CIMA-F2-Financial-Management1

Complex groups

Illustration 9 - Non-control to control

1.1.X8 80% X→ → 1.1.X7
1.6.X8 60% ↓ ↓

Y 30%
↓ ↓
Z←
←

Control

X controls Y. Therefore Y is a subsidiary.

X controls Z as X has power over 30% + 60% = 90% of the voting rights
of Z. Therefore Z is a sub-subsidiary.

Effective consolidation percentage

Y will be consolidated with X owning 80% and the NCI owning 20%.
Z will be consolidated with X owning 78% and the NCI owning 22%.

X's direct ownership 30%
X's indirect ownership
(80% × 60%) 48%

–––

78%

–––

Dates

Y will be consolidated from 1.1.X8.

Z will be consolidated as a sub-subsidiary from 1.6.X8.

Since X owned only 30% prior to 1.6.X8, this is a step acquisition from
non-control to control.

Example 3 - Portmadhog
Example 3 answer

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chapter 8

Test your understanding 4 - Poppy

The following are the statements of financial position at 31 May 20X8 for
Poppy group companies:

Investments Poppy Sage Thyme
Sundry assets $000 $000 $000
450 –
Equity share capital ($1 300 40 260
shares) ___ 460 ___
Retained earnings 750 ___ 260
Liabilities ___ 500 ___
400 ___ 100
300
225 120
125 200 40
___ –
750 ___
___ ___ 260
500 ___
___

(1) Poppy acquired 210,000 shares in Sage on 1 January 20X6 for
$320,000 when Sage's retained earnings stood at $50,000.

(2) Poppy acquired a 60% shareholdings in Thyme on 1 December
20X6, paying $130,000 in cash.

(3) Sage acquired 20,000 shares in Thyme on 1 February 20X7 for
$40,000.

(4) Thyme's retained earnings were $50,000 on 1 December 20X6 and
$60,000 on 1 February 20X7.

(5) The non-controlling interest's share in goodwill in Sage on 1 January
20X6 was $20,000.

(6) The non-controlling interest's share in goodwill in Thyme on 1
December 20X6 was $25,000 based on effective shareholdings.

Required:

Prepare the consolidated statement of financial position at 31
December 20X8. It is group policy to value the non-controlling interest at
acquisition at fair value.

Example 4 - Red, Blue and Green

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Complex groups

Example 4 answer

Test your understanding 5 - Cavendish

The following are the statements of financial position at 31 December
20X2 for Cavendish group companies:

Assets Cavendish Wiggins Millar
Property, plant and equipment $000 $000 $000
Investments
Current assets 1,000 2,850 1,350
2,375 1,200 –

225 350 950
_____ _____ _____
3,600 4,400 2,300
_____ _____ _____

Equity share capital ($1 1,500 800 1,200
shares)
Retained earnings 880 400 450
_____ _____ _____
Non-current liabilities 2,380 1,200 1,650
Current liabilities 2,000
700 1,200 350
520 _____ 300
_____ 4,400 _____
3,600 _____ 2,300
_____ _____

• Cavendish acquired shares in Wiggins and Millar on 1 January

20X1. It acquired 70% of Wiggins for $1,000,000 and 25% of Millar
for $375,000.

• The retained earnings of Wiggins and Millar on 1 January 20X1

were $320,000 and $250,000 respectively.

• On 1 March 20X2 Wiggins acquired 60% of Millar for $1,200,000

when Millar's retained earnings stood at $360,000.

• The fair value of the 25% shareholding in Millar was $400,000 on 1

March 20X2.

• The fair value of the non-controlling interests in Wiggins at 1 January

20X1 was $440,000.

• The NCI share in goodwill in the acquisition of Millar on 1 March

20X2 was $100,000.

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chapter 8

• The fair value of the net assets of Millar has always been the same

as the book value.

• Cavendish purchased $1,000,000 of 8% debentures in Wiggins on

1 January 20X2 at par. There is no interest payable at the reporting
date.

Required:

Prepare the consolidated statement of financial position at 31 January
20X9. It is group policy to value the goodwill using the full method.

Test your understanding 6 - Holdings

Holdings owns 60% of the ordinary share capital of Salt and 70% of the
ordinary share capital of Pepper. Pepper owns 20% of the ordinary
share capital of Salt.

The summarised draft statements of financial position of the three
companies as on 31 August 20X4 were:

Non-current assets Holdings Pepper Salt
Investments $000 $000 $000
In Pepper 375 705
In Salt 225
Current assets 350
175 50 30
370 300 ––––
–––– ––––
1,270 1,055 255
–––– –––– ––––

Share capital $1 500 300 200
Retained earnings 750 325 50
Current liabilities 430 5
20 ––––
–––– 1,055 ––––
1,270 –––– 255
––––
––––

KAPLAN PUBLISHING 291

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Complex groups

(1) The holdings were acquired on the following dates when the
reserves of the companies stood as follows:

Date Retained
earnings

Holding's shares in Pepper 01.04.X0 $
Holding's shares in Salt 01.06.X1 80,000
Pepper's shares in Salt 01.10.X1 20,000
25,000

(2) The NCI share in the goodwill of Pepper at acquisition was $26,000
and the NCI share in Salt's goodwill at the first acquisition date,
based on effective shareholdings, was $17,000.

Required:

The consolidated statement of financial position of the Holdings Group
on 31 August 20X4. It is group policy to use the full method to value
goodwill.

Test your understanding 7 - ABC

On 1 July 20X5, A acquired 60% of the equity share capital of B for $6
million in cash. B already owned 60% of the equity share capital of C at
this date, having paid $4 million in cash.

On 1 April 20X6, A acquired 10% of the equity share capital of C for $1
million in cash.

The statements of financial position of the three entities as at 30 June
20X6 are given below:

ABC

$000 $000 $000

Non-current assets

Property, plant and equipment 9,300 3,600 4,250

Investments 10,000 4,000
Current assets

Inventory 1,750 700 400

Receivables 1,050 550 420

Cash 1,550 1,010 330

––––– ––––– –––––

23,650 9,860 5,400

––––– ––––– –––––

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chapter 8

Equity 12,500 5,000 4,000
Share capital 2,500 2,000 −
Share premium 4,150
Retained earnings 2,000 730 870
750 250
Non-current liabilities
Current liabilities 1,890 980 180
610 400 100
Trade payables ––––– –––––
Taxation ––––– 9,860 5,400
23,650 ––––– –––––
The following information is relevant: –––––

(1) On 1 July 20X5, the balances on the retained earnings of B and C
were $550,000 and $570,000 respectively.

