ALL FOUR questions are compulsory and MUST be attempted

1 Alpha’s investments include subsidiaries, Beta and Gamma. The statements of profit or loss and other comprehensive
income and summarised statements of changes in equity of the three entities for the year ended 31 March 2016 were
as follows:
Statements of profit or loss and other comprehensive income
Alpha Beta Gamma
$’000 $’000 $’000
Revenue (Notes 3 and 4) 360,000 210,000 190,000
Cost of sales (Notes 1–3) (240,000) (110,000) (100,000)
–––––––– –––––––– ––––––––
Gross profit 120,000 100,000 90,000
Distribution costs (20,000) (16,000) (15,000)
Administrative expenses (30,000) (19,000) (18,000)
Investment income (Notes 5 and 6) 19,800 Nil Nil
Finance costs (Note 7) (12,000) (17,000) (13,000)
–––––––– –––––––– ––––––––
Profit before tax 77,800 48,000 44,000
Income tax expense (15,000) (12,000) (11,000)
–––––––– –––––––– ––––––––
Profit for the year 62,800 36,000 33,000
Other comprehensive income:
Items that will not be reclassified to profit or loss
Gains/(losses) on financial assets designated at fair
value through other comprehensive income (Note 5) Nil Nil Nil
–––––––– –––––––– ––––––––
Total comprehensive income 62,800 36,000 33,000
–––––––– –––––––– ––––––––
Summarised statements of changes in equity
Balance on 1 April 2015 200,000 150,000 130,000
Comprehensive income for the year 62,800 36,000 33,000
Dividends paid on 31 December 2015 (30,000) (12,000) (11,000)
–––––––– –––––––– ––––––––
Balance on 31 March 2016 232,800 174,000 152,000
–––––––– –––––––– ––––––––
Note 1 – Alpha’s investment in Beta
On 1 April 2004, Alpha acquired 80% of the equity shares of Beta and gained control of Beta. Alpha paid $64 million
in cash for these shares.
On 1 April 2004, the net assets of Beta had a fair value of $70 million. None of the assets and liabilities of Beta
which existed on 1 April 2004 were still assets or liabilities of Beta on 31 March 2015.
Alpha measured the non-controlling interest in Beta using the proportion of net assets method. The resulting goodwill
on acquisition of Beta was correctly recognised in the consolidated financial statements of Alpha. No impairment of
goodwill on acquisition of Beta has been necessary up to and including 31 March 2015.
On 31 March 2016, the annual impairment review of the goodwill on acquisition of Beta indicated that the
recoverable amount of the total net assets of Beta (including the goodwill) at that date was $180 million. Beta is
regarded as a single cash generating unit for impairment purposes. Any impairment of goodwill should be charged to
cost of sales.
Note 2 – Alpha’s investment in Gamma
On 1 October 2015, Alpha acquired 60% of the equity shares in Gamma and gained control of Gamma. Gamma had
50 million equity shares in issue on 1 October 2015 and has not issued any new shares since that date. The
acquisition was financed as follows:
– Alpha issued two new shares to the former shareholders of Gamma for every three shares Alpha acquired in
Gamma. On 1 October 2015, the fair value of an equity share in Alpha was $2·80 and the fair value of an equity
share in Gamma was $3·70.

3 [P.T.O.
– Alpha agreed to pay a total of $24·2 million to the former shareholders of Gamma on 30 September 2017.
Alpha’s incremental borrowing rate at 1 October 2015 was 10% per annum.
– Alpha agreed to pay a further amount to the former shareholders of Gamma on 31 December 2019 if the
cumulative profits of Gamma for the four-year period from 1 October 2015 to 30 September 2019 exceed
$150 million. On 1 October 2015, the fair value of this obligation was measured at $40 million. On 31 March
2016, this fair value was remeasured at $42 million.
Alpha has resolved to use the fair value method for measuring the non-controlling interest when recognising the
goodwill on acquisition of Gamma. The fair value of an equity share in Gamma on 1 October 2015 can be used for
this purpose. No impairment of the goodwill on acquisition of Gamma is necessary in the consolidated financial
statements of Alpha for the year ended 31 March 2016.
On 1 October 2015, the fair values of the net assets of Gamma were the same as their carrying amounts in the
financial statements of Gamma with the exception of:
– Property – whose fair value exceeded the carrying amount by $25 million ($10 million of this excess relates to
land). The estimated remaining useful life of the buildings element of the property at 1 October 2015 was 20
years.
– Plant and equipment – whose fair value exceeded the carrying amount by $8 million. The estimated remaining
useful life of the plant and equipment of Gamma at 1 October 2015 was four years.
All depreciation of property, plant and equipment is charged to cost of sales. You can assume that the profit of Gamma
for the year ended 31 March 2016 accrued evenly over the year.
Note 3 – Intra-group trading
Alpha supplies a component used by both Beta and Gamma. Alpha earns a profit margin of 10% on these supplies.
Details of the sales of the component, and the holdings of inventory of the component by group entities, are as follows:
Beta Gamma
$’000 $’000
Sales of the component (for Gamma all sales since 1 October 2015) 15,000 8,000
Inventory of component at 31 March 2015 (at cost to Beta/Gamma 2,000 Nil
Inventory of component at 31 March 2016 (at cost to Beta/Gamma) 3,000 2,800
Note 4 – Revenue of Alpha
On 1 October 2015, Alpha sold a large machine to a customer for a total price of $51·2 million and credited
$51·2 million to revenue. As part of the sales agreement, Alpha agreed to provide annual servicing of the machine
for four years from 1 October 2015 for no additional payment. The normal selling price of this without any annual
servicing would have been $60 million and Alpha would normally charge the customer an annual fee of $1 million
to service the machine. You should ignore the time value of money in respect of this transaction.
Note 5 – Alpha’s other investment
Apart from its investments in Beta and Gamma, Alpha has one other investment – in entity X. Alpha purchased this
equity investment on 1 July 2015 for $40 million and designated the investment as fair value through other
comprehensive income. In order to protect against a prolonged decline in the fair value of the investment in entity X,
Alpha purchased a put option to sell this investment. The cost of the option was $6 million and the option was
regarded as an effective hedge against a prolonged decline in the fair value of the investment in entity X. On
31 March 2016, the fair value of the equity investment in entity X was $37 million and the fair value of the put option
was $8·7 million. Apart from recognising the investment in entity X and the put option at cost, Alpha has made no
other entries in its draft financial statements. Alpha wishes to use hedge accounting whenever permitted by
International Financial Reporting Standards.
Note 6 – Investment income
All of the investment income of Alpha has been correctly recognised in the individual financial statements of Alpha.
Note 7 – Bond issue
On 1 April 2015, Alpha issued a convertible zero-coupon bond to a single institutional investor. The bond was issued
for total proceeds of $250 million and will be redeemed or converted into equity shares on 31 March 2020. If the

4
investor chooses to redeem the bond on 31 March 2020, the investor will receive $362·32million. The incremental
borrowing rate of Alpha on 1 April 2015 is 10% per annum. The present value of $1 received in five years at a
discount rate of 10% per annum is 62·1 cents.

Required:
(a) Using the information in notes 1 and 2, compute the goodwill arising on the acquisitions of Beta at 1 April
2004 and Gamma at 1 October 2015. (8 marks)

(b) Prepare the consolidated statement of profit or loss and other comprehensive income of Alpha for the year
ended at 31 March 2016. You do not need to consider the deferred tax effects of any adjustments you make.
(25 marks)

(c) Prepare the summarised consolidated statement of changes in equity of Alpha for the year ended 31 March
2016, including a column for the non-controlling interest. (7 marks)
Note: You should show all workings to the nearest $’000.

(40 marks)

5 [P.T.O.
Diploma in International Financial Reporting June 2016 Answers
and Marking Scheme

Marks
1 (a) Computation of goodwill on acquisition of Beta and Gamma
$’000 $’000 Explanations (where needed)
Beta
Cost of investment:
Cash paid 64,000 ½
Non-controlling interest at
the date of acquisition 14,000 20% of the net assets 1
Net assets at the date of
acquisition (70,000) ½
––––––––
Goodwill on acquisition of
Beta 8,000
––––––––
Gamma
Cost of investment:
Share exchange 56,000 50 million x 60% x 2/3 = 20 million shares
issued at $2·80 1
Deferred cash consideration 20,000 $24·2 million/(1·10)2 – the present value of the
cash payable 1
Contingent consideration 40,000 Measured at fair value at the date of acquisition 1
––––––––
116,000
Non-controlling interest at
the date of acquisition 74,000 50 million x 40% = 20 million shares at $3·70 1
––––––––
190,000
Net assets at the date of
acquisition
At 1 April 2015 130,000 As per Gamma’s financial statements ½
Profits to 30 September 2015 16,500 6/12 of the profits for the year to 31 March 2016 1
Fair value uplifts 33,000 $25 million + $8 million as per note 2 ½
––––––––
(179,500)
––––––––
Goodwill on acquisition of
Gamma 10,500
–––––––– –––
8
–––

11
 Marks
(b) Consolidated statement of profit or loss and other comprehensive income of Alpha for the year
ended 31 March 2016
$’000
Revenue (W1) 639,200 3½ (W1)
Cost of sales (W3) (381,955) 8 (W3)
––––––––
Gross profit 257,245
Distribution costs (20,000 + 16,000 + 15,000 x 6/12) (43,500) ½
Administrative expenses (30,000 + 19,000 + 18,000 x 6/12) (58,000) ½
Investment income (W5) 3,600 1½ (W5)
Finance costs (W6) (61,000) 4 (W6)
––––––––
Profit before tax 98,345
Income tax expense (15,000 + 12,000 + 6/12 x 11,000) (32,500) ½
––––––––
Profit for the year 65,845
Other comprehensive income:
Items that will not be reclassified to profit and loss
Losses on financial assets designated at fair value through other comprehensive
income (40,000 – 37,000) (3,000) 1
Gains on derivatives classified as effective fair value hedges (8,700 – 6,000) 2,700 1
––––––––
Total comprehensive income for the year 65,545
––––––––
Profit attributable to:
Owners of Alpha (balancing figure) 52,595 ½
Non controlling interest (W9) 13,250 3 (W9)
––––––––
65,845
––––––––
Total comprehensive income attributable to:
Owners of Alpha (balancing figure) 52,295 ½
Non controlling interest (as above) 13,250 ½
––––––––
65,545
–––––––– –––
25
–––

(c) Consolidated statement of changes in equity of Alpha for the year ended 31 March 2016
Alpha group Non-controlling interest Total
$’000 $’000 $’000
At 1 April 2015 (W10/11) 263,800 (W10) 30,000 (W11) 293,800 2 (W10) + ½ (W11)
Increase due to acquisition 56,000 74,000 130,000 ½+½
Equity element of bond issue (W12) 25,000 25,000 1 (W12)
Comprehensive income for the year 52,295 13,250 65,545 ½+½
Dividends paid (30,000) (6,800) (W13) (36,800) ½ + 1 (W13)
–––––––– –––––––– ––––––––
At 31 March 2016 367,095 110,450 477,545
–––––––– –––––––– –––––––– –––
7
–––
40
–––
WORKINGS. ALL NUMBERS IN $’000 UNLESS OTHERWISE STATED.
Working 1 – Revenue
$’000
Alpha + Beta + 6/12 x Gamma 665,000 ½
Intra-group revenue (15,000 + 8,000) (23,000) ½
Deferred service revenue (W2) (2,800) 2½ (W2)
–––––––– –––
639,200 3½
–––––––– –––

