Topic list Syllabus reference

Summary

Exam focus point
In retrospect, it may have been unwise for Yogi Co to sell the most profitable part of its business at what appears to be a very low price. It has coincided with a remarkable deterioration in profitability (not solely due to the sale) and the proceeds of the disposal have not been used to replace capacity or improve long-term prospects. By returning a substantial proportion of the sale proceeds to shareholders, it represents a downsizing of the business.
The 20-mark group accounts preparation questions will not include disposals of subsidiaries, but aspects of this can be tested elsewhere in the exam, including, as here, in the interpretation questions.
There are additional issues to be considered when calculating and analysing ratios based on consolidated financial statements. These are non-controlling interest, goodwill and the investment in associate. It is also necessary to consider the effects of consolidation adjustments. These matter because they may distort a ratio, and it may be necessary to strip out such adjustments in order to see the picture more clearly.
For illustration purposes we will use the amended consolidated financial statements of a company called Hydan Co which has one subsidiary, Systan Co, and for our purposes, one associate.


$'000 103,200 (77,500) 25,700 (20,175)
150
(420) 250 5,505 (3,200) 2,305
CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 JUNE 20X5
Revenue
Cost of sales
Gross profit
Operating expenses
Interest receivable
Finance costs
Share of profit of associates
Profit before tax
Income tax expense
Profit for the year
BPPf?
I ! ARI¹. VJ
$'000
Profit attributable to:
Owners of the parent 1,755
Non-controlling interest 550
2,305
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 20X5
$'000
Non-current assets
Property, plant and equipment 28,800
Goodwill 3,025
Investment in associate 1,200
Current assets 24,000
Total assets 57,025
Equity and liabilities
Equity attributable to owners of the parent
Ordinary shares of $1 each 10,000

Presentation of published financial statements 1
11AS1 Presentation of Financial Statements 2
11AS 8 Accounting Policies, Changes in Accounting Estimates and Errors 302
11AS 33 Earnings per Share 322

Current liabilities 14,300
Total equity and liabilities 57,025