(2) As at 1 July 20X5, a tangible non-current asset in the books of B,
with a remaining life of five years, was deemed to have a fair value
of $250,000 in excess of its book value. The fair value of all other
net assets were equal to their carrying values.

(3) During the year ended 30 June 20X6, B sold goods to both A and C
at a mark-up of 20% on cost. The value of the goods held in
inventory at the year-end were as follows:

A $240,000
C $120,000

There were no balances outstanding at the year-end between the
group companies as a result of this trading.

(4) The fair value of the non-controlling interest in B was $800,000 on
1.7.20X5. The fair value of the non-controlling interest in C, taking
into account effective ownership, was $1.3m on the same date.

(5) Goodwill has not been impaired.

Required:

Prepare the consolidated statement of financial position of the A group
as at 30 June 20X6. It is group policy to value the non-controlling interest
at fair value.

KAPLAN PUBLISHING 293

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Complex groups

Test your understanding 8 - Parsley

The income statements of Parsley, Coriander and Thyme for the year
ended 30 April 20X6 and summarised statements of financial position at
that date are given below:

Statements of comprehensive income for the year ended 30 April

20X6

Parsley Coriander Thyme

$000 $000 $000

Revenue 408,100 240,000 170,350

Cost of sales (122,330) (72,050) (51,100)

––––– ––––– –––––

Gross profit 285,770 167,950 119,250

Operating expenses (57,820) (33,450) (23,850)

––––– ––––– –––––

Profit from operations 227,950 134,500 95,400

Finance cost (12,000) (6,500) (2,400)

––––– ––––– –––––

Profit before tax 215,950 128,000 93,000

Tax (65,500) (38,000) (27,750)

––––– ––––– –––––

Net profit 150,450 90,000 65,250

Other comprehensive income –––

––––– ––––– –––––

Total comprehensive income 150,450 90,000 65,250

––––– ––––– –––––

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chapter 8

Statements of financial position as at 30 April 20X6

Parsley Coriander Thyme
$000
$000 $000

Assets 596,330 320,370 489,800
Non-current assets 485,000 335,000 –
Tangible
Investments 87,320 56,550 54,800
Current assets ––––––– ––––––– –––––––
1,168, 650 711,920 544,600
Equity and liabilities ––––––– ––––––– –––––––
Share capital ($1 shares)
Retained earnings 100,000 75,000 50,000
875,400 525,500 435,750
Non-current liabilities
Current liabilities ––––– ––––– –––––
975,400 600,500 485,750
150,000
80,000 30,000
43,250 31,420 28,850
––––––– ––––––– –––––––
1,168,650 711,920 544,600
––––––– ––––––– –––––––

Additional information:

(1) Parsley acquired 80% of the equity shares of Coriander on 1 May
20X3 at a cost of $350 million. At this time, the retained profits of
Coriander showed a balance of $255 million and the fair value of the
non-controlling interest was $80 million.

(2) As at 1 May 20X3 it was determined that land in the books of
Coriander with a carrying value of $100 million had a fair value of
$135 million.

(3) Coriander acquired 70% of the equity shares of Thyme on 1 May
20X4 at a cost of $335 million. At this time, the retained profits of
Thyme showed a balance of $285 million and the fair value of the
non-controlling interest, based on Parsley’s effective shareholding,
was $175 million.

(4) As at 1 May 20X4 it was determined that plant in the books of
Thyme with a carrying value of $80 million had a fair value of $100
million. The remaining life of the plant was 10 years at this date.
Depreciation is charged to cost of sales.

KAPLAN PUBLISHING 295

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Complex groups

(5) During the year ended 30 April 20X6, Coriander sold goods to both
Parsley and Thyme for $20 million and $15 million respectively.
Parsley had sold all of the goods to third parties by the year-end, but
Thyme still held one-fifth of the goods in inventory. The goods had
been sold at a mark-up of 25%. There were no intra-group balances
outstanding at the year end.

(6) In accordance with IFRS 3 Revised, Parsley uses the gross goodwill
method where possible. As at 30 April 20X6, goodwill was
reviewed for impairment. It was determined that no impairment loss
had arisen in respect of Coriander, but that Thyme’s goodwill should
be reduced by $8 million. No impairments had arisen in previous
accounting periods.

Required:

Prepare the consolidated statement of comprehensive income for the
Parsley group for the year ended 30 April 20X6 and the consolidated
statement of financial position as at that date.

Test your understanding 9 - Hitchcock

The income statements of Hitchcock, Spencer and Spooner for the year
ended 30 April 20X3 and summarised statements of financial position at
that date are given below:

Statements of comprehensive income for the year ended 30 April
20X3

Hitchcock Spencer Spooner

$000 $000 $000

Revenue 120,000 84,000 80,000

Cost of sales (52,500) (56,000) (25,600)

––––– ––––– –––––

Gross profit 67,500 28,000 54,400

Operating expenses (30,000) (11,200) (32,000)

––––– ––––– –––––

Profit from operations 37,500 16,800 22,400

Finance cost (4,500) (2,800) (6,400)

––––– ––––– –––––

Profit before tax 33,000 14,000 16,000

Tax (10,000) (5,000) (7,000)

––––– ––––– –––––

Net profit 23,000 9,000 9,000

Other comprehensive income –––

––––– ––––– –––––

Total comprehensive income 23,000 9,000 9,000

––––– ––––– –––––

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chapter 8

Statements of financial position as at 30 April 20X3

Hitchcock Spencer Spooner

$000 $000 $000

Assets 240,000 70,000 102,000
Non-current assets
Tangible 70,000 65,000 –––––
Investments 22,500 ––––– 102,000
Spencer ––––– 135,000
Spooner 332,500 40,000 58,000
112,500 ––––– –––––
Current assets ––––– 175,000 160,000
445,000 ––––– –––––
Equity and liabilities –––––
Share capital ($1 shares)
Retained earnings 75,000 30,000 24,000
270,000 60,000 67,000
Non-current liabilities ––––– –––––
Current liabilities ––––– 90,000 91,000
345,000 35,000 30,000
50,000 39,000
40,000 ––––– –––––
60,000 175,000 160,000
––––– ––––– –––––
445,000
–––––

Note 1 – Investments by Hitchcock

Hitchcock acquired a 80% shareholding in Spencer and a 25%
shareholding in Spooner on 1 May 20X2, paying $70 million and $22.5
million in cash respectively.