12
 Marks
Working 2 – Deferred service revenue
$’000
Actual price of ‘package’ (A) 51,200 ½
Sum of fair values of individual components (60,000 + 4 x 1,000) (B) 64,000 ½
A/B 80% ½
So ‘service revenue’ (4 x 1,000 x 80%) 3,200 ½
Amount deferred (42/48) 2,800 ½
–––
2½
–––
⇒W1
Working 3 – Cost of sales
$’000
Alpha + Beta + 6/12 x Gamma 400,000 ½
Intra-group purchases (as W1) (23,000) ½
Unrealised profit:
Closing inventory (10% x (3,000 + 2,800)) 580 1
Opening inventory (10% x 2,000) (200) ½+½
Impairment of Beta goodwill (W4) 3,200 3 (W4)
Extra depreciation on fair value adjustments:
Property ((25,000 – 10,000) x 1/20 x 6/12) 375 1
Plant and equipment (8,000 x 1/4 x 6/12) 1,000 1
–––––––– –––
381,955 8
–––––––– –––
Working 4 – Impairment of Beta goodwill
$’000
Net assets at 31 March 2016 174,000 ½
Grossed up goodwill (8,000 x 100/80) 10,000 ½+½
––––––––
184,000
Recoverable amount (180,000) ½
––––––––
So gross impairment 4,000 ½
––––––––
Recognise group share (80%) 3,200 ½
––––––––
–––
3
–––
⇒W3
Working 5 – Investment income
$’000
Alpha 19,800 ½
Intra-group dividends eliminated:
– Beta (80% x 12,000) (9,600) ½
– Gamma (paid post-acquisition – 60% x 11,000) (6,600) ½
––––––– –––
3,600 1½
––––––– –––
Working 6 – Finance cost
$’000
Alpha + Beta + 6/12 x Gamma 35,500 ½
Change in fair value of contingent consideration (42,000 – 40,000) 2,000 1
Finance cost on deferred consideration (W7) 1,000 1 (W7)
Finance cost on convertible bond (W8) 22,500 1½ (W8)
––––––– –––
61,000 4
––––––– –––
Tutorial note: It would be acceptable to show the change in fair value of the contingent
consideration under a reasonable alternative expense heading, such as administrative expenses.
Working 7 – Finance cost on deferred consideration
$’000
20,000 (amount included in goodwill calculation) x 10% x 6/12 1,000 1
–––––– –––
⇒W6

13
 Marks
Working 8 – Finance cost on convertible bond
$’000
Liability element of convertible loan (362,320 x 0·621) 225,000 1
––––––––
So appropriate finance cost = 10% x 225,000 22,500 ½
–––––––– –––
1½
–––
⇒W6
Working 9 – Non-controlling interest in profit
Beta Gamma (6/12) Total
$’000 $’000 $’000
Profit after tax 36,000 16,500 1
Extra depreciation – Gamma (375 + 1,000 (W3)) (1,375) ½+½
––––––– –––––––
Relevant profit 36,000 15,125
––––––– ––––––– –––––––
Non-controlling interest (20%/40%) 7,200 6,050 13,250 ½+½
––––––– ––––––– ––––––– –––
3
–––
Working 10 – Opening equity – Alpha group
$’000
Alpha 200,000 ½
Beta: 80% x (150,000 – 70,000) 64,000 ½+½
Opening provision for unrealised profit (W2) (200) ½
–––––––– –––
263,800 2
–––––––– –––
Working 11 – Opening non-controlling interest (in Beta)
$’000
20% x 150,000 30,000 ½
––––––– –––
Tutorial note: An alternative computation would be:
$’000
At date of acquisition (20% x 70,000) 14,000 ½
Increase since acquisition: 20% (150,000 – 70,000) 16,000 ½
––––––– –––
At start of the year 30,000 1
––––––– –––
Working 12 – Equity element of bond issue
$’000
Total proceeds 250,000 ½
Loan element (W7) (225,000) ½
–––––––– –––
So equity element equals 25,000 1
–––––––– –––
Working 13 – Dividends paid to non-controlling interest
$’000
Beta (12,000 x 20%) 2,400 ½
Gamma (11,000 x 40%) 4,400 ½
–––––– –––
Total 6,800 1
–––––– –––

2 (a) IFRS 2 – Share based Payments – requires that equity settled share based payments should be
measured based on their fair value at the grant date, based on the number of options expected to ½+½+½
vest based on estimates at the reporting date. +½
The cost should be spread over the vesting period – three years in this case. ½
This means that the charge to profit or loss in the year ended 31 March 2015 will be $740,000
(1,850 x 1,000 x $1·20 x 1/3). ½
The credit entry will be to equity, probably to an option reserve. ½+½
Based on the original arrangements, the cumulative balance in equity on 31 March 2016 will be
$1,472,000 (1,840 x 1,000 x $1·20 x 2/3). ½+½+½

14
ALL FOUR questions are compulsory and MUST be attempted

1 Alpha holds investments in a number of entities, including Beta and Gamma. The statements of profit or loss and
other comprehensive income and summarised statements of changes in equity of the three entities for the year ended
31 March 2017 were as follows:
Statements of profit or loss and other comprehensive income
Alpha Beta Gamma
$’000 $’000 $’000
Revenue (Note 3) 468,000 260,000 240,000
Cost of sales (Notes 1-3) (312,000) (135,000) (120,000)
–––––––– –––––––– ––––––––
Gross profit 156,000 125,000 120,000
Distribution costs (26,000) (20,000) (18,000)
Administrative expenses (Note 4) (44,000) (28,000) (27,000)
Investment income (Note 5) 28,000 Nil Nil
Finance costs (20,000) (22,000) (21,000)
–––––––– –––––––– ––––––––
Profit before tax 94,000 55,000 54,000
Income tax expense (24,000) (14,000) (13,500)
–––––––– –––––––– ––––––––
Profit for the year 70,000 41,000 40,500
Other comprehensive income:
Items that will be reclassified to profit or loss
Gains/(losses) on effective cash-flow hedges (Note 6) Nil Nil Nil
–––––––– –––––––– ––––––––
Total comprehensive income 70,000 41,000 40,500
–––––––– –––––––– ––––––––
Summarised statements of changes in equity
Balance on 1 April 2016 250,000 193,000 166,500
Comprehensive income for the year 70,000 41,000 40,500
Dividends paid on 31 December 2016 (40,000) (18,000) (16,000)
–––––––– –––––––– ––––––––
Balance on 31 March 2017 280,000 216,000 191,000
–––––––– –––––––– ––––––––
Note 1 – Alpha’s investment in Beta
On 1 April 2001, Alpha acquired 80 million of the 100 million $1 equity shares of Beta and gained control of Beta.
Alpha paid $150 million in cash for these shares.
On 1 April 2001, the net assets of Beta had a fair value of $147 million, all of which had been disposed of or settled
by 31 March 2016.
Alpha used the fair value method for measuring the non-controlling interest when recognising the goodwill on
acquisition of Beta. The fair value of an equity share in Beta on 1 April 2001, which was $1·50, was used for this
purpose. No impairments of goodwill on acquisition of Beta have been necessary in the consolidated financial
statements of Alpha up to and including 31 March 2016.
Beta has three cash generating units. On 31 March 2017, the annual impairment review indicated that the
recoverable amounts of the net assets, including goodwill, of the three cash generating units of Beta at that date were
as follows:
– Unit 1 – $87 million.
– Unit 2 – $84 million.
– Unit 3 – $80 million.
Net assets and goodwill are allocated equally to the three units and any impairments of goodwill should be charged
to cost of sales.

3 [P.T.O.
Note 2 – Alpha’s investment in Gamma
On 1 August 2016, Alpha acquired 60 million of the 80 million $1 equity shares in Gamma and gained control of
Gamma. The acquisition was financed as follows:
– Alpha issued two new shares to the former shareholders of Gamma for every three shares Alpha acquired in
Gamma. On 1 August 2016, the fair value of an equity share in Alpha was $4·50.
– Alpha agreed to pay a total of $16·2 million in cash to the former shareholders of Gamma on 31 July 2017.
Alpha’s incremental borrowing rate at 1 August 2016 was 8% per annum.
– Alpha agreed to issue additional shares in Alpha to the former shareholders of Gamma on 30 September 2019
if the cumulative profits of Gamma for the three-year period from 1 August 2016 to 31 July 2019 exceed a target
amount. On 1 August 2016, the fair value of this contingent equity consideration was $26 million.
Alpha has not yet accounted for this acquisition in its individual financial statements. However, you can assume that
no impairment of the goodwill on acquisition of Gamma is necessary in the consolidated financial statements of Alpha
for the year ended 31 March 2017. Alpha has resolved to use the proportion of net assets method for measuring the
non-controlling interest when recognising the goodwill on the acquisition of Gamma.
On 1 August 2016, the fair values of the net assets of Gamma were the same as their carrying amounts in the
financial statements of Gamma with the exception of:
– Land – whose fair value exceeded the carrying amount by $30 million.
– Plant and equipment – whose fair value exceeded the carrying amount by $12 million. The estimated remaining
useful life of the plant and equipment of Gamma at 1 August 2016 was five years.
All depreciation of property, plant and equipment is charged to cost of sales. You can assume that the profit of Gamma
for the year ended 31 March 2017 accrued evenly over the year.
Note 3 – Intra-group trading
Alpha supplies a component used by both Beta and Gamma. Alpha earns a profit margin of 20% on these supplies.
Details of the sales of the component, and the holdings of inventory of the component by group entities, are as follows:
Beta Gamma
$’000 $’000
Sales of the component (for Gamma all sales since 1 August 2016) 20,000 10,000
––––––– –––––––
Inventory of component at 31 March 2016 (at cost to Beta/Gamma) 4,000 Nil
––––––– –––––––
Inventory of component at 31 March 2017 (at cost to Beta/Gamma) 6,000 4,800
––––––– –––––––
Note 4 – Decommissioning provision
On 1 April 2016, Alpha completed the construction of an energy generating facility and brought the facility into use
immediately. The cost of construction of the facility was included in property, plant and equipment and was also
appropriately depreciated over the useful life of the facility, which was estimated at 16 years at 1 April 2016. At the
end of the useful life of the facility, Alpha has an obligation to decommission the facility and restore its location to its
former condition. The estimated cost of this decommissioning and restoration is $8 million, payable on 31 March
2032. The directors of Alpha made a provision of $8 million in respect of this liability, and charged $8 million to
administrative expenses in the year ended 31 March 2017. An appropriate discount rate to use in any discounting
calculations is 8% per annum. At 1 April 2016, the present value of $1 payable in 16 years’ time at 8% can be taken
as 30 cents.
Note 5 – Investment income
The investment income which is shown in Alpha’s statement of profit or loss represents dividends received from Beta
and Gamma and also dividends received from a portfolio of other equity investments. This portfolio is classified by
Alpha as fair value through profit or loss. The gain on remeasurement of the portfolio to fair value at 31 March 2017
was $6·5 million. This gain has not yet been recognised in the financial statements of Alpha.

