Draft Financial Statements of Ash Group

Page 1

Overview of Draft Statements of Comprehensive Income

The financial performance of Ash plc, Birch plc, and Pine plc for the year ended 30 April 2012 is summarized below:

Company

Ash plc (£000)

Birch plc (£000)

Pine plc (£000)

Revenue

32,256

20,208

26,808

Cost of sales

13,248

7,560

15,480

Gross profit

19,008

12,648

11,328

Distribution costs

3,456

2,520

864

General administrative expenses

6,912

5,328

6,192

Profit from operations

8,640

4,800

4,272

Investment income:

- Dividend from Birch plc

96

- Dividend from Teak plc

48

Total Investment Income

144

Interest expenses

2,016

600

216

Profit before tax

6,768

4,200

4,056

Tax expense

1,344

840

816

Profit for the year

5,424

3,360

3,240

Key Information

  1. Acquisition of Shares:

    • Ash plc acquired 1,800,000 ordinary shares in Birch plc on 1 March 2010 for £3,600,000.

      • At acquisition: Birch plc's issued share capital was £2,400,000 and retained earnings were £1,620,000.

    • On 1 November 2011, Ash plc acquired 648,000 ordinary shares in Pine plc for £2,408,000.

      • At acquisition: Pine plc's issued share capital was £1,080,000, share premium was £180,000, and retained earnings were £2,820,000.

    • Ash plc holds 12% of ordinary shares in Teak plc since 1 May 2009.

  2. Retained Earnings (1 May 2011):

    • Ash plc: £4,680,000

    • Birch plc: £2,472,000

    • Pine plc: £384,000

  3. Purchases and Sales:

    • Ash plc purchased goods from Birch plc for £8,400,000 at a 25% markup on cost. Closing inventory included £1,680,000 from Birch plc.

    • Ash plc sold £2,400,000 to Pine plc at a 20% markup on cost, with no closing inventory from Ash plc left in Pine plc.

  4. Service Charge:

    • Birch plc invoiced Ash plc £450,000 for annual service charge, included in Birch's revenue and Ash's administrative expenses.

  5. Goodwill Impairment:

    • £168,000 should be written off from goodwill in respect of Birch plc for FY ending 30 April 2012. Previous cumulative impairment is £60,000.

  6. Share Capital:

    • At 30 April 2012, Ash plc's issued share capital was £2,700,000 of ordinary 50 pence shares.

    • A proposed dividend of 15 pence per share is to be paid by all three companies.

  7. Non-controlling Interest:

    • Measured at acquisition using the proportion of net assets method.

Page 2

Requirements

  1. Calculate Goodwill for Ash Group Consolidated Statement:

    • Goodwill arises during acquisition and is calculated as:
      Goodwill=Purchase Price−Fair Value of Net Assets Acquired\text{Goodwill} = \text{Purchase Price} - \text{Fair Value of Net Assets Acquired}

    • Must analyze net assets at the acquisition date for Birch and Pine plc.

  2. Prepare Consolidated Statement of Comprehensive Income:

    • Follow International Financial Reporting Standards (IFRS) procedures to combine financials of Ash plc, Birch plc, and Pine plc, accounting for intercompany transactions and eliminating any unrealized profits.

  3. Statement of Retained Earnings for the Ash Group:

    • Show movements in retained earnings, including:

      • Beginning retained earnings

      • Profit for the year

      • Dividend declared

      • Any appropriations or adjustments for impairments.

Conclusion

The calculations and preparation of consolidated financial statements require careful consideration of intercompany transactions, goodwill adjustments, and compliance with IFRS. The steps outlined will guide the analysis and reporting of the Ash Group's financial position and performance.