On 1 August 20X2, Spencer acquired 60% of Spooner’s shares, paying
$65 million cash. At this time, the fair value of the previous interest of
25% was deemed to be $25 million.

The fair values of the identifiable net assets of Spencer and Spooner at
the above acquisition dates were the same as their carrying values in
the statements of financial position of the individual entities.

KAPLAN PUBLISHING 297

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Complex groups

Note 2

It is group policy to calculate goodwill using the full goodwill method. The
fair value of non-controlling interests, based on effective shareholdings is
as follows:

Spencer 1.5.X2 1.8.X3
Spooner $000 $000

16,500 19,000
24,000 26,000

As at 30 April 20X3, it was determined that goodwill arising on the
acquisition of Spencer should be written off by $1 million.

No impairment had arisen on the goodwill of Spooner.

Note 3

After 1 August 20X2, Spooner sold goods to both Hitchcock and
Spencer at a margin of 10%.
Details of the transactions are as follows:

Product Goods sold Proportion held in Amounts owed to
supplied to (at selling inventory at year Spooner at year

Hitchcock price) end end
Spencer
$000 $000
8,250
5,500 16,500 2,500

24,000 1,500

Required:

Prepare the consolidated statement of comprehensive income of
Hitchcock for the year ended 30 April 20X3 and the consolidated
statement of financial position as at that date.

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chapter 8

8 Chapter summary

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Complex groups

Test your understanding answers

Test your understanding 1 - H, S & T

Consolidated statement of financial position as at 31 December
20X7

$

Goodwill (W3) 48,250

Sundry net assets (280,000 + 133,000 + 100,000) 513,000

_______

561,250

_______

Capital and reserves

Equity share capital 100,000

Retained earnings (W5) 66,150

NCI (W4) 70,100

Liabilities (200,000 + 100,000 + 25,000) 325,000

_______

561,250

_______

Workings

(W1) Group structure

H
↓ 45/60 = 75% on 1.1.X1
S
↓ 30/50 = 60% on 1.1.X1
T

Effective consolidation percentages:

Group interest S T
Non controlling interest 75% 45% (75% × 60%)
25% 55%
_____ _____
100% 100%
_____ _____

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chapter 8

(W2) Net assets

Share capital S Rep. T Rep.
Acq'n date Acq'n date
Retained 31.12.X7 31.12.X7
earnings date date
1.1.X1 $ 1.1.X1 $
60,000 50,000
$ 28,000 $ 25,000
60,000 50,000
10,000
8,000

_______ _______ _______ _______
70,000 88,000 58,000 75,000

_______ _______ _______ _______

(W3) Goodwill

Consideration S T
IHA (25% x 55,000) $ $
65,000 55,000
Share of net assets acquired (13,750)
S: 75% x 70,000 (W2) (52,500) _______
T: 45% x 58,000 (W2) _______ 41,250

Parents share of goodwill 12,500 (26,100)
_______

15,150

Fair value of NCI at acq'n 20,000 50,000
NCI share of net assets at acq'n (17,500)
S: 25% x 70,000 (W2) ______ (31,900)
T: 55% x 58,000 (W2) ______
2,500 18,100
NCI share of goodwill ______ ______
15,000 33,250
Total goodwill ______ ______

KAPLAN PUBLISHING 301

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Complex groups

(W4) Non-controlling interest 22,000
41,250
S: 25% x 88,000 (W2) (13,750)
T: 55% x 75,000 (W2)
IHA (W3) 2,500
NCI share in goodwill – S 18,100
NCI share in goodwill – T ______
70,100
Total for CSFP ______

(W5) Consolidated retained earnings $
45,000
Retained earnings of H
Group share of post-acquisition 13,500
profits 7,650
S: 75% x (88,000 – 70,000) (W2)
T 45% x (75,000 – 58,000) (W2) ______
66,150
______

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chapter 8

Test your understanding 2 - Manchester

Consolidated statement of financial position Manchester group
as at 31 December 20X6

Goodwill (21 + 11) (W3) $000
Non-current assets (44 + 4 + 27) 32
Current assets (29 + 31 + 43 – 4 PUP – 7 interco) 75
92
Share capital (W5)
Share premium (W4) –––
Retained earnings (10 + 40 + 15 – 7 interco) 199
Non-controlling interest –––
Current liabilities
40
4

76.8
20.2

58
–––
199
–––

Workings
(W1) Group structure

Manchester
↓ 80% of ordinary shares on
31.12.X1

Leeds
↓ 75% of ordinary shares on
31.12.X0

Sheffield

Control

Manchester controls Leeds and Leeds controls Sheffield. Therefore
Manchester can indirectly control Sheffield.

Effective consolidation percentages

Parent interest Leeds Sheffield
Non controlling interest 80% 60% (80% × 75%)
20% 40%

_____ _____
100% 100%
_____ _____

KAPLAN PUBLISHING 303

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Complex groups

Dates

Leeds is consolidated from 31 December 20X1.

Sheffield is also consolidated on 31 December 20X1 i.e. the date on
which Manchester acquired control.

(W2) Net assets – Leeds

Share capital Acq’n Reporting
Share premium (31.12.X1) date
Retained earnings 10
PUP (W6) 10 10
10 15
(4)
5 –––
31
––– –––
25

–––

Net assets – Sheffield

Share capital Acq’n Reporting
Retained earnings (31.12.X1) date
20
20 35
15 –––
––– 55
35 –––
–––

(W3) Goodwill Leeds Sheffield
41 40
Cost of investment (8)
IHA (20% × 40)
Cost to Manchester (80% × 40) –––
Share of net assets acquired 32
Leeds: 80% × 25 (W2)
Sheffield: 60% × 35 (W2) (20)
Goodwill on acquisition (21)

––– –––
21 11

––– –––

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chapter 8

(W4) Non-controlling interests

Leeds 20% × 31 (W2) 6.2
Sheffield 40% × 55 (W2) 22
IHA (W3) (8)
–––
20.2
–––

(W5) Retained earnings 60
4.8
Manchester
Leeds: 80% × (31 – 25) (W2) 12
Sheffield: 60% × (55 – 35) (W2) –––
76.8
–––

(W6) PUP

Leeds sells to Manchester and Sheffield, therefore adjust (W2) &
inventory on CSFP

PUP = 20 × 25 = 4
/125

KAPLAN PUBLISHING 305

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Complex groups

Test your understanding 3 - Alpha

Alpha consolidates 80% of Bravo from 1.1.X0

Charlie will be consolidated at 80% × 60% = 48% from 1.1.X1 with a
non-controlling interest of 52%.