4
Note 6 – Cash flow hedge
On 1 January 2017, Alpha agreed to purchase goods from a foreign supplier. This purchase is due to be made and
paid for on 30 June 2017. The directors of Alpha decided to hedge the cash-flow risk attaching to this future purchase
by entering into a derivative contract and to formally designate the derivative as a hedging instrument. The hedge met
all of the effectiveness requirements for the use of hedge accounting. On 31 March 2017, the derivative had a positive
fair value resulting in a gain to Alpha of $5 million. Between 1 January 2017 and 31 March 2017 the expected cash
flows in respect of the purchase of goods on 30 June 2017 had increased by $4·2 million. Alpha has not made any
accounting entries in respect of this arrangement.

Required:
(a) Using the information in notes 1 and 2, compute the goodwill arising on the acquisitions of Beta and Gamma
in the consolidated financial statements of Alpha. (7 marks)

(b) Prepare the consolidated statement of profit or loss and other comprehensive income of Alpha for the year
ended at 31 March 2017. You do not need to consider the tax effects of any adjustments you make.
(26 marks)

(c) Prepare the summarised consolidated statement of changes in equity of Alpha for the year ended 31 March
2017, including a column for the non-controlling interest. (7 marks)
Note: You should show all workings to the nearest $’000.

(40 marks)

5 [P.T.O.
Diploma in International Financial Reporting June 2017 Answers
and Marking Scheme

Marks
1 (a) Computation of goodwill on acquisition of Beta and Gamma
$’000 $’000 Explanations (where needed)
Beta
Cost of investment:
Cash paid 150,000 ½
Non-controlling interest at the date of acquisition 30,000 20,000 x $1·50 ½
Net assets at the date of acquisition (147,000) ½
––––––––
Goodwill on acquisition of Beta 33,000
––––––––
Gamma
Cost of investment:
Share exchange 180,000 60 million x 2/3 x $4·50 1
Deferred cash consideration 15,000 $16·2 million/1·08 – the present
value of the cash payable 1
Contingent consideration 26,000 Measured at fair value at the date
–––––––– of acquisition ½
221,000
Non-controlling interest at the date of acquisition 55,500 20/80 x $222 million (net assets
of Gamma at date of acquisition –
see below) 1
––––––––
276,500
Net assets at the date of acquisition
At 1 April 2016 166,500 As per Gamma’s financial
statements ½
Profits to 31 July 2016 13,500 4/12 x $40·5 million (the profit for
the year to 31 March 2017) 1
Fair value uplifts 42,000 $30 million + $12 million as per
–––––––– note 2 ½
(222,000)
––––––––
Goodwill on acquisition of Gamma 54,500
–––––––– –––
7
–––

11
 Marks
(b) Consolidated statement of profit or loss and other comprehensive income of Alpha for the year
ended 31 March 2017
$’000
Revenue (W1) 858,000 1 (W1)
Cost of sales (W2) (503,110) 9½ (W2)
––––––––
Gross profit 354,890
Distribution costs (26,000 + 20,000 + 18,000 x 8/12) (58,000) ½
Administrative expenses (W5) (82,000) 1½
Investment income (W6) 8,100 2½ (W6)
Other income (W7) 800 1 (W7)
Finance costs (W8) (56,992) 3 (W8)
––––––––
Profit before tax 166,798
Income tax expense (24,000 + 14,000 + 8/12 x 13,500) (47,000) ½
––––––––
Profit for the year 119,798
Other comprehensive income:
Items that will be reclassified to profit and loss
Effective portion of gains on derivatives classified as cash flow hedges 4,200 1
––––––––
Total comprehensive income for the year 123,998
––––––––
Profit attributable to:
Owners of Alpha (balancing figure) 105,848 ½
Non-controlling interest (W9) 13,950 3½ (W9)
––––––––
119,798
––––––––
Total comprehensive income attributable to:
Owners of Alpha (balancing figure) 110,048 ½
Non-controlling interest (as above) 13,950 1
––––––––
123,998
–––––––– –––
26
–––

(c) Consolidated statement of changes in equity of Alpha for the year ended 31 March 2017
Alpha group Non-controlling Total
interest
$’000 $’000 $’000
At 1 April 2016 (W10/11) 286,000 (W10) 39,200 (W11) 325,200 2 (W10) + 1 (W11)
Increase due to acquisition (W12) 206,000 55,500 261,500 1½ (W12)
Comprehensive income for the year 110,048 13,950 123,998 ½+½
Dividends paid (W13) (40,000) (7,600) (W13) (47,600) ½ + 1 (W13)
–––––––– –––––––– ––––––––
At 31 March 2017 562,048 101,050 663,098
–––––––– –––––––– –––––––– –––
7
–––
40
–––

12
 Marks
WORKINGS – DO NOT DOUBLE COUNT MARKS. ALL NUMBERS IN $’000 UNLESS
OTHERWISE STATED.
Working 1 – Revenue
$’000
Alpha + Beta + 8/12 x Gamma 888,000 ½
Intra-group revenue (20,000 + 10,000) (30,000) ½
–––––––– –––
858,000 1
–––––––– –––
Working 2 – Cost of sales
$’000
Alpha + Beta + 8/12 x Gamma 527,000 ½
Intra-group purchases (as W1) (30,000) ½
Unrealised profit:
Closing inventory (20% x (6,000 + 4,800)) 2,160 ½+½
Opening inventory (20% x 4,000) (800) ½+½
Impairment of Beta goodwill (W3) 3,000 3½ (W3)
Extra depreciation on fair value adjustments:
Plant and equipment (12,000 x 1/5 x 8/12) 1,600 1
Extra depreciation of capitalised provision (W4) 150 2 (W4)
–––––––– –––
503,110 9½
–––––––– –––
Working 3 – Impairment of Beta goodwill
Unit 1 Unit 2 Unit 3 Total
$’000 $’000 $’000 $’000
Net assets at 31 March 2017 (as per
SOCIE) 72,000 72,000 72,000 216,000 ½
Allocated goodwill 11,000 11,000 11,000 33,000 ½
––––––– ––––––– ––––––– ––––––––
83,000 83,000 83,000 249,000 ½
Recoverable amount 87,000 84,000 80,000 ½
––––––– ––––––– ––––––– ––––––––
So impairment equals Nil Nil 3,000 3,000 ½+½+½
––––––– ––––––– ––––––– –––––––– ––––––––
3½ ⇒ W2
––––––––
Working 4 – Provision
$’000
Provision required at 1 April 2016 (8,000 x 0·30) 2,400 1
––––––
So extra depreciation (1/16) equals 150 1
–––––– –––
2 ⇒W2
–––
Working 5 – Administrative expenses
$’000
Alpha + Beta + 8/12 x Gamma 90,000 ½
Reversal of incorrectly charged provision (8,000) 1
––––––– –––
82,000 1½
––––––– –––
Working 6 – Investment income
$’000
Alpha 28,000 ½
Intra-group dividends eliminated: ½
– Beta (80% x 18,000) (14,400) ½
– Gamma (paid post-acquisition – 75% x 16,000) (12,000) ½
Gain on remeasurement of FVTPL investments 6,500 ½
––––––– –––
8,100 2½
––––––– –––
Working 7 – Other income
$’000
Ineffective portion of cash flow hedge (5,000 – 4,200) 800 1

13
 Marks
Working 8 – Finance cost
$’000
Alpha + Beta + 8/12 x Gamma 56,000 ½
Finance cost on deferred consideration (15,000 (part(a)) x 8% x 8/12) 800 1½
Finance cost on decommissioning provision (2,400 (W4) x 8%) 192 1
––––––– –––
56,992 3
––––––– –––
Working 9 – Non-controlling interest in profit
Beta Gamma (8/12) Total
$’000 $’000 $’000
Profit after tax 41,000 27,000 ½+½
Impairment of Beta goodwill (W3) (3,000) ½
Extra depreciation – Gamma (W2) (1,600) ½
––––––– –––––––
Relevant profit 38,000 25,400 ½
––––––– ––––––– –––––––
Non-controlling interest (20%/25%) 7,600 6,350 13,950 ½+½
––––––– ––––––– ––––––– –––––
3½
–––––
Working 10 – Opening equity – Alpha group
$’000
Alpha 250,000 ½
Beta: 80% x (193,000 – 147,000) 36,800 ½+½
Unrealised profit on opening inventory (W2) (800) ½
–––––––– –––
286,000 2
–––––––– –––
Working 11 – Opening non-controlling interest (in Beta)
$’000
At date of acquisition (part (a)) 30,000 ½
Increase since acquisition: 20% (193,000 – 147,000) 9,200 ½
––––––– –––
At start of the year 39,200 1
––––––– –––
Working 12 – Increase to equity as a result of the acquisition of Gamma
$’000
Equity shares issued (part (a)) 180,000 ½
Contingent equity consideration (part (a)) 26,000 ½
––––––––
So group element equals 206,000 1
Non-controlling interest in Gamma at the date of acquisition (part (a)) 55,500 ½
–––––––– –––
So total increase equals 261,500 1½
–––––––– –––
Working 13 – Dividends paid to non-controlling interest
$’000
Beta (18,000 x 20%) 3,600 ½
Gamma (16,000 x 25%) 4,000 ½
–––––– –––
Total 7,600 1
–––––– –––

2 (a) It would appear that the lease of the asset to entity X is a finance lease. This is because entity X is
responsible for repairs, maintenance and insurance of the asset and because the present value of
the minimum lease payments by entity X is $760,000 (200,000 x $3·80). This is 98·6% of the 1 (for decision)
fair value of the asset at the inception of the lease ($771,000). + 2 (for reasons)
Because the lease is a finance lease, Delta will show a lease receivable – net investment in finance
leases under non-current assets. 1 (principle of this)
The carrying amount of the lease receivable on 1 April 2016 will be $791,000 ($771,000 +
$20,000). 1
During the year ended 31 March 2017, Delta will recognise income from finance leases in the 1 (principle)
statement of profit or loss. The amount recognised will be $79,100 ($791,000 x 10%). + 1 (calculation)

