QUESTION 1

The abbreviated statements of financial position at 31 December 2019 of three companies, Pluto Plc (Pluto), Mickey Plc (Mickey) and Daisy Plc (Daisy) are shown below:

	Pluto		Mickey		Daisy
	m		m		m
Non-current assets
Property, plant and equipment	2,375		1,625		1,375
Intangible assets	675		250		-
Investment in Mickey (cost)	1,300		-		-
Investment in Daisy (cost)			800		-
	4,350		2,675		1,375
Current assets	1,125		1,250		875
Total assets	5,475		3,925		2,250
Equity and reserves
Share capital 1 ordinary shares	1,750		1,250		500
Retained earnings	950		875		600
	2,700		2,125		1,100
Non-current liabilities	1,975		1,500		625
Current liabilities	800		300		525
Total equity and liabilities	5,475		3,925		2,250

QUESTION 1 CONTINUES ON THE NEXT PAGE:-

The following information is relevant:

1. Pluto acquired 60% of the equity shares in Mickey on 1 January 2013 when the retained earnings of Mickey was 300 million.

Mickey acquired a 70% interest in the equity shares of Daisy on 1 April 2014 when the balance on Daisys retained earnings was 150 million.

2. Pluto measures non-controlling interest at full fair value. The table below provides information of the market value of shares in Mickey and Daisy.

	1 Jan 2013	1 Apr 2014
Market share price of Mickey	1.75	2.75
Market share price of Daisy	0.70	0.80

3. A due diligence exercise carried out on the acquisition of shares in Mickey (in January 2013) revealed that all of Mickeys assets and liabilities were stated at fair value with the exception of inventory which had a fair value of 125 million compared to its carrying amount of 80 million.

None of this inventory remains within the group by 31 December 2019.

4. The fair value of the net assets of Daisy on 1 April 2014 were the same as their carrying value with the exception of land which had a fair value of 280 million compared to its book value at cost of 150 million. There have been no revaluations since this date.

5. Goodwill is tested for impairment at each year end. At 31 December 2019, the goodwill of Mickey is impaired by 20 million.

REQUIRED:

1. Prepare the consolidated statement of financial position for the Pluto Group as at 31 December 2019.

Please clearly present all workings.

(15 marks) QUESTION 1 CONTINUES ON THE NEXT PAGE:-

2. Explain what is negative goodwill and the required treatment under International Financial Reporting Standards (IFRS) when the purchased goodwill is calculated as negative.

(5 marks)

Maximum word count 150

3. Mickeys effective interest in the ordinary share capital of Daisy is less than 50%.

Explain the conceptual reasons for the recognition of Daisy as a subsidiary of the group.