Consolidated statement of comprehensive income

Revenue Alpha Bravo Charlie Group
Cost of sales $m
200 170 160
Gross profit (44) (30) (32) 530.00
Operating expenses (106.00)
Investment income (10) (7) (7) ––––––
Intra-group cancellation (W1) 12 3 424.00
(10)
Profit before tax (12) (3) –––– (24.00)
Income tax
(24) (15) 111 ––––––
Profit after tax –––– – 400.00
Other comprehensive income 118 (49.00)
– –––– ––––––
Total comprehensive income –––– 111 351.00
118
Attributable to: –––– –––– –
––––––
Non-controlling interest 351.00
Group shareholders ––––––

× 20% × 52% 81.32
23.6 57.72 269.68
–––––
351.00
–––––

306 KAPLAN PUBLISHING

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chapter 8

Statement of changes in equity

Equity b/f (W4, W5) Parent NCI
Profit for period shareholders shareholders
Dividend
$m $m
Equity c/f (W4) 433.60 164.80
269.68
(30.00) 81.32
––––– (5.00)
673.28 –––––
––––– 241.12
–––––

(W1) Intra-group dividends

Note – dividends will be paid to shareholders based on their
actual shareholdings, i.e. effective rate used for consolidation
purposes is irrelevant here.

Bravo to Alpha 80% × 15 = 12
Charlie to Bravo 60% × 5 = 3

(W2) Equity (net assets) of Bravo Acq’n b/f c/f
250
Share capital 20 ––– –––
Retained earnings ––– 300 406
Equity 270

(W3) Equity (net assets) of Charlie Acq’n b/f c/f
150
Share capital 30 ––– –––
Retained earnings ––– 200 306
Equity 180

KAPLAN PUBLISHING 307

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Complex groups

(W4) Equity – Parent shareholders b/f c/f
400 504
Alpha
Bravo (80% × (300 – 270)) 24 108.8
Bravo (80% × (406 – 270))
Charlie (48% × (200 – 180)) 9.6 60.48
Charlie (48% × (306 – 180)) ––––
–––– 673.28
433.6

(W5) Equity and dividends – NCI shareholders

Equity b/f c/f
Bravo (20% × 300) 60
Bravo (20% × 406) 81.2
Share in goodwill 0.3 0.3
Charlie (52% × 200) 104
Charlie (52% × 306) 159.12
Share in goodwill 0.5 0.5
–––––
164.80 –––––
241.12

Dividends 3
Bravo (20% × 15) 2
Charlie (40% × 5) ––
5

308 KAPLAN PUBLISHING

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chapter 8

Test your understanding 4 - Poppy

Consolidated statement of financial position for Poppy Group as
at 31 May 20X8

Goodwill (95 + 65) (W3) $000
Sundry assets (300 + 460 + 260) 160

Share capital (W5) 1,020
Retained earnings (W4) ––––––
Non-controlling interest (125 + 40)
Liabilities 1,180
––––––

400
371.5
243.5

165
––––––

1,180
––––––

Workings

(W1)

Poppy → →

1 January 20X6 70% ↓ ↓

Sage 60% 1 December 20X6

1 February 20X7 20% ↓ ↓

Thyme ← ←

Sage will be consolidated with Poppy owning 70% and NCI owning 30%
from 1 January 20X6.

Thyme will be consolidated with Poppy owning 60% (NCI owning 40%)
from 1 December 20X6 and Poppy owning 74% (NCI owning 26%) from
1 February 20X7.

Direct 60%
Indirect (70% × 20%) 14%

–––

74%

Since Thyme is owned 60% at 1 December 20X6 this is a step
acquisition control to control.

KAPLAN PUBLISHING 309

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Complex groups

(W2) Net assets – Sage

Acq’n Reporting
date
Share capital 300 300
Retained earnings 50 200
–––
Net assets – Thyme ––– 500
350 –––
–––
Reporting
Share capital Acq’n Acq’n date
Retained (1.12.X6) (1.2.X7) 100
earnings 120
100 100
50 60 –––
220
––– ––– –––
150 160
––– ––– 320
(245)
(W3) Goodwill – Sage ––––

Cost of investment 75
Share of net assets acq’d (70% × 350) (W2) 20
––––
Goodwill – parent's share 95
NCI share of goodwill ––––

Gross goodwill 130

Goodwill – Thyme (90)
–––
Cost of investment
Share of net assets acquired 40
60% × 150 (W2) 25
–––
Goodwill – parent's share 65
NCI share of goodwill –––

Gross goodwill

310 KAPLAN PUBLISHING

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chapter 8

(W4) Non-controlling interests

Sage 30% × 500 (W2) 150
Thyme Goodwill 20
26% × 220 (W2)
Goodwill (25-(14/40 x 25)(W6)) 57.2
16.3
(W5) Retained earnings –––––
243.5
Poppy –––––

Sage (70% × (500 – 350) (W2)) 225
105
Thyme (60% × (160 – 150) (W2))
6
(74% × (220 – 160) (W2)) 44.4
(8.9)
Difference on step acquisition (W6) –––––
371.5
(W6) Step acquisition (control to control) –––––

Cash paid (14/40 x 89 (W7)) 40
Transfer from NCI 31.1
–––––
Difference – decrease
8.9
(W7) NCI at date of step acquisition –––––

Share of net assets (40% x 160 (W2)) 64
Goodwill 25
–––––
89
–––––

KAPLAN PUBLISHING 311

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Complex groups

Test your understanding 5 - Cavendish

Consolidated statement of financial position for Cavendish Group
as at 31 December 20X2

Goodwill (320 + 295) (W3) $000
615
Property, plant and equipment (1,000 + 2,850 + 1,350)
5,200
Current assets (225 + 350 + 950) 1,525
––––––
Share capital (W5) 7,340
Retained earnings (W4) ––––––
Non-controlling interest 1,500
(700 + 2,000 +350 – 1,000) 1,021
Non-current liabilities (520 + 1,200 + 300)
Current liabilities 749
––––––

3,270
2,050
2,020
––––––
7,340
––––––

Workings

(W1) Group structure

1.1.20X1 70% Cavendish →→
1.3.20X2 60% ↓ ↓

Wiggins 25% 1.1.20X1
↓ ↓

Millar ←←

Wiggins will be consolidated with Cavendish owning 70% and the
NCI owning 30% from 1.1.X1.