14
ALL FOUR questions are compulsory and MUST be attempted

1 Alpha holds investments in a number of entities, including Beta and Gamma. The statements of profit or loss and
other comprehensive income and summarised statements of changes in equity of the three entities for the year ended
31 March 2018 were as follows:
Statements of profit or loss and other comprehensive income
Alpha Beta Gamma
$’000 $’000 $’000
Revenue (Note 4) 628,000 560,000 450,000
Cost of sales (Notes 1, 2 and 4) (378,000) (335,000) (270,000)
–––––––– –––––––– ––––––––
Gross profit 250,000 225,000 180,000
Distribution costs (38,000) (34,000) (27,000)
Administrative expenses (Notes 5 and 7) (64,000) (56,000) (51,000)
Investment income (Note 6) 32,000 Nil Nil
Finance costs (30,000) (20,000) (18,000)
–––––––– –––––––– ––––––––
Profit before tax 150,000 115,000 84,000
Income tax expense (38,000) (29,000) (21,000)
–––––––– –––––––– ––––––––
Profit for the year 112,000 86,000 63,000
Other comprehensive income:
Items that will not be reclassified to profit or loss
Re-measurement gain/loss on defined benefit
retirement pension plan (Note 7) Nil Nil Nil
–––––––– –––––––– ––––––––
Total comprehensive income 112,000 86,000 63,000
–––––––– –––––––– ––––––––
Summarised statements of changes in equity
Balance on 1 April 2017 420,000 280,000 180,000
Comprehensive income for the year 112,000 86,000 63,000
Dividends paid on 31 December 2017 (42,000) (32,000) (21,000)
–––––––– –––––––– ––––––––
Balance on 31 March 2018 490,000 334,000 222,000
–––––––– –––––––– ––––––––
Note 1 – Alpha’s investment in Beta
On 1 April 2011, Alpha acquired 75 million of the 100 million equity shares of Beta and gained control of Beta. Alpha
acquired the equity shares in Beta by issuing one new share in Alpha for every two acquired in Beta. On 1 April 2011,
the fair value of an equity share in Alpha was $4·40.
On 1 April 2011, the net assets of Beta had a fair value of $200 million, all of which had been disposed of, or settled
by, 31 March 2017.
Alpha used the proportion of net assets method for measuring the non-controlling interest when recognising the goodwill
on acquisition of Beta. No impairments of goodwill on acquisition of Beta have been necessary in the consolidated
financial statements of Alpha up to and including 31 March 2017.
Beta is a single cash generating unit. On 31 March 2018, the annual impairment review indicated that the recoverable
amounts of the net assets, including goodwill, of Beta at that date were $350 million. Any impairments of goodwill
should be charged to cost of sales.
Note 2 – Alpha’s investment in Gamma
On 1 April 2012, Alpha acquired 40 million of the 50 million equity shares in Gamma and gained control of Gamma.
Alpha paid $145 million in cash for the equity shares.
On 1 April 2012, the carrying amounts of the net assets of Gamma in its individual financial statements were
$150 million and their fair values were $170 million. The differences were caused by:

3 [P.T.O.
– Property – whose fair value exceeded the carrying amount by $12 million. $8·4 million of this difference referred
to the depreciable component of this property. The estimated useful life of the depreciable component of the
property at 1 April 2012 was eight years.
– Plant and equipment – whose fair value exceeded the carrying amount by $8 million. The estimated remaining
useful life of the plant and equipment of Gamma at 1 April 2012 was four years.
All depreciation of property, plant and equipment is charged to cost of sales.
Alpha used the fair value method for measuring the non-controlling interest when recognising the goodwill on acquisition
of Gamma. The fair value of an equity share in Gamma on 1 April 2012 was $3·50. This can be used to measure the
fair value of the non-controlling interest in Gamma on 1 April 2012.
No impairments of goodwill on acquisition of Gamma have been necessary in the consolidated financial statements of
Alpha up to and including 31 March 2017.
Note 3 – Disposal of shares in Gamma
On 30 November 2017, Alpha disposed of its entire equity shareholding in Gamma for a cash consideration of
$196 million. Income tax payable on this disposal is expected to be $5 million. On 30 November 2017, Alpha credited
the disposal proceeds to a suspense account and has made no other accounting entries. You can assume that the
profits of Gamma for the year ended 31 March 2018 accrued evenly.
Note 4 – Intra-group trading
Alpha supplies a component which has been used by both Beta and Gamma. Alpha applies a mark-up of one-third to
the cost of these supplies when computing the sales price. Details of sales of the component to Beta and Gamma in
the current accounting period, and the holdings of inventory of the component by two entities, are as follows:
Beta Gamma
$’000 $’000
Sales of the component (for Gamma all sales before 30 November 2017) 25,000 15,000
––––––– –––––––
Inventory of component at 31 March 2017 (at cost to Beta/Gamma) 4,800 4,000
––––––– –––––––
Inventory of component at 31 March 2018 (at cost to Beta) 6,400 Nil
––––––– –––––––
Note 5 – Leased asset
On 1 April 2017, Alpha began to lease a property. The lease term was for five years. The lease does not transfer
ownership of the property to Alpha at the end of the lease term. Alpha does not have an option to purchase the property
at the end of the lease term. The estimated useful life of the property at 1 April 2017 was 20 years. Rentals payable by
Alpha for the use of the property were $1 million per annum, payable annually in arrears. Alpha incurred direct costs
of $100,000 in arranging to lease the property. In the year ended 31 March 2018, Alpha charged both the annual
rental of $1 million and the direct costs of $100,000 to administrative expenses.
The rate of interest implicit in this lease is 7% per annum. The present value of $1 payable for five years annually in
arrears at a discount rate of 7% is $4·10.
All depreciation should be charged to cost of sales.
Note 6 – Investment income
The investment income, which is shown in Alpha’s statement of profit or loss, represents dividends received from its
subsidiary entities and also income arising from a portfolio of loan investments. This portfolio is classified by Alpha as
fair value through other comprehensive income. The gain on re-measurement of the portfolio to fair value at 31 March
2018 was $5·6 million. This gain has not yet been recognised in the financial statements of Alpha.
Note 7 – Retirement benefit plan
Alpha has established a defined benefit plan for its workforce. Relevant details are as follows:
– The net defined benefit obligation at 31 March 2017 was $2·5 million.
– The net defined benefit obligation at 31 March 2018 was $4 million.
– The current service cost for the year ended 31 March 2018 was $5 million.
– The contributions paid by Alpha into the plan during the year ended 31 March 2018 were $4·8 million.

4
– The benefits paid out by the plan to retired members during the year ended 31 March 2018 were $2·5 million.
– On 1 April 2017, the market yield on high quality corporate bonds was 5% per annum.
In the year ended 31 March 2018, Alpha charged the contributions paid to administrative expenses but made no other
accounting entries. The post-employment plans for the employees of Beta and Gamma are defined contribution plans.
The relevant accounting entries in the financial statements of both Beta and Gamma are both correct.

Required:
Prepare the consolidated statement of profit or loss and other comprehensive income of Alpha for the year ended
at 31 March 2018. You do not need to consider the deferred tax effects of any adjustments you make.
Note: You should show all workings to the nearest $’000.

(40 marks)

5 [P.T.O.
Diploma in International Financial Reporting June 2018 Answers
and Marking Scheme

Marks
1 Consolidated statement of profit or loss and other comprehensive income of Alpha for the year ended
31 March 2018
$’000
Revenue (W1) 1,448,000 1 (W1)
Cost of sales (W2) (856,940) 11½ (W2)
––––––––––
Gross profit 591,060
Distribution costs (38,000 + 34,000 + 27,000 x 8/12) (90,000) ½
Administrative expenses (W6) (153,100) 2½ (W6)
Investment income (W7) 8,000 1½ (W7)
Profit on disposal of Gamma (W8) 4,560 10 (W8)
Finance costs (W12) (62,412) 2½ (W12)
––––––––––
Profit before tax 298,108
Income tax expense (W13) (86,000) 1
––––––––––
Profit for the year 212,108
Other comprehensive income:
Items that will not be reclassified to profit or loss
Re-measurement loss on defined benefit retirement pension plan (W14) (1,175) 3½ (W14)
Items that may be reclassified subsequently to profit or loss
Gains on the re-measurement of financial assets classified as fair value through
other comprehensive income 5,600 1
––––––––––
Total comprehensive income for the year 216,533
––––––––––
Profit attributable to:
Owners of Alpha (balancing figure) 182,348 ½
Non-controlling interest (W15) 29,760 3 (W15)
––––––––––
212,108
––––––––––
Total comprehensive income attributable to:
Owners of Alpha (balancing figure) 186,773 ½
Non-controlling interest (as above) 29,760 1
––––––––––
216,533
–––––––––– –––––
40
–––––

WORKINGS – ALL NUMBERS IN $’000 UNLESS OTHERWISE STATED.

Working 1 – Revenue
$’000
Alpha + Beta + 8/12 x Gamma 1,488,000 ½
Intra-group revenue (25,000 + 15,000) (40,000) ½
–––––––––– –––––
1,448,000 1
–––––––––– –––––
Working 2 – Cost of sales
$’000
Alpha + Beta + 8/12 x Gamma 893,000 ½
Intra-group purchases (as W1) (40,000) ½
Unrealised profit:
Closing inventory (1/4 x 6,400 ) 1,600 ½
Opening inventory (1/4 x (4,800 + 4,000) (2,200) ½+½
Impairment of Beta goodwill (W3) 3,000 5½ (W3)
Extra depreciation on fair value adjustments:
Property (8,400 x 1/8 x 8/12) 700 ½+½+½
Depreciation of ‘right of use asset’ (W5) 840 2 (W5)
––––––––– ––––––
856,940 11½
––––––––– ––––––

11
 Marks
Working 3 – Impairment of Beta goodwill
$’000
Net assets at 31 March 2018 (as per SOCIE) 334,000 ½
Goodwill arising on acquisition (W4) 15,000 3 (W4)
Notional grossing up of goodwill for impairment purposes (15,000 x 25/75) 5,000 ½
––––––––
354,000 ½
Recoverable amount (350,000) ½
––––––––
So impairment equals 4,000
––––––––
Recognise group share only (75%) 3,000 ½
–––––––– –––––
5½
–––––
⇒W2
Working 4 – Goodwill arising on acquisition of Beta
$’000
Cost of investment:
Shares issued: (75,000 x ½ x $4·40) 165,000 ½+½+½
Non-controlling interest at date of acquisition (200,000 x 25%) 50,000 1
Net assets at date of acquisition (200,000) ½
–––––––– –––––
So goodwill equals 15,000 3
–––––––– –––––
⇒W3
Working 5 – Depreciation of right of use asset
$’000
Present value of minimum lease payments (1,000 x $4·10) 4,100 1
Direct costs of arranging lease 100 ½
––––––
4,200
––––––
Depreciation (4,200 x 1/5) 840 ½
–––––– –––––
2
–––––
⇒W2
Working 6 – Administrative expenses
$’000
Alpha + Beta + 8/12 x Gamma 154,000 ½
Reversal of incorrectly charged defined benefit plan contribution (4,800) ½
Current service cost (award if alternatively taken to cost of sales) 5,000 ½
Reversal of incorrectly charged lease charges (1,000 + 100) (1,100) ½+½
–––––––– –––––
153,100 2½
–––––––– –––––
Working 7 – Investment income:
$’000
Alpha 32,000 ½
Intra-group dividends eliminated:
– Beta (75% x 32,000) (24,000) ½
– Gamma (paid post-disposal) (nil) ½
––––––– –––––
8,000 1½
––––––– –––––
Working 8 – Profit on disposal of Gamma
$’000
Disposal proceeds 196,000 ½
Net assets of Gamma at date of disposal (W9) (228,050) 4½ (W9)
Goodwill of Gamma at date of disposal (W10) (10,000) 2½ (W10)
Non-controlling interest in Gamma at date of disposal (W11) 46,610 ½ + 2 (W11)
–––––––– –––––
So profit on disposal equals 4,560 10
–––––––– –––––

