout the UK, mostly in light of the above case. This is a realistic
monetary necessity. Because a company's financial records are published in a single currency
instead, transactions or acts in some other currencies need to be returned to the principal
currency used when reporting financially. The IAS as well as the widely agreed
recommendations for accounts include advice on foreign currency conversion (GAAP).
(C) Advise the directors of Jack on to how to account for the above transactions.
Date Particulars DR CR
1 January
2020
Patent account DR
To cash a/c
40
40
1 January
2020
Land a/c DR
Depreciation a/c DR
To cash a/c
16
4
20
1 January
2020
Accounts receivables a/c DR (3*2)
To sales
6
6
1 November
2020
Land a/c DR
Depreciation a/c DR
To cash a/c
100
50
150
1 January
2020
Accounts receivables a/c DR (9*1.5)
To sales
13.5
13.5