Millar will be consolidated with Cavendish owning 67% and the NCI
owning 33% from 1.3.X2.

X's direct ownership 25%
X's indirect ownership
(70% × 60%) 42%

–––

67%

–––

312 KAPLAN PUBLISHING

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chapter 8

Since Cavendish owned only 25% of Millar prior to 1.3.X2, this is a
step acquisition from non-control to control.

The 25% holding in Millar must be remeasured to fair value on 1
March 20X2 i.e. the date control is achieved and the gain or loss
recorded in W5.

400,000 (fair value at 1.3.X2) – 375,000 (cost at 1.1.20X1) =
25,000 gain

(W2) Net assets – Wiggins

Share capital Acq’n Reporting
Retained earnings date
800 800
320 400
–––– ––––
1,120 1,200
–––– ––––

Net assets – Millar

Share capital Acq’n Reporting
Retained earnings (1.3.X2) date
1,200
1,200 450
360 ––––
1,650
–––– ––––
1,560
––––

(W3) Goodwill – Wiggins

Cost of investment 1,000
Share of net assets acquired (784)
70% × 1,120 (W2)
––––
Goodwill – parent's share 216
Fair value of NCI
NCI share of net assets aquired 440
30% x 1,120 (W2) (336)

NCI share of goodwill ––––

Gross goodwill 104
––––

320
––––

KAPLAN PUBLISHING 313

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Complex groups

Goodwill – Millar 400
1,200
Cost of investment (360)
Fair value of previous holding
Cost of additional holding –––
Indirect holding adjustment (30% x 1,200) 1,240

Share of net assets acquired (1,045)
67% × 1,560 (W2) –––
195
Goodwill – parent's share 100
NCI share of goodwill –––
295
Gross goodwill –––

(W4) Non-controlling interests 360
104
Wiggins 30% × 1,200 (W2) 545
Millar Goodwill 100
33% × 1,650 (W2) (360)
Goodwill –––
Indirect holding adjustment (W3) 749
–––
(W5) Retained earnings
880
Cavendish 56
60
Wiggins (70% × (1,200 – 1,120) (W2)) 25

Green (67% × (1,650 – 1,560) (W2)) –––––
1,021
Gain on previously held interest (W1) –––––

314 KAPLAN PUBLISHING

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chapter 8

Test your understanding 6 - Holdings

Consolidated statement of financial position for Holdings Group
as at 31 August 20X4

Goodwill (110 + 60) (W3) $000
Non-current assets (375 + 705 + 225) 170
Current assets (370 + 300 + 30)
1,305
Share capital (W5) 700
Retained earnings (W4)
Non-controlling interest (20 + 430 + 5) ––––––
Current liabilities 2,175

––––––
500

930.5
289.5

455
––––––

2,175
––––––

Workings

(W1) Holdings →→
1 April 20X0 70% ↓ ↓

1 October 20X1 20% Pepper 60% 1 June 20X1
↓ ↓

Salt ←←

Pepper will be consolidated with Holdings owning 70% and NCI
owning 30% from 1 April 20X0.

Salt will be consolidated with Holdings owning 60% (NCI owning
40%) from 1 June 20X1 and Holdings owning 74% (NCI owning
26%) from 1 October 20X1.

Direct 60%
Indirect (70% × 20%) 14%

–––

74%

Since Salt is owned 60% at 1 June 20X1 this is a step acquisition
control to control.

KAPLAN PUBLISHING 315

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Complex groups

(W2) Net assets – Pepper Acq’n Reporting
date
Share capital 300 300
Retained earnings 80 325
–––
––– 625
380 –––
–––

Net assets – Salt

Share capital Acq’n Acq’n Reporting
Retained (1.6.X1) (1.10.X1) date
earnings 200
200 200 50
20 25
–––
––– ––– 250
220 225 –––
––– –––

(W3) Goodwill – Pepper 350
(266)
Cost of investment
Share of net assets acq’d ––––
70% × 380 (W2) 84
26
Goodwill – parent's share
NCI share of goodwill ––––
110
Gross goodwill
––––
Goodwill – Salt
175
Cost of investment
Share of net assets acquired (132)
60% × 220 (W2) –––
43
Goodwill – parent's share 17
NCI share of goodwill –––
60
Gross goodwill –––

316 KAPLAN PUBLISHING

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chapter 8

(W4) Non-controlling interests

Pepper 30% × 625 (W2) 187.5
Salt Goodwill 26
26% × 250 (W2) 65
Goodwill (17– (14/ 40 x 17)) 11

(W5) Retained earnings ––––
289.5
Holdings ––––

Pepper (70% × (625 – 380) (W2)) 750
171.5
Salt (60% × (225 – 220) (W2))
3
(74% × (250 – 225) (W2)) 18.5
(12.5)
Difference on step acquisition (W6) –––––
930.5
(W6) Step acquisition (control to control) –––––

Cash paid (14/40 x 107 (W7)) 50
Transfer from NCI 37.5
–––––
Difference – decrease 12.5
–––––
(W7) NCI at date of step acquisition
90
Share of net assets (40% x 225 (W2)) 17
Goodwill ––––
107
––––

KAPLAN PUBLISHING 317

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Complex groups

Test your understanding 7 - ABC
Consolidated statement of financial position as at 30 June 20X6

Non-current assets 4,175
17,350
Goodwill (W3) (2,120 + 2,055)
Property, plant and equipment 3,000
(9,300 + 3,600 + 4,250 + 250 − 50)
Investments (10,000 + 4,000 − 6,000 − 4,000 − 1,000)

Current assets 2,790
Inventory (1,750 + 700 + 400 − 60) 2,020
Receivables (1,050 + 550 + 420) 2,890
Cash (1,550 + 1,010 + 330) –––––
32,225
Equity –––––
Share capital
Share premium 12,500
Retained earnings (W5) 2,500
Non-controlling interest (W4) 3,990
6,075

Non-current liabilities (2,000 + 750 + 250) 3,000

Current liabilities 3,050
Trade payables (1,890 + 980 + 180) 1,110
Taxation (610 + 400 + 100) –––––
32,225
Workings –––––

(W1) Group structure A→ → 1.4.20X6
1.7.20X5 60% ↓ ↓
1.7.20X5 60%
B 10%
↓ ↓
C←
←

318 KAPLAN PUBLISHING

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chapter 8

B will be consolidated with A owning 60% and NCI owning 40% from 1
July 20X5.