12
 Marks
Working 9 – Net assets of Gamma at date of disposal
$’000
Net assets at the start of the year (per SOCIE) 180,000 ½
8/12 of profit for the period per accounts of Gamma (63,000 x 8/12) 42,000 1
Remaining fair value adjustments ½
Property [(12,000 – 8,400) + 8,400 x 28/96] 6,050 1+1
Plant and equipment Nil ½
–––––––– –––––
So net assets equals 228,050 4½
–––––––– –––––
⇒W8
Working 10 – Goodwill of Gamma at date of disposal
$’000
Cost of investment in Gamma 145,000 ½
Non-controlling interest in Gamma at date of acquisition (10,000 x $3·50) 35,000 1
Fair value of net assets at date of acquisition: (170,000) ½+½
–––––––– –––––
So goodwill on acquisition equals 10,000 2½
–––––––– –––––
⇒W8
Working 11 – Non-controlling interest in Gamma at date of disposal
$’000
Non-controlling interest at date of acquisition (W10) 35,000 ½
Increase since acquisition (20% (228,050 (W9) – 170,000 (W10))) 11,610 ½+½+½
––––––– –––––
So non-controlling interest on disposal equals 46,610 2
––––––– –––––
⇒W8
Working 12 – Finance cost
$’000
Alpha + Beta + 8/12 x Gamma 62,000 ½
Finance cost on leased asset (4,100 (W5) x 7%) 287 ½+½
Unwinding of discount on net pension liability (2,500 x 5%) 125 ½+½
––––––– –––––
62,412 2½
––––––– –––––
Working 13 – Income tax expense
$’000
Alpha + Beta + 8/12 x Gamma 81,000 ½
Income tax payable on the disposal of Gamma 5,000 ½
––––––– –––––
86,000 1
––––––– –––––
Working 14 – Re-measurement gain on defined benefit retirement pension plan
$’000
Net pension liability on 1 April 2017 2,500 ½
Current service cost 5,000 ½
Unwinding of discount (W12) 125 ½
Contributions (4,800) ½
Benefits paid to retired members (cancels) Nil ½
––––––
2,825
Actuarial loss (balancing figure) 1,175 ½
––––––
Net pension liability on 31 March 2018 4,000 ½
–––––– –––––
3½
–––––
Working 15 – Non-controlling interest in profit
Beta Gamma (8/12) Total
$’000 $’000 $’000
Profit after tax 86,000 42,000 ½+½
–––––––
Extra depreciation – Gamma (W2) (700) ½
–––––––
Relevant profit 86,000 41,300 ½
––––––– –––––––
Non-controlling interest (25%/20%) 21,500 8,260 29,760 ½+½
––––––– ––––––– ––––––– –––––
3
–––––
13
ALL FOUR questions are compulsory and MUST be attempted

1 Alpha has one subsidiary, Beta. The draft statements of profit or loss for both entities for the year ended 31 March 20X7
are given below:
Alpha Beta
$’000 $’000
Revenue (notes 3 and 4) 400,000 280,000
Cost of sales (notes 1–3) (240,000) (170,000)
–––––––– ––––––––
Gross profit 160,000 110,000
Distribution costs (40,000) (25,000)
Administrative expenses (note 5) (50,000) (29,000)
Investment income (note 6) 45,000 nil
Finance costs (35,000) (20,000)
–––––––– ––––––––
Profit before tax 80,000 36,000
Income tax expense (25,000) (12,000)
–––––––– ––––––––
Profit for the year 55,000 24,000
–––––––– ––––––––
Note 1 – Alpha’s investment in Beta
On 1 April 20X5, Alpha acquired 90 million of Beta’s 120 million issued equity shares for a cash payment of
$327 million. On 1 April 20X5, the directors of Alpha measured the non-controlling interest in Beta using Alpha’s
proportionate share of the net assets of Beta at that date.
On 1 April 20X5, the net assets of Beta as shown in the individual financial statements of Beta totalled $380 million.
The directors of Alpha carried out a fair value exercise to measure the fair value of the identifiable assets and liabilities
of Beta at 1 April 20X5. The following matters emerged:
– Plant and equipment having a carrying amount of $120 million had an estimated fair value of $140 million. The
estimated remaining useful life of this plant at 1 April 20X5 was four years.
– A brand name relating to Beta had a fair value of $30 million. This brand name was not recognised in the
individual financial statements of Beta as it was internally developed. The directors of Alpha considered that the
useful life of this brand name was 10 years from 1 April 20X5.
– A contingent liability relating to a pending legal case was disclosed in the notes to the financial statements of Beta
at 1 April 20X5. This contingent liability had a fair value of $15 million at 1 April 20X5. The contingency was
settled during the year ended 31 March 20X6.
The fair value adjustments have not been reflected in the individual financial statements of Beta. The fair value
adjustments are temporary differences which attract deferred tax at a rate of 20%.
All depreciation and amortisation of non-current assets is to be charged to cost of sales in the consolidated financial
statements.
On 1 April 20X5, Alpha made a loan to Beta of $200 million. The loan carried an annual interest rate of 10%. Interest
is payable annually in arrears and the loan is repayable by Beta on 31 March 20X9. The loan interest payable on
both 31 March 20X6 and 31 March 20X7 was paid by Beta on the due date and recognised by Alpha as investment
income.
Note 2 – Impairment review of goodwill on acquisition of Beta
The goodwill on acquisition of Beta was reviewed for impairment on 31 March 20X6 and no impairment was considered
necessary. On 31 March 20X6, the individual financial statements of Beta showed net assets of $390 million.
Beta paid a dividend of $12 million on 1 March 20X7 (see note 6).
Beta is a single cash-generating unit for impairment purposes. On 31 March 20X7, the estimated recoverable amount
of Beta as a single cash-generating unit was $448 million.
Any impairment of goodwill should be charged to cost of sales.

3 [P.T.O.
Note 3 – Intra-group trading
Alpha provides Beta with a product which Beta uses as a raw material in its production process. Sales of the product by
Alpha to Beta for the year ended 31 March 20X7 totalled $30 million. Alpha supplies this product to Beta at a mark-up
of 20% on its cost of production.
On 31 March 20X7, the inventories of Beta included $6 million in respect of raw materials supplied by Alpha. On
31 March 20X6, the equivalent figure in the inventories of Beta was $4·8 million.
Any adjustments for unrealised profits are temporary differences which attract deferred tax at a rate of 20%.
Note 4 – Alpha revenue
On 1 October 20X6, Alpha sold a machine to a customer for a total sales price of $27 million. The terms of the sale
were that Alpha would provide the customer with a three-year service warranty. The service warranty covered all repairs
which might be necessary should the machine break down in the three-year period. The normal selling price of the
machine without the inclusion of any service warranty would have been $24 million. Alpha would normally charge a
customer a total of $6 million to provide a three-year service warranty covering breakdown costs on a machine of this
nature.
On 1 October 20X6, Alpha recognised revenue of $27 million and charged the cost of manufacture to cost of sales. Any
costs incurred by Alpha under the service warranty arrangements during the period from 1 October 20X6 to 31 March
20X7 were charged as cost of sales. The service warranty arrangement does not represent an onerous contract for
Alpha at 31 March 20X7.
Note 5 – Research and development project
On 1 April 20X6, Alpha began a research project. The aim of the project was to investigate ways of streamlining its
production process. The initial costs of setting up the project were $5 million. From 1 April 20X6 to 30 June 20X6
ongoing project costs were $500,000 per month. On 1 July 20X6, the project was considered to be technically feasible
and commercially viable and from this date project costs increased to $600,000 per month. The project was completed
on 31 December 20X6 and the new production process began to be used from 1 January 20X7. The new process
is likely to produce economic benefits for Alpha for five years from 1 January 20X7. Alpha charged all the costs to
complete the project to administrative expenses.
Note 6 – Alpha’s investment income
The figure for investment income in the consolidated financial statements of Alpha comprises:
$’000
Dividend received from Beta (note 2) 9,000
Interest received from Beta (note 1) 20,000
Dividend received from investment in Gamma (note 7) 4,500
Dividends received from portfolio of equity investments (note 8) 11,500
–––––––
45,000
–––––––
Note 7 – Alpha’s investment in Gamma
On 1 October 20X6, Alpha purchased 18% of the equity shares of Gamma at a cost of $102 million. No other single
shareholder owns more than 5% of Gamma’s equity shares and there are no agreements in place for any of the other
equity shareholders to collaborate to influence Gamma’s operating or financial policies. Alpha has the right to appoint
four of the ten directors of Gamma.
Gamma prepares financial statements to 31 March 20X7 and its profit before tax for the year ended 31 March 20X7
was $78 million. Its income tax expense for that year was $6 million. Gamma’s profits accrue evenly.
Gamma paid a dividend of $25 million on 1 March 20X7.
Alpha’s investment in Gamma has not suffered any impairment since 1 October 20X6.
Note 8 – Alpha’s portfolio of equity investments
Alpha’s portfolio of equity investments is held for short-term trading. During the year ended 31 March 20X7, Alpha
made additional purchases at a total cost of $8·5 million which were added to the portfolio. During the year ended
31 March 20X7, Alpha received $7 million from the proceeds of sale of investments from the portfolio. These proceeds

4
were deducted from the carrying amount of the portfolio. On 31 March 20X6, the fair value of the portfolio was
$75 million and this amount was recognised in the financial statements of Alpha at that date. On 31 March 20X7, the
fair value of the portfolio was $84 million. No adjustments have yet been made to the financial statements of Alpha to
reflect this change in fair value.

Required:
(a) Explain how Alpha should classify its investment in Gamma (note 7) in its consolidated financial statements
for the year ended 31 March 20X7. (2 marks)

(b) Compute the carrying amount of Alpha’s investment in Gamma (note 7) in its consolidated statement of
financial position at 31 March 20X7. Ignore deferred tax. (2 marks)

(c) Prepare the consolidated statement of profit or loss of Alpha for the year ended 31 March 20X7. Unless
specifically referred to in the notes, ignore deferred tax. (36 marks)
Note: You should show all workings to the nearest $’000.

