Question

Introduction Group financial statements are prepared to show the financial position and performance of the parent and its subsidiaries as a single economic unit. A complete set of financial statements is made up of five components, namely Statement of Comprehensive Income, Statement of Changes in Equity Statement of Financial Positions, Statement of Cash Flows, and Notes to Financial Statements Transactions involving all companies within the same group are presented as a single entity Information The Lion Group carries on business as a distributor of building materials into the country. Lion was incorporated in 2011 to distribute building materials. It diversified its activities during 2013 to include the import and distribution of water meter and expanded its operations by the acquisition of shares in Leo in 2015 and in Tiger in 2017 Accounts for all companies are made up to 31 December The draft income statements for Lion, Leo Tiger and Cat for the year ended 31 December 2019 are as follows Lion Leo Tiger Cat RM'000 RM'000 RM'000 RM'000 Revenue 45.600 24.700 22,800 610 Cost of Sales (18,050) (5.463) (5 320) (310) Gross profit 27.550 19,237 17,480 300 Distribution costs (3,325) (2,137) (1,900) (70) Administrative expenses (3,475) (950) (1.900) (10) Finance costs (325) Profit before lax 20.425 16,150 13.680 Income tax expense (8300) (5 390) (4,241) (120) Profit for the year 12,125 10.760 9,439 100 220 The draft statements of financial position as at 31 December 2019 are as follows - 35,483 24 273 13.063 270 Non-current assets Property, plant and equipment (NBV) Investments Shares in Leo Shares in Tiger 6,650 3,800 200 Current assets Total Assets 1,568 43,701 9,025 37,098 8.883 21.946 470 Equity RM1 ordinary shares Retained earnings 8,000 22,638 3.000 24.075 2,000 19,898 100 300 13,063 10.023 48 70 Current liabilities Total Equity and Liabilities 43,701 37098 21,946

Answer 1

(a) Subsidiary:

(i) A subsidiary is one the is controlled by another entity or parent. Control is established when parent owns at least 50% of the voting shares of the entity.

(ii) If a parent and one of its subsidiaries come to own more than 50% of a company's voting stock, then the third company is also a subsidiary.

Lion in Leo = owns 90% of its share its capital (27/30). Leo is a subsidiary of Lion (>50%)

Leo in Tiger = owns 80% of its share capital (16/20). Tiger is a subsidiary of Leo. (>50%)

Lion in Tiger = since Leo a direct subsidiary of Lion owns more than 50% in Tiger, Tiger is a indirect subsidiary of Lion ( as per point ii above).

(b) Associate:

An entity on which investor has significant influence but not control or joint control.

A holding of 20% or more of the voting power or more (directly or through subsidiaries) indicate significant influence.

Lion owns 40% in cat thus, Lion and cat are subsidiaries.