C will be consolidated with A owning 36% (NCI owning 64%) from 1 July
20X5 and A owning 46% (NCI owning 54%) from 1 April 20X6.

Indirect (60% x 60%) 36%
Direct 10%

Total –––

46%

Since C is controlled indirectly via B from 1 July 20X5 (effective
ownership of 36%), this is a step acquisition control to control.

(W2) Net assets – B

Share capital Acquisition Reporting
Share premium date
Retained earnings 5,000
Fair value adjustment 2,000 5,000
Depreciation adj (250 × 1/5) 2,000
PUP (W6) 550
250 730
250
–––– (50)
7,800 (60)
–––– ––––
7,870
––––

Net assets – C

Acquisition Acquisition Reporting

1.7.X5 1.4.X6 date

Share capital 4,000 4,000 4,000
Retained earnings
570 + 9/12 (870 – 570) 570 870

795

–––––– –––––– ––––––

4,570 4,795 4,870

–––––– –––––– ––––––

KAPLAN PUBLISHING 319

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Complex groups

(W3) Goodwill 6,000

B 4,680
––––––
Cost of investment
Fair value of net assets acquired 1,320
(60% × 7,800) (W2) 800

Goodwill – parent's share ––––––
NCI share in goodwill 2,120

Gross goodwill ––––––

C 4,000
(1,600)
Cost of investment ––––––
IHA (40% × 4,000)
2,400
Fair value of net assets acquired
(36% × 4,570) (W2) (1,645)
––––––
Goodwill – parent's share
NCI share in goodwill 755
1,300
Gross goodwill ––––––
2,055
(W4) Non-controlling interests ––––––

B Share of net assets 3,148
(40% × 7,870) (W2) 800
Goodwill
IHA (1,600)

C Share of net assets 2,630
(54% × 4,870) (W2) 1,097
Goodwill (1,300 – (10/64 x 1,300)) ––––––
6,075
––––––

320 KAPLAN PUBLISHING

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chapter 8

(W5) Retained earnings 4,150
A 42
B (60% × (7,870 − 7,800)) 81
C (36% × (4,795 − 4,570)) 34
(46% × (4,870 − 4,795))
Difference on step acquisition (W7) (317)
––––––
(W6) PUP
3,990
––––––

Profit in inventory = 20 × (240 + 120)
/120

= 60

(W7) Step acquisition (control to control)

Cash paid (10/64 x 4,369) (W8) 1,000
Transfer from NCI (683)
–––––
Difference – decrease
317
–––––

(W8) NCI at date of step acquisition

Share of net assets (64% x 4,795 (W2)) 3,069
Goodwill 1,300
–––––
4,369
–––––

Note: This TYU and TYU "Holdings" are both examples of a complex
group whereby the second acquisition of shares in the sub-subsidiary
was a step acquisition from control to control.

In Holdings the direct holding was acquired first so the goodwill
calculation was for a straightforward acquisition.

In ABC the indirect holding was acquired first. Therefore the indirect
holding adjustment (IHA) must be calculated in W3. Goodwill is
calculated when control is achieved and is not recalculated in the case of
a step acquisition control to control. The second acquisition is simply a
transaction between parent and NCI shareholders.

KAPLAN PUBLISHING 321

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Complex groups

Test your understanding 8 - Parsley

Consolidated statement of comprehensive income for the year
ended 30 April 20X6

Parsley Coriander Thyme Adjust- Consoli-
ments dated

$000 $000 $000 $000 $000

Revenue 408,100 240,000 170,350 (35,000) 783,450

Cost of sales (122,330) (72,050) (51,100) 35,000 (213,080)

– Depreciation (W2) (2,000)

– PUP (W6) (600)

–––––––

Gross profit 570,370
Operating expenses
– Impairment (57,820) (33,450) (23,850) (123,120)

(8,000)

–––––––

Profit from operations 447,250

Finance cost (12,000) (6,500) (2,400) (20,900)

–––––––

Profit before tax 426,350
Tax
(65,500) (38,000) (27,750) (131,250)

–––––– –––––– –––––––

Net profit 89,400 55,250 295,100
Other comprehensive
income – –– –

Total comprehensive –––––– –––––– –––––––
income 89,400 55,250 295,100

x 20% x 44% –––––––

Attributable to: 17,880 24,310 42,190
Non-controlling
interests 252,910
Parent shareholders –––––––
295,100
–––––––

322 KAPLAN PUBLISHING

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chapter 8

Consolidated statement of financial position as at 30 April 20X6

Assets $000
Non-current assets
Goodwill (W3) (65,000 + 80,000) 145,000
Tangible (596,330 + 320,370 + 489,800 + 35,000 + 1,457,500
20,000 – 4,000)
Investments (485,000 + 335,000 – 350,000 – 135,000
335,000)

Current assets (87,320 + 56,550 + 54,800 – 600) 198,070
––––––––
Equity and liabilities 1,935,570
Issued share capital ($1 shares) ––––––––
Retained earnings (W5)
100,000
Non-controlling interests (W4) 1,169,020
Non-current liabilities (150,000 + 80,000 + 30,000) ––––––––
Current liabilities (43,250 + 31,420 + 28,850) 1,269,020

Workings 303,030
(W1) Group structure 260,000
103,520
––––––––
1,935,570
––––––––

Parsley 80% 1 May 20X3
Coriander 70% 1 May 20X4

Thyme

Coriander will be treated as a subsidiary from 1 May 20X3 (3 years) with
Parsley owning 80% and NCI owning 20%.

Thyme will be treated as a subsidiary from 1 May 20X4 (2 years) with
Parsley owning (80% x 70%) 56% and NCI owning 44%.