(40 marks)

5 [P.T.O.
Diploma in International Financial Reporting (Dip IFR) June 2019 Answers
and Marking Scheme

Marks
1 (a) Based on the information supplied in the question, Alpha’s investment in Gamma will give Alpha
significant influence over the operating and financial policies of Gamma. 1
When a reporting entity has an investment which gives it significant influence, but not control, over
the investee entity then, according to the requirements of IAS® 28 – Investment in Associates – the
investment is recognised as an associate in the consolidated financial statements. 1
–––––
2
–––––

(b) The carrying amount of Alpha’s investment in Gamma in its consolidated statement of financial
position at 31 March 20X7 will be:
$’000 $’000
Cost 102,000 ½
Share of post-acquisition profits:
6/12 of profit after tax (78,000 – 6,000) 36,000 ½
18% x 36,000 = 6,480 ½
Dividend received (4,500) ½
–––––––– –––––
So carrying amount equals 103,980 2
–––––––– –––––

(c) Alpha – Consolidated statement of profit or loss for the year ended 31 March 20X7 – all numbers
in $’000
$’000
Revenue (W1) 645,500 4½
Cost of sales (W3) (395,280) 17
––––––––
Gross profit 250,220
Distribution costs (40,000 + 25,000) (65,000) ½
Administrative expenses (W7) (75,400) 1½
Investment income (W8) 19,000 4½
Finance costs (35,000 + 20,000 – 20,000) (35,000) 1
Share of profits of Gamma (W10) 6,480 1
––––––––
Profit before tax 100,300
Income tax expense (W11) (35,360) 2½
––––––––
Profit for the year 64,940
––––––––
Profit for the year attributed to:
Shareholders of Alpha (balancing figure) 60,540 ½
Non-controlling interest (W12) 4,400 2½
––––––––
64,940 ½
–––––––– –––––
36
–––––
40
–––––
WORKINGS – ALL NUMBERS IN $’000
Working 1 – Revenue
$’000
Alpha + Beta 680,000 ½
Intra-group sales (30,000) ½
Adjustment to Alpha revenue (W2) (4,500) 3½ (W2)
–––––––– –––––
645,500 4½
–––––––– –––––

15
 Marks
Working 2 – Adjustment to Alpha revenue
$’000
Total revenue to be recognised 27,000 ½
Sum of the stand-alone selling prices of the components (24,000 + 6,000) 30,000 ½
Allocate transaction price based on stand-alone prices 90% ½
Revenue from sale of goods (recognise in full) = 24/30 x 27,000 21,600 ½
Revenue from rendering of services (recognise 6/36) = 6/30 x 27,000 x 6/36 900 1
–––––––
22,500
–––––––
Revenue adjustment equals (27,000 – 22,500) 4,500 ½
–––––––
–––––
3½
–––––
⇒ W1
Working 3 – Cost of sales
$’000
Alpha + Beta 410,000 ½
Intra-group purchases (30,000) ½
Unrealised profit on closing inventory (6,000 x 20/120) 1,000 1
Unrealised profit on opening inventory (4,800 x 20/120) (800) ½
Additional depreciation on fair value adjustment to plant (20,000 x ¼) 5,000 1
Additional amortisation on fair value adjustment to brand (30,000 x 1/10) 3,000 1
Amortisation of development costs (3,600 (W7) x 1/5 x 3/12) 180 1½
Impairment of goodwill (W4) 6,900 11
–––––––– –––––
395,280 17
–––––––– –––––
Working 4 – Impairment of goodwill on acquisition of Beta at 31 March 20X7
$’000
Net assets of Beta per consolidated financial statements (W5) 429,200 4½ (W5)
Goodwill on acquisition of Beta (W6) 21,000 4½ (W6)
Notional grossing (25/75) up for impairment review purposes 7,000 1
––––––––
457,200
Recoverable amount of Beta – a single cash-generating unit (448,000) ½
––––––––
So gross impairment at 31 March 20X7 9,200
––––––––
Amount recognised in the consolidated statement of profit or loss (75%) 6,900 ½
––––––––
–––––
11
–––––
Working 5 – Net assets of Beta at 31 March 20X7 per the consolidated financial statements
$’000
Net assets of Beta per own financial statements at 31 March 20X6 390,000 ½
Profit of Beta for the year ended 31 March 20X7 24,000 ½
Less dividend paid during the year (9,000 x 100/75) (12,000) 1
––––––––
Net assets of Beta per own financial statements at 31 March 20X7 402,000
Residual impact of fair value adjustments at 31 March 20X7:
– Plant and equipment (20,000 x 2/4) 10,000 1
– Brand (30,000 x 8/10) 24,000 1
– Deferred tax on fair value adjustments (20% x 34,000) (6,800) ½
–––––––– –––––
Net assets of Beta per consolidated financial statements at 31 March 20X7 429,200 4½
–––––––– –––––
⇒ W4

16
 Marks
Working 6 – Goodwill on acquisition of Beta
$’000 $’000
Cost of investment in Beta 327,000 ½
Net assets of Beta at date of acquisition:
Per own financial statements 380,000 ½
Fair value adjustments:
Plant and equipment (140,000 – 120,000) 20,000 ½
Brand 30,000 ½
Contingent liability (15,000) ½
Deferred tax on fair value adjustments
(20%(20,000 + 30,000 – 15,000)) (7,000) 1
––––––––
(408,000)
Non-controlling interest at date of acquisition: 102,000 1
(25% x 408,000 – ½ for group structure)
–––––––– –––––
So goodwill on acquisition equals 21,000 4½
–––––––– –––––
⇒ W4
Working 7 – Administrative expenses
$’000
Alpha + Beta 79,000 ½
Development costs incorrectly charged to profit or loss (600,000 x 6) (3,600) 1
––––––– –––––
75,400 1½
––––––– –––––
Working 8 – Investment income
$’000
Alpha + Beta 45,000 ½
Dividends and interest from Beta excluded (½ for each exclusion) (29,000) 1
Dividend from Gamma excluded (4,500) 1
Adjustment for fair value change (W9) 7,500 2
––––––– –––––
19,000 4½
––––––– –––––
Working 9 – Adjustment for fair value of trading portfolio
$’000
Fair value of portfolio at 1 April 20X6 75,000 ½
Purchases during the period 8,500 ½
Proceeds of disposals during the period (7,000) ½
–––––––
76,500
Gain on revaluation to fair value (balancing figure) 7,500 ½
––––––– –––––
Fair value of portfolio on 31 March 20X7 84,000 2
––––––– –––––
⇒ W8
Working 10 – Share of profits of Gamma
$’000
Share of profits as computed in part (a) (½ for principle + ½ for OF) 6,480 1
–––––
Working 11 – Income tax expense
$’000
Alpha + Beta 37,000 ½
Deferred tax movements on fair value adjustments (20% x (5,000 +
3,000 – see W3)) (1,600) 1
Deferred tax movements on unrealised profit adjustments (20% x
(1,000 – 800 – see W3)) (40) 1
––––––– –––––
35,360 2½
––––––– –––––

17
 Marks
Working 12 – Non-controlling interest in profit of Beta
$’000
Profit after tax of Beta 24,000 ½
Adjustment re: plant and machinery depreciation (5,000) ½
Adjustment re: brand amortisation (3,000) ½
Deferred tax impact (see W11 above) 1,600 ½
–––––––
17,600
–––––––
Non-controlling interest = 25% x 17,600 4,400 ½
–––––––
–––––
2½
–––––

2 Note 1 – Sale and leaseback

Because the sale of the building by Gamma satisfies the requirements in IFRS® 15 – Revenue from
Contracts with Customers – Gamma will de-recognise the building on 1 April 20X6. 1
Gamma will recognise a ‘right of use asset’ on 1 April 20X6. 1
The right of use asset will be measured as a percentage of the previous carrying amount of $1 million
which relates to the right of use retained by Gamma. This percentage is 25·27% ($379,100/$1·5 million).
This means that the carrying amount of the right of use asset will be $252,700 ($1 million x 25·27%). 2
The gain on sale of property to be recognised in Gamma’s statement of profit or loss is restricted to the
rights transferred to entity A. The total gain is $500,000 ($1·5m – $1m). The percentage of this gain to
be recognised is 74·73% (100% – 25·27%). This means that the gain which will be recognised will be
$373,650 ($500,000 x 74·73%). 2
The right of use asset will be depreciated over the lease term, which is five years. Therefore depreciation
of $50,540 ($252,700 x 1/5) will be charged in the statement of profit or loss. 2
The statement of financial position at 31 March 20X7 will show a right of use asset of $202,160
($252,700 – $50,540) under non-current assets. 1
Gamma will show a finance cost of $37,910 ($379,100 x 10%) in the statement of profit or loss for the
year ended 31 March 20X7. 1
The closing lease liability will be $317,010 ($379,100 + $37,910 – $100,000). 1
The amount of the overall liability which is current will be $68,299 ($100,000 – {$317,010 x 10%}).
The balance of the liability of $248,711 ($317,010 – $68,299) will be non-current. 1
–––––
12
–––––
Tutorial note: The amount of the gain on sale which is recognised by Gamma could alternatively be
computed as follows:
(The fair value of the asset – the lease liability)
The total gain x –––––––––––––––––––––––––––––––––––––––
The fair value of the asset
In this case this would give:
$500,000 x (($1,500,000 – $379,100)/$1,500,000) = $373,633 (difference to above $373,650 due
solely to rounding)
Candidates who adopt an approach of this nature will receive full credit.

Note 2 – New machine

The machine would originally be recognised in the financial statements on 1 April 20X6 using the rate of
exchange in force at that date (3 dinars to $1). Therefore the initial carrying amount of the machine would
be $300,000 (900,000/3). This will also be the initially recognised amount of the associated liability. 1
When the liability is settled on 30 June 20X6, Gamma will have to pay $360,000 (900,000/2·5). The
difference of $60,000 ($360,000 – $300,000) between the original liability and the settlement amount
will be an exchange loss which will be recognised in the statement of profit or loss as an operating
expense. 2
Because the machine is a non-monetary item which is measured under the cost model, its carrying amount
will not be affected by future currency fluctuations. 1
Because part of the machine will need to be replaced after four years, depreciation needs to be accounted
for by splitting the asset into two depreciable components. 1

