Required: Prepare a consolidated Statement of Comprehensive Income for Ausra for the year to 31 December 2015.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
On 1 July 2015, Ausra purchased 75% of Danute by way of a share exchange of two new shares in Ausra for every three purchased in Danute plus an immediate cash payment of $11,160,000. Ausra’s share price at the acquisition date was $4.70. Only the cash element of the consideration has been recorded. On the same date, Ausra purchased $5,000,000 of Danute’s 10% loan notes at par. The summarised financial statements of both companies are as follows:
Statement of Comprehensive Income for the year ended 31 December 2015
|
Ausra |
Danute |
|
$ 000 |
$ 000 |
Revenue |
120,000 |
48,000 |
Cost of sales |
(84,000) |
(40,000) |
Gross profit |
36,000 |
8,000 |
Operating expenses |
(11,900) |
(400) |
Profit from operations |
24,100 |
7,600 |
Other income |
300 |
- |
Finance costs |
- |
(1,200) |
Profit before tax |
24,400 |
6,400 |
Income tax expense |
(6,000) |
(1,200) |
Profit for the year |
18,400 |
5,200 |
|
|
|
|
Ausra |
Danute |
|
$ 000 |
$ 000 |
Non-current assets: |
|
|
Property, plant and equipment |
38,640 |
16,000 |
Investments |
16,280 |
- |
|
54,920 |
16,000 |
Current assets |
|
|
Inventory |
11,240 |
6,450 |
Receivables |
13,600 |
7,355 |
Bank |
5,160 |
2,195 |
|
30,000 |
16,000 |
Total Assets |
84,920 |
32,000 |
Equity and liabilities |
|
|
Ordinary shares of $1 each |
40,000 |
4,000 |
|
17,720 |
8,800 |
Revaluation reserve |
7,200 |
- |
|
64,920 |
12,800 |
Non-current liabilities |
|
|
10% loan notes |
- |
10,000 |
Current Liabilities |
20,000 |
9,200 |
|
|
|
Total Equity and Liabilities |
84,920 |
32,000 |
The following information is relevant:
1)The fair value of Danute’s net assets differed from its carrying values at 1 July 2015. Plant was $8 million in excess of its net book value. Plant had 4 years remaining at the date of acquisition. The group
2)Ausrahas a policy of revaluing land and buildings to fair value (as allowed per IAS 16) at each reporting date. Danute accounts for its non-current assets at historical cost. At the acquisition date, Danute’s land and buildings had a fair value of $2 million greater than their book value and at 31 December 2015 this had increased by a further $400,000 (ignore any additional depreciation).
3)On 1 July 2015, Ausratransferred an item of machinery to Danute. The machine had originally cost $1.2 million on 1 July 2010, and it was transferred to Danute for $1 million. Machines have a useful life of ten years. The Useful Economic Life has not changed as a result of the transfer.
4)During the year Ausrasold goods to Danute at a transfer price of $250,000. All of the goods were sold on outside the group by the year-end. The current accounts of Ausra and Danute were reconciled at the year end with Danute owing $50,000.
5)Ausra’s policy is to value the non-controlling interest at fair value at the date of acquisition. The fair value of the non-controlling interests at the date of acquisition is $7.3 million.
6)An impairment test carried out on 31 December 2015 concluded that consolidated
Required:
Prepare a consolidated Statement of Comprehensive Income for Ausra for the year to 31 December 2015.
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