KAPLAN PUBLISHING 323

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Complex groups

(W2) Net assets of subsidiary

Coriander Acquisition Reporting
date date
Share capital
Retained earnings 1.5.X3 30.4.X6
Fair value adjustment (135,000 – 75,000 75,000
100,000) 255,000 525,500
PUP (W6) 35,000 35,000

––––––– (600)
365,000 –––––––
––––––– 634,900
–––––––

Thyme Acquisition Reporting
date date
Share capital
Retained earnings 1.5.X4 30.4.X6
Fair value adjustment (100,000 – 50,000 50,000
80,000) 285,000 435,750
Depreciation adjustment (20,000 x 2/10) 20,000 20,000

– (4,000)
––––––– –––––––
355,000 501,750
––––––– –––––––

Note: Only 1 year’s additional depreciation will be charged to cost of
sales in CIS i.e 1/10 x 20,000 = 2,000

324 KAPLAN PUBLISHING

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chapter 8

(W3) Goodwill

Coriander

Cost of investment 350,000

Fair value of net asset acquired (80% x 365,000 (292,000)
(W2))

––––––

Goodwill – parent's share 58,000

Fair value of NCI holding 80,000

NCI share of net assets acquired (20% x 365,000 (73,000)

(W2))

––––––

Goodwill – NCI share 7,000

––––––

Gross goodwill on acquisition 65,000

––––––

Thyme

Cost of investment 335,000

IHA (20% x 335,000) (67,000)

Fair value of net asset acquired (198,800)
(56% x 355,000 (W2))

––––––

Goodwill – parent's share 69,200

Fair value of NCI holding 175,000

NCI share of net assets acquired (156,200)

(44% x 355,000 (W2))

––––––

Goodwill – NCI share 18,800

––––––

Gross goodwill on acquisition 88,000

Impairment (8,000)

––––––

Goodwill at reporting date 80,000

––––––

KAPLAN PUBLISHING 325

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Complex groups

(W4) Non-controlling interests 126,980

Coriander 7,000
NCI share of net assets
20% x 634,900 (W2) 220,770
NCI share in goodwill (W3) 18,800
Thyme
NCI share of net assets (67,000)
44% x 501,750 (W2) (3,520)
NCI share in goodwill (W3)
IHA (W3) –––––––
Impairment (44% x 8,000) 303,030
–––––––
(W5) Retained earnings
875,400
Parsley
Coriander 215,920
80% x (634,900 – 365,000) (W2)
Thyme 82,180
56% x (501,750 – 355,000) (W2) (4,480)
Impairment (56% x 8,000) ––––––––
1,169,020
––––––––

(W6) PUP
Profit in inventory = 15,000 x 25/125 x 1/5 = 600

326 KAPLAN PUBLISHING

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chapter 8

Test your understanding 9 - Hitchcock

Consolidated statement of comprehensive income for the year
ended 30 April 20X3

Hitchcock Spencer Spooner Adjs Consoli-

9/12 dated

$000 $000 $000 $000 $000

Revenue 120,000 84,000 60,000 (13,750) 250,250

Cost of sales (52,500) (56,000) (19,200) 13,750 (114,720)
– PUP (W6)
(770)
Gross profit
Operating expenses ––––––
– Impairment
135,530
Profit from operations
Finance cost (30,000) (11,200) (24,000) (66,200)
Income from
associate (W7) (1,000)
Gain on disposal of
associate (W8) ––––––

Profit before tax 69,330
Tax
(4,500) (2,800) (4,800) (12,100)
Net profit
Other comprehensive 562
income
1,938
Total comprehensive
income (10,000) (5,000) (5,250) ––––––
– ––––– ––––– 59,730
Attributable to: 8,000 5,980 (20,250)
Non-controlling ––––––
interests – – 39,480
Parent shareholders
–

––––– ––––– ––––––
8,000 5,980 39,480

x 20% x 27% ––––––

1,600 1,615 3,215

36,265
––––––
39,480
––––––

KAPLAN PUBLISHING 327

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Complex groups

Consolidated statement of financial position as at 30 April 20X3

Assets $000
Non-current assets
Goodwill (W3) (4,500 + 18,750) 23,250
Tangible (240,000 + 70,000 + 102,000) 412,000

Current assets (112,500 + 40,000 + 58,000 – 770 – 205,730
4,000 (W6))
–––––––
Equity and liabilities 640,980
Issued share capital ($1 shares) –––––––
Retained earnings (W5)
75,000
Non-controlling interests (W4) 283,265
Non-current liabilities (40,000 + 35,000 + 30,000) –––––––
Current liabilities (60,000 + 50,000 + 39,000 – 358,265
4,000 (W6))
32,715
105,000
145,000

–––––––
640,980
–––––––

Workings

(W1) Group structure

1.5.20X2 80% Hitchcock →→
1.8.20X2 60% ↓ ↓

Spencer 25% 1.5.20X2
↓ ↓

Spooner ←←

Spencer will be consolidated with Hitchcock owning 80% and the
NCI owning 20% from 1.5.X2. Therefore Spencer has been a
subsidiary for 1 year.

328 KAPLAN PUBLISHING

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chapter 8

Spooner will be consolidated with Hitchcock owning 73% and the
NCI owning 27% from 1.8.X2.

X's direct ownership 25%
X's indirect ownership
(80% × 60%) 48%

–––

73%

–––

As at 1 May X2, Hitchcock’s direct 25% shareholding will result in
significant influence being exercised and so Spooner will be treated
as an associate.

On 1 August X2, Spencer’s acquisition of 60% of Spooner’s shares
will enable Spencer to be able to control Spooner. Therefore,
Hitchcock also gains control of Spooner and so Spooner becomes
a subsidiary from 1 August X2.

Thus, Spooner is an associate for the first 3 months of the year and
a subsidiary for the remaining 9 months.

There is therefore a step acquisition of non-control to control at 1
August X2. The original holding of 25% will be remeasured to fair
value and the gain will be recorded in the statement of
comprehensive income.

Dr Investment (25,000 – 22,500) 2,500
Cr Income statement (and so retained earnings) 2,500

This double entry is recorded in the parent’s books. In the CSCI, the
gain of $2,500 should be replaced with equity accounting and any
gain/loss arising on the disposal of Spooner as an associate – see
W7 and W8.