18
ALL FOUR questions are compulsory and MUST be attempted

1 Alpha, a parent company with one subsidiary, Beta, is preparing the consolidated statement of profit or loss and
other comprehensive income for the year ending 31 March 20X5. The draft statements of profit or loss and other
comprehensive income are as follows:
Alpha Beta
$’000 $’000
Revenue (Note 2) 64,800 39,000
Cost of sales (Notes 2 and 4) (26,000) (16,000)
––––––– –––––––
Gross profit 38,800 23,000
Distribution costs (5,000) (2,000)
Administrative expenses (9,000) (3,500)
Investment income (Notes 1 and 3) 7,000 0
Finance costs (Note 1) (4,000) (2,500)
––––––– –––––––
Profit before tax 27,800 15,000
Income tax expense (7,000) (4,000)
––––––– –––––––
Profit for the year 20,800 11,000
––––––– –––––––
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Gains on property revaluation (Note 4) 5,000 3,000
––––––– –––––––
Other comprehensive income for the year: 5,000 3,000
––––––– –––––––
Total comprehensive income for the year 25,800 14,000
–––––––
––––––– –––––––
–––––––
Note 1 – Alpha’s investment in Beta
On 1 April 20X3, Alpha acquired 180 million equity shares in Beta. On that date Beta had 200 million equity shares
in issue. Alpha made a cash payment of $60 million to the former shareholders of Beta on 1 April 20X3 and agreed to
make a further payment of $26·62 million on 31 March 20X6.
Alpha had correctly accounted for the deferred payment in its financial statements for the year ended 31 March 20X4
but has made no further entries in its financial statements for the year ended 31 March 20X5. An appropriate annual
rate to use in any discounting calculations is 10%. At a discount rate of 10% per annum the present value of $1
payable in three years is $0·7513.
On 31 December 20X4, Beta paid a dividend of $5 million. This was the only dividend paid by Beta in the year ended
31 March 20X5 and was appropriately recognised by Alpha.
On 1 April 20X3, Alpha made a long-term loan to Beta of $25 million. The loans are included in the financial
statements of Beta at this amount. These long-term loans attract interest at an annual rate of 8%. Both Alpha and Beta
have correctly accounted for this interest in their individual financial statements for the year ended 31 March 20X5.
No impairments of the goodwill on acquisition of Beta have been evident up to and including 31 March 20X5.
Note 2 – Intra-group trading
Alpha supplies Beta with a raw material which it uses in its production process. Alpha applies a mark-up of one-third
to its cost. Sales of the raw material by Alpha to Beta in the year ended 31 March 20X5 totalled $10 million. On
31 March 20X4 and 20X5, the inventories of Beta included goods costing $2 million and $3 million respectively which
had been purchased from Alpha.
Note 3 – Alpha’s other investments
Apart from its investments in the equity shares and loans of Beta, Alpha has a portfolio of equity investments which
are correctly classified as fair value through profit or loss. The investment income of Alpha for the year ended 31 March
20X5 currently correctly includes dividend income from this portfolio. However, the carrying amount of the portfolio
has not yet been adjusted to its fair value at 31 March 20X5. On 31 March 20X5, the carrying amount of the portfolio
was $32 million and its fair value $33·5 million.

2
Note 4 – Revaluation of property, plant and equipment (PPE)
Both Alpha and Beta measure their PPE using the revaluation model. PPE is re-measured at the end of each financial
year.
In previous periods Alpha had recorded net revaluation losses of $3·5 million. These losses were correctly accounted
for under the requirements of IAS® 16 – Property, Plant and Equipment.
In the financial statements of Alpha for the year ended 31 March 20X5, re-measurement gains of $5 million were
entirely recognised in other comprehensive income. These gains related to the same properties which had previously
suffered revaluation losses.
Beta has only ever recorded revaluation gains. All depreciation and impairments of PPE are recognised in cost of sales.
Note 5 – Equity settled share based payment scheme
On 1 April 20X3, Alpha granted 500 senior executives 4,000 share options each. The options vest on 31 March
20X7. The options only vest for senior executives who remain employed by Alpha on 31 March 20X7. The following
information is relevant:
Date Fair value of option Number of executives for whom
($) the option is expected to vest
1 April 20X3 1·20 400
31 March 20X4 1·35 420
31 March 20X5 1·50 450
This transaction was correctly accounted for in the financial statements of Alpha for the year ended 31 March 20X4 and
the cost was recognised as an administrative expense. However, no further entries have yet been made in the financial
statements for the year ended 31 March 20X5.

Required:
Prepare the consolidated statement of profit or loss and other comprehensive income of Alpha for the year ended
31 March 20X5. Where relevant you should round all figures to the nearest $’000.
Note: Ignore deferred tax.

(25 marks)

3 [P.T.O.
Diploma in International Financial Reporting (Dip IFR) June 2020 Answers
and Marking Scheme

Marks
1 Consolidated statement of profit or loss and other comprehensive income of Alpha for the year ended
31 March 20X5
(Note: All figures below in $’000)
$’000
Revenue (W1) 93,800 1
Cost of sales (W2) (28,750) 4½
–––––––
Gross profit 65,050 ½
Distribution costs (5,000 + 2,000) (7,000) ½
Administrative expenses (W3) (13,076) 4
Investment income (W5) 2,000 4
Finance costs (W6) (6,700) 4
–––––––
Profit before tax 40,274 ½
Income tax expense (7,000 + 4,000) (11,000) ½
–––––––
Profit for the year 29,274 ½
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Gains on property valuation (W8) 4,500 1½
Other comprehensive income for the year:
–––––––
Total comprehensive income for the year 33,774 ½
–––––––
Profit for the year attributable to:
Shareholders of Alpha (balancing figure) 28,174 ½
Non-controlling interest in Beta (10% x 11,000) 1,100 1
–––––––
29,274
–––––––
Total comprehensive income for the year attributable to:
Shareholders of Alpha (balancing figure) 32,374 ½
Non-controlling interest in Beta (W9) 1,400 1
––––––– –––
33,774 25
––––––– –––
WORKINGS – DO NOT DOUBLE COUNT MARKS. ALL NUMBERS IN $’000 UNLESS OTHERWISE
STATED.
Working 1 – Revenue
$’000
Alpha + Beta (64,800 + 39,000) 103,800 ½
Intra-group sales (10,000) ½
–––––––– –––
93,800 1
–––––––– –––
Working 2 – Cost of sales
$’000
Alpha + Beta (26,000 + 16,000) 42,000 ½
Intra-group purchases (10,000) ½
Unrealised profit on closing Beta inventory (33/133 x 3,000) 750 ½+½+½
Unrealised profit on opening Beta inventory (33/133 x 2,000) (500) ½+½
Cumulative prior year revaluation deficit written back due to current year revaluation gain (3,500) 1
––––––– –––
28,750 4½
––––––– –––
Working 3 – Administrative expenses
$’000
Alpha + Beta (9,000 + 3,500) 12,500 ½
Charge for equity settled share-based payment (W4) 576 3½
––––––– –––
13,076 4
––––––– –––

11
 Marks
Working 4 – Charge for equity settled share-based payment
$’000
Cumulative charge for the two years to 31 March 20X5 (450 x 4,000 x $1·20 x 2/4) 1,080 2
Charged in the year ended 31 March 20X4 (420 x 4,000 x $1·20 x ¼) (504) 1
––––––
So charge for the year ended 31 March 20X5 equals 576 ½
–––––– –––
3½
–––
→ W3
Working 5 – Investment income
$’000
Alpha + Beta 7,000 ½
Intra-group interest eliminated (25,000 x 8%) (2,000) 1
Intra-group dividend eliminated (5,000 x 90%) (4,500) 1
––––––
So dividend income from investment portfolio equals 500 ½
Gain on re-measurement of investment portfolio (33,500 – 32,000) 1,500 1
–––––– –––
2,000 4
–––––– –––
Working 6 – Finance costs
$’000
Alpha + Beta (4,000 + 2,500) 6,500 ½
Intra-group interest eliminated (give OF credit here) (2,000) ½
Finance cost on deferred consideration (W7) 2,200 3 (W7)
–––––– –––
6,700 4
–––––– –––
Working 7 – Finance cost on deferred consideration
$’000
Deferred consideration on 1 April 20X3 (26,620 x 0·7513) 20,000 1
Finance cost for y/e 31 March 20X4 (20,000 x 10%) 2,000 1
–––––––
Deferred consideration at 31 March 20X4 22,000 ½
–––––––
So finance cost for y/e 31 March 20X5 equals (22,000 x 10%) 2,200 ½
––––––– –––
3
–––
→ W6
Working 8 – Revaluation gains
$’000
Alpha + Beta (5,000 + 3,000) 8,000 ½
Portion of Alpha gain credited to profit or loss (3,500) 1
–––––– –––
So adjustment equals 4,500 1½
–––––– –––
Working 9 – Total comprehensive income attributable to NCI
$’000
NCI in profit (give OF credit here) 1,100 ½
NCI in Beta’s revaluation gain (3,000 x 10%) 300 ½
–––––– –––
1,400 1
–––––– –––

2 Note 1 – Impairment of goodwill

Under the principles of IFRS® 3 – Business Combinations – the goodwill on acquisition of subsidiary X is
the sum of the purchase consideration plus the non-controlling interest less the fair value of the identifiable
net assets at the date of acquisition. ½ (principle)
In this acquisition, the non-controlling interest is measured using the proportionate share of net assets
method, as permitted by IFRS 3. This means that the non-controlling interest at the date of acquisition is
$27 million ($108 million x 25%). ½
The goodwill arising on acquisition is therefore $18 million ($99 million + $27 million – $108 million). ½
IAS® 36 – Impairment of Assets – requires that goodwill is tested annually for impairment as part of the
cash-generating unit(s) to which it relates. ½

12
December 2021
Alpha, a parent with one subsidiary, Beta, is preparing the consolidated statement of profit or loss
and other comprehensive income for the year ended 30 September 20X5.
Note 1 - Alpha’s investment in Beta

Note 2 - Intra-group trading – details of trading between Alpha and Beta.

Note 3 - Alpha’s hedging transactions – details of Alpha’s hedging of foreign currency
transactions.

Requirements
Diploma in International Financial Reporting (Dip IFR) December 2021 Sample Answers
and Marking Scheme

Marks
1 Consolidated statement of profit or loss and other comprehensive income of Alpha for the year ended
30 September 20X5
[NB: all figures below in $’000]
$’000
Revenue (290,000 + 240,000 – 20,000) 510,000 ½+½
Cost of sales (W1) (253,840) 12½ (W1)
––––––––
Gross profit 256,160
Other income (W6) 6,100 2½ (W6)
Distribution costs (15,000 + 12,000) (27,000) ½
Administrative expenses (55,000 + 50,000 – 6,000 (management charge)) (99,000) ½+½
Finance costs (30,000 + 28,000) (58,000) ½
Other expenses (1,000) ½
––––––––
Profit before tax 77,260
Income tax expense (W7) (17,700) 1½ (W7)
––––––––
Profit for the year 59,560
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges (W8) 29,300 1½ (W8)
––––––––
Total comprehensive income for the year 88,860
––––––––
Profit for the year attributable to:
Shareholders of Alpha (balancing figure) 57,800 ½
Non-controlling interest (W9) 1,760 2 (W9)
––––––––
59,560
––––––––
Total comprehensive income for the year attributable to:
Shareholders of Alpha (88,860 – 1,760) 87,100 ½
Non-controlling interest 1,760 ½
–––––––– –––––
88,860 25
–––––––– –––––
DO NOT DOUBLE COUNT MARKS. ALL NUMBERS IN $’000 UNLESS OTHERWISE STATED.
Working 1 – Cost of sales
$’000
Alpha + Beta (130,500 + 132,000) 262,500 ½
Intra-group purchases (20,000) ½
Unrealised profit (25% x 3,200) 800 ½
Fair value adjustments:
Plant (18,000 x 1/6) 3,000 ½
Patent (20,000 x 1/10) 2,000 ½
Inventory 1,500 ½
Impairment of goodwill (W2) 4,040 9½ (W2)
–––––––– –––––
253,840 12½
–––––––– –––––
Working 2 – Impairment of Beta goodwill
$’000
Net assets of Beta on 30 September 20X5 (W3) 210,400 3 (W3)
Grossed up goodwill (15,720 (W5) x 100/80) 19,650 4 (W5) + 1
––––––––
230,050
Recoverable amount (225,000) ½
––––––––
So gross impairment equals 5,050 ½
––––––––
Only recognise group share (80%) 4,040 ½
–––––––– –––––
9½
–––––
⇒ W1

3
 Marks
Working 3 – Net assets of Beta at 30 September 20X5
$’000
Net assets of Beta per own financial statements (W4) 184,000 1½ (W4)
Closing fair value adjustments:
Plant (18,000 x 5/6) 15,000 ½
Patent (20,000 x 9/10) 18,000 ½
Related deferred tax (20% x (15,000 + 18,000)) (6,600) ½
–––––––– –––––
Net assets of Beta per consolidated financial statements 210,400 3
–––––––– –––––
⇒ W2
Working 4 – Net assets of Beta per own financial statements
$’000
Net assets at 30 September 20X4 (given) 180,000 ½
Profit for the year to 30 September 20X5 per own financial statements 14,000 ½
Dividend paid during the year ended 30 September 20X5 (10,000) ½
–––––––– –––––
Net assets at 30 September 20X5 184,000 1½
–––––––– –––––
⇒ W3
Working 5 – Goodwill of Beta
$’000 $’000
Cost of investment:
Immediate cash payment 185,000 ½
Non-controlling interest at the date of acquisition:
20% x 211,600 (see below) 42,320 ½+½
Net assets at the date of acquisition:
As per financial statements of Beta 180,000 ½
Fair value adjustments:
PPE 18,000 ½
Patent 20,000 ½
Inventory 1,500 ½
Related deferred tax (20% x (18,000 + 20,000 + 1,500)) (7,900) ½
––––––––
(211,600)
–––––––– –––––
15,720 4
–––––––– –––––
⇒ W2
Working 6 – Other income
$’000
Alpha + Beta 20,000 ½
Dividend received by Alpha from Beta (10,000 x 80%) (8,000) ½
Management charge from Alpha to Beta (6,000) ½
Ineffective portion of cash flow hedge on Contract A (5,600 – 5,500) 100 1
––––––– –––––
6,100 2½
––––––– –––––
Working 7 – Income tax expense
$’000
Alpha + Beta 19,000 ½
Deferred tax on fair value adjustments (20% x (3,000 + 2,000 + 1,500 (W1))) (1,300) 1
––––––– –––––
17,700 1½
––––––– –––––
Working 8 – Cash flow hedges
$’000
Alpha – per draft financial statements 18,000 ½
Gain on effective portion of hedging derivative for commitment due on:
Contract A 5,500 ½
Contract B 5,800 ½
––––––– –––––
29,300 1½
––––––– –––––
Tutorial note: The portion of the gain or loss on the derivative contract which is effective (up to the value
of the loss or gain on the future commitment cash flow) is recognised in other comprehensive income
(cash flow hedge reserve). Any excess which is ineffective is recognised immediately in profit or loss (other
income) – Contract A ($5,600 – $5,500 = $100 (W6)).
4
 Marks
Working 9 – Non-controlling interest
$’000
Profit of Beta – per draft financial statements 14,000 ½
Fair value adjustments to profit before tax (3,000 + 2,000 + 1,500 (W1)) (6,500) ½
Related deferred tax (20%) 1,300 ½
–––––––
8,800
–––––––
Non-controlling interest (20%) 1,760 ½
––––––– –––––
2
–––––

2 (a) (i) Disposal of subsidiary

Under the principles of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations
– Subsidiary A will be regarded as a discontinued operation by the Gamma group. This is
because subsidiary A is a component of the group which has been disposed of during the period
and which represents a separate major line of the business for the group. Gamma is completely
withdrawing from this sector. 1
IFRS 5 requires that the Gamma group discloses a single amount in the statement of
profit or loss and other comprehensive income comprising the post-tax profit or loss of
subsidiary A for the period up to the date of disposal and the post-tax profit or loss on the
disposal of subsidiary A. This single amount is required to be analysed in further detail but this 3
analysis can be shown in the notes to the financial statements. (6 x ½ mark)
The post-tax profit or loss of subsidiary A for the year to the date of disposal will be $4·4 million
($6·6 million x 8/12). Given that subsidiary A was a 75% subsidiary, $1·1 million ($4·4 million
x 25%) of this amount will be attributed to the non-controlling interests in subsidiary A. 1+½+½
The consolidated post-tax profit on disposal will be $16·9 million (W1). 5½ (W1)
The total amount to be shown as a discontinued operation will be $21·3 million ($4·4 million +
$16·9 million). ½
–––––
12
–––––
Working 1 – Profit on disposal of subsidiary A
$’000
Disposal proceeds 75,000 ½
Net assets at date of disposal (62,000 + 6,600 x 8/12 – 3,600) (62,800) ½+½+½
Unimpaired goodwill at date of disposal (40,000 + 13,000 – 48,000) (5,000) ½+½+½
Non-controlling interest at date of disposal (13,000 + 25% (62,800 – 48,000)) 16,700 ½+1
Tax payable by Gamma on the disposal (7,000) ½
––––––– –––––
16,900 5½
––––––– –––––
(ii) Construction of power plant
Although Gamma has no legal obligation to rectify the environmental damage caused by the
construction of the power plant, under the principles of IAS 37 – Provisions, Contingent Liabilities
and Contingent Assets – Gamma has a constructive obligation to rectify the damage. This is
because, by its past actions, Gamma has created a valid expectation that it will do so at the end
of the power plant’s life. ½+½+½
Under the principles of IAS 37, the provision will be measured at the present value of the future
expected payment. The amount will be $4·2 million ($20 million x 0·21 (W1)). ½ + 1 (W1)
As the date for payment of the liability approaches, the discount unwinds. The unwinding of the
discount is shown as a finance cost in the consolidated statement of profit or loss for the year
ended 30 September 20X5. (principle) ½
The relevant finance cost in this case will be for seven months – from the date construction of
the asset is complete. (principle) ½
Therefore the finance cost for the year ended 30 September 20X5 will be $196,000
($4·2 million x 8% x 7/12 (W1)). 1
The closing provision will be $4,396,000 ($4·2 million + $196,000 (W1)). This will be shown
as a non-current liability in the consolidated statement of financial position of Gamma as at
30 September 20X5. ½ (W1) + ½

5
December 2023
Alpha, a parent with two subsidiaries, Beta and Gamma, is preparing the consolidated
statement of profit or loss for the year ended 31 December 20X9.
Note 1. Alpha’s investment in Beta – details of Alpha’s investment in Beta.

Note 2. Alpha’s investment in Gamma – details of Alpha’s investment in Gamma

and subsequent disposal of shares on 31 August 20X9.
Note 3. Other information – details of intra-group trading and information on
the investment income.

Requirements
Diploma in International Financial Reporting (Dip IFR) June 2023 Sample Answers

1 Consolidated statement of profit or loss for Alpha for the year ended 31 December 20X9

$’000
Revenue (W1) 2,173,000
Cost of sales (W2) (602,600)
––––––––––
Gross profit 1,570,400
Operating expenses (679,000 + 59,000) (738,000)
––––––––––
Operating profit 832,400
Investment income (128,000 – 80% x 51,000 + 75% x 67,000) 36,950
Finance costs (30,000 + 8,000) (38,000)
––––––––––
Profit before tax 831,350
Income tax expense (280,000 + 19,000) (299,000)
––––––––––
Profit for the year from continuing operations 532,350
Profit from discontinued operations (W5 – 1 mark for principle) 165,469
––––––––––
Profit for the year 697,819
––––––––––
Attributable to:
Shareholders of Alpha (balancing figure) 664,656
Non-controlling interest (W10) 33,163
––––––––––
697,819
––––––––––
$’000
Shareholders of Alpha:
Profit for the period from continuing operations (532,350 – 12,400 (see below)) 519,950
Profit for the period from discontinuing operations (165,469 – 20,763 (see below)) 144,706
––––––––
664,656
––––––––
Non-controlling interests:
Profit for the period from continuing operations (62,000 x 20%) 12,400
Profit for the period from discontinuing operations ((84,000 – 950 (W5)) x 25%) 20,763
––––––––
33,163
––––––––
Workings
Working 1 – Revenue
$’000
Alpha + Beta ($1,935,000 + $280,000) 2,215,000
Intra-group revenue (42,000)
––––––––––
2,173,000
––––––––––
Working 2 – Cost of sales
$’000
Alpha + Beta ($495,000 + $132,000) 627,000
Intra-group purchases (42,000)
Unrealised profit (1/4 x $19,200) 4,800
Impairment of Beta goodwill (W4) 12,800
––––––––
602,600
––––––––
Working 3 – Goodwill on acquisition of Beta
$’000
Cost of investment (80m/2 = 40m x $3·20) 128,000
NCI (20% x $100m) 20,000
Less fair value of net assets at date of acquisition (100,000)
––––––––
Goodwill on acquisition 48,000
––––––––

3
Working 4 – Impairment of goodwill in Beta
$’000
Net assets at 31 December 20X9 191,000
Add goodwill (grossed up $48 million (W3) x 100/80) 60,000
––––––––
Total 251,000
Recoverable amount 235,000
––––––––
Impairment 16,000
––––––––
Group share (80%) 12,800
––––––––
Working 5 – Profit from discontinued operation
$’000
Profit of Gamma to 31 August 20X9 ($126,000 x 8/12) 84,000
Fair value adjustment to profit ($11·4m x 1/8 x 8/12) (950)
Gain on disposal of Gamma (W6) 120,419
Tax on gain on disposal (38,000)
––––––––
Profit from discontinued operation 165,469
––––––––
Working 6 – Gain or loss on disposal of Gamma
$’000
Disposal proceeds 330,000
Less net assets at date of disposal (W7) (237,775)
Less goodwill at date of disposal (W8) (20,500)
Add NCI at date of disposal (W9) 48,694
––––––––
120,419
––––––––
Working 7 – Net assets of Gamma on date of disposal
$’000
At 1 January 20X9 211,000
Profit to date of disposal ($126,000 x 8/12 – OF rule applies from W5) 84,000
Dividend paid 30 June 20X9 (67,000)
Fair value adjustment to property:
Depreciable component ($11·4m x 52/96) 6,175
Non-depreciable component ($15m – $11·4m) 3,600
––––––––
237,775
––––––––
Working 8 – Goodwill of Gamma at date of disposal
$’000
Cost of investment 95,000
NCI in Gamma at date of acquisition (2·5m x $4·20) 10,500
Less fair value of net assets of Gamma at date of acquisition (85,000)
–––––––
20,500
–––––––
Working 9 – NCI in Gamma at date of disposal
$’000
NCI at date of acquisition (W8) 10,500
25% of movement since acquisition ($237,775 (W7) – $85,000) 38,194
–––––––
48,694
–––––––
Working 10 – Non-controlling interest
$’000
Beta – 20% x $62,000 12,400
Gamma – 25% x ($84,000 – $950) (W5 – OF rule applies here) 20,763
–––––––
33,163
–––––––