(W2) Net assets of subsidiary

Spencer Acquisition Reporting
date date
Share capital
Retained earnings (60,000 – 9,000) 1.5.X2 30.4.X3
30,000 30,000
51,000 60,000
––––– –––––
81,000 90,000
––––– –––––

KAPLAN PUBLISHING 329

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Complex groups

Spooner Acquisition Disposal
date date

1.8.X2 30.4.X3
24,000
Share capital 24,000 67,000

Retained earnings (W – see below) 60,250 (770)
–––––
PUP (W6) – 90,230
–––––
––––– 60,250
6,750
84,250 –––––
67,000
––––– –––––

Retained earnings at 1.8.X2 (balancing figure)

Profit from 1.8.X2 to 30.4.X3 (9/12 x 9,000)

Retained earnings at 30.4.X3

(W3) Goodwill

Spencer

Cost of investment 70,000

Fair value of net asset acquired (80% x 81,000 (W2)) (64,800)

–––––

Goodwill – parent's share 5,200

Fair value of NCI holding 16,500

NCI share of net assets acquired (20% x 81,000 (W2)) (16,200)

–––––

Goodwill – NCI share 300

–––––

Gross goodwill on acquisition 5,500

Impairment (1,000)

–––––

Goodwill at reporting date 4,500

–––––

330 KAPLAN PUBLISHING

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chapter 8

Spooner

Cost of investment

Fair value of previous holding 25,000

Cost of additional holding 65,000

IHA (20% x 65,000) (13,000)

–––––

77,000

Fair value of net asset acquired (73% x 84,250 (W2)) (61,503)

–––––

Goodwill – parent's share 15,497

Fair value of NCI holding 26,000

NCI share of net assets acquired (27% x 84,250 (W2)) (22,747)

–––––

Goodwill – NCI share 3,253

–––––

Gross goodwill on acquisition 18,750

–––––

(W4) Non-controlling interests

Spencer 18,000
NCI share of net assets
20% x 90,000 (W2) 300
NCI share in goodwill (W3) (200)
Impairment (W3) (20% x 1,000)
Spooner 24,362
NCI share of net assets
27% x 90,230 (W2) 3,253
NCI share in goodwill (W3) (13,000)
IHA (W3) ––––––

32,715
––––––

(W5) Retained earnings

Hitchcock retained earnings 270,000
Remeasurement on step acquisition (W1) 2,500
Spencer
80% x (90,000 – 81,000) (W2) 7,200
Spooner
73% x (90,230 – 84,250) (W2) 4,365
Impairment (80% x 1,000) (800)
–––––––
283,265
–––––––

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Complex groups

(W6) PUP

Hitchcock: 8,250 x 10% x 40% = 330

Spooner: 5,500 x 10% x 80% = 440

Total = 770

The goods have been sold since Spooner has been a subsidiary within
the group. Since Spooner sold the goods, deduct from Spooner’s
retained earnings in W2 and also from inventory in consolidated
statement of financial position.

In the consolidated income statement, increase Spooner’s cost of sales.

The intra-group sales totalling $13.75 million need to be eliminated from
sales and cost of sales in the consolidated income statement.

The intra-group balances totalling $4.5 million need to be eliminated
from current assets and current liabilities in the consolidated statement
of financial position.

(W7) Income from associate

Share of profit for the year = 25% x 9,000 x 3/12 = 562

(W8) Gain on disposal of associate

Under IFRS 3 revised, Spooner as an associate is effectively disposed
at the date control is achieved. The “proceeds” are equal to the fair value
of the previously held interest. Therefore a gain on disposal arises as
follows:

Proceeds = fair value of previous interest 25,000
Less: carrying value of associate at date of "disposal"
Cost of investment 22,500
Share of post acquisition profits 562
(25% x 9,000 x 3/12)
–––––
Gain on disposal (23,062)
–––––
1,938
–––––

Note: In W5 retained earnings, it would have been possible to achieve
the same answer by replacing the gain on remeasurement of $2,500
with the post acquisition profits of Spooner as an associate ($562)
together with the gain on disposal ($1,938).

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chapter 8

Tutorial note: CSOCE Parent NCI
shareholders shareholders
Equity b/f (W9)
Comprehensive income $000 $000
Acquisition of subsidiary (W10) 322,000 –
Equity c/f
36,265 3,215
29,500
–––––– ––––––
358,265 32,715
–––––– ––––––

(W9) Equity attributable to parent shareholders b/f

At the start of the year, the equity of the group would have simply been
the equity of Hitchcock as follows:

Share capital 75,000
Retained earnings (270,000 – 23,000) 247,000
–––––––
322,000
–––––––

(W10) Equity attributable to NCI shareholders

At the start of the year, Hitchcock had not yet acquired any subsidiaries
and so there was no NCI.

At acquisition, NCI was recorded in respect of Spencer and Spooner as
follows:

Spencer 16,200
Share of net assets (20% x 81,000) 300
Goodwill (W3)
IHA (W3) (13,000)
Spooner
Share of net assets (27% x 84,250) 22,747
Goodwill (W3) 3,253
–––––

29,500
–––––

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Complex groups

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chapter

9

Foreign currency translation

Chapter learning objectives

On completion of their studies students should be able to:

• Explain foreign currency translation principles, including the

difference between the closing rate/ net investment method and
the historical rate method;

• Apply foreign currency translation to overseas transactions and

investments in overseas subsidiaries.

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Foreign currency translation
1 Session content

2 IAS 21 The effects of changes in exchange rates

IAS 21 deals with:

• the definition of functional and presentation currencies
• accounting for individual transactions in a foreign currency
• translating the financial statements of a foreign operation.

3 Functional and presentation currencies

The functional currency is the currency of the primary economic
environment in which the entity operates. In most cases this will be the local
currency.

An entity should consider the following when determining its functional
currency:

• The currency that mainly influences sales prices for goods and services.
• The currency of the country whose competitive forces and regulations

mainly determine the sales prices of goods and services.

• The currency that mainly influences labour, material and other costs of

providing goods and services.

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chapter 9

The following factors may also be considered:

• The currency in which funding from issuing debt and equity is

generated.

• The currency in which receipts from operating activities are usually

retained.

The entity maintains its day-to-day financial records in its functional currency.

The presentation currency is the currency in which the entity presents its
financial statements. This can be different from the functional currency,
particularly if the entity in question is a foreign-owned subsidiary. It may have
to present its financial statements in the currency of its parent, even though
that is different to its own functional currency.

4 Translation of foreign currency transactions

Where an entity enters into a transaction denominated in a currency other
than its functional currency, that transaction must be translated into the
functional currency before it is recorded.

Examples of foreign currency transactions

Initial recognition

• The transaction will initially be recorded by applying the spot exchange

rate i.e. the exchange rate at the date of the transaction.
Subsequent measurement – settled transactions

When cash settlement occurs, for example payment by a receivable, the
settled amount should be translated using the spot exchange rate on the
settlement date.

If this amount differs from that used when the transaction occurred, there will
be an exchange difference which is taken to the income statement in the
period in which it arises.

Example 1

Example 1 answer

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