1ThefollowingdraftfinancialstatementsrelatetoZambeze,apublic
limitedcompany:DraftGroupBalanceSheetsat30June20062005$
m$mAssets:Non-currentassets:Property,plantandequipment1,3
151,005Goodwill3025Investmentinassociate2702901,615
1,320Currentassets:Inventories650580Tradereceivables61053
0Cashatbankandcashequivalents501401,3101,250Totalasse
ts2,9252,570Equityandliabilities:Sharecapital10085Shar
epremiumaccount3015Revaluationreserve50145Retainedear
nings254250434495Minorityinterest6045Totalequity494
540Non-currentliabilities850600Currentliabilities1,581
1,430Totalliabilities2,4312,030Totalequityandliabilitie
s2,9252,570DraftGroupIncomeStatementfortheyearended30
June2006$mRevenue4,700Costofsales(3,400)Grossprofit1,3
00Distributionandadministrativeexpenses(600)Financecosts(i
nterestpayable)(40)Shareofprofitinassociate30Profitbefo
retax690Incometaxexpense(includingtaxonincomefromassoc
iate$10million)(210)Profitfortheperiod480Attributableto
:Equityholdersoftheparent455Minorityinterest25480DraftG
roupStatementofRecognisedIncomeandExpensefortheyearende
d30June2006$mForeignexchangedifferenceofassociate(5)Impa
irmentlossesonproperty,plantandequipmentoffsetagainstreva
luationsurplus(95)Netexpenserecognisedinequity(100)Profi
tforperiod455Totalrecognisedincomeandexpense355DraftSt
atementofchangesinequityfortheyearended30June2006$mTot
alrecognisedincomeandexpensefortheperiod355Dividendspai
d(446)Newsharesissued30Totalmovementduringtheyear(61)
Shareholders’fundsat1July2005495Shareholders’fundsat30
June2006434ThefollowingrelatestoZambeze:(i)Zambezeacquir
edaseventypercentholdinginDamp,apubliclimitedcompany,
on1July2005.Thefairvaluesofthenetassetsacquiredwerea
sfollows:$mProperty,plantandequipment70Inventoriesandwork
inprogress90160Thepurchaseconsiderationwas$100millionin
cashand$25million(discountedvalue)deferredconsiderationw
hichispayableon1July2006.Thedifferencebetweenthediscou
ntedvalueofthedeferredconsideration($25million)andtheam
ountpayable($29million)isincludedin“interestpayable”.Zam
bezewantstosetupaprovisionforreconstructioncostsof$10
millionretrospectivelyontheacquisitionofDamp.Thisprovisio
nhasnotyetbeensetup.(ii)Therehadbeennodisposalsofpro
perty,plantandequipmentduringtheyear.Depreciationforthe
periodchargedincostofsaleswas$60million.(iii)Currentlia
bilitiescomprisedthefollowingitems:20062005$m$mTradepaya
bles1,3411,200Interestpayable5045Taxation1901851,581
1,430(iv)Non-currentliabilitiescomprisedthefollowing:2006
2005$m$mDeferredconsideration–purchaseofDamp29–Liabil
ityforthepurchaseofProperty,plantandequipment144–Loan
srepayable621555Provisionfordeferredtax3025Retirement
benefitliability2620850600(v)Theretirementbenefitliab
ilitycomprisedthefollowing:$mMovementinyear:Liabilityat1J
uly200520Currentandpastservicecostschargedtoincomestat
ement13Contributionspaidtoretirementbenefitscheme(7)Liab
ility30June200626Therewasnoactuarialgainorlossinthe
year.(vi)Goodwillwasimpairmenttestedon30June2006andany
impairmentwasincludedinthefinancialstatementsfortheyear
ended30June2006.(vii)TheFinanceDirectorhassetupacompan
y,River,throughwhichZambezeconductsitsinvestmentactivitie
s.Zambezehaspaid$400milliontoRiverduringtheyearandthi
shasbeenincludedindividendspaid.Themoneywasinvestedin
aspecifiedportfolioofinvestments.Ninetyfivepercentofthe
profitsandonehundredpercentofthelossesinthespecified
portfolioofinvestmentsaretransferredtoZambeze.Aninvestmen
tmanagerhaschargeofthecompany’sinvestmentsandownsallof
thesharecapitalofRiver.Anagreementbetweentheinvestment
managerandZambezesetsouttheoperatingguidelinesandprohibi
tstheinvestmentmanagerfromobtainingaccesstotheinvestment
sforthemanager’sbenefit.Anannualtransferoftheprofit/los
swilloccuron30Juneannuallyandthecapitalwillbereturned
infouryearstime.Thetransferof$400millioncashoccurredon
1January2006butnotransferofprofit/losshasyetoccurred.
ThebalancesheetofRiverat30June2006isasfollows:River–
Balancesheetat30June2006$mInvestmentatfairvaluethroughp
rofitorloss390390Sharecapital400Retainedearnings(10)390
Required:(a)PrepareagroupcashflowstatementfortheZambeze
Groupfortheyearended30June2006usingtheindirectmethod.
(b)DiscusstheissueswhichwoulddeterminewhetherRivershould
beconsolidatedbyZambezeinthegroupfinancialstatements.An
swer(a)ZambezeGroupGroupStatementofCashFlowsfortheyeare
nded30June2006$m$mCashflowsfromoperatingactivities:Netp
rofitbeforetaxation690Adjustmentsfor:Shareofprofitinasso
ciate(30)Depreciation60Impairmentofgoodwill(Working2)8I
nterestexpense40Retirementbenefitexpense1391Operatingprof
itbeforeworkingcapitalchanges:781Increaseintradereceivab
les(80)Decreaseininventories(650-580-90)20Increaseintrad
epayables14181Cashgeneratedfromoperations:862Interestpai
d(Working5)(31)Incometaxespaid(Working4)(190)Cashpaid
toretirementbenefitscheme(7)(228)Netcashfromoperatingact
ivities:634CashflowsfrominvestingactivitiesAcquisitionofs
ubsidiary(100)Purchaseofproperty,plantandequipment(Workin
g1)(251)DividendsreceivedfromAssociate(Working3)35Inves
tmentinRiver(400)Netcashusedininvestingactivities(716)
Cashflowsfromfinancingactivities:Proceedsfromissueofshare
capital30Increaseinlong-termborrowings66Dividendspaid(W
orking6)(46)Minorityinterestdividends(Working2)(58)Netc
ashusedinfinancingactivities(8)Netdecreaseincashandcas
hequivalents(90)Cashandcashequivalentsatbeginningofperi
od140Cashandcashequivalentsattheendofperiod50Working
1$mTangiblenon-currentassetsBalanceat1July20051,005Impair
mentlosses(95)Depreciation(60)Purchases(bydeduction)395A
cquisition–Damp70Closingbalance1,315Cashflowis$395mill
ionminustheliabilityforProperty,plantandequipmentof$144
million,ie$251million.Working2$mPurchaseofsubsidiary:Neta
ssetsacquired160Group’sshareofnetassets(70%)112Goodwill
13Purchaseconsideration(100+25)125Goodwill:Balanceat1Jul
y200525Goodwillonsubsidiary13Impairment(8)Balanceat30
June200630Minorityinterest:Balanceat1July200545Acquisit
ionofDamp(160x30%)48Profitforyear25Dividend(58)Balan
ceat30June200660Working3$mDividendfromassociate:Balance
at1July2005290Income(netoftax)(30-10)20Foreignexchang
eloss(5)Dividendsreceived(difference)(35)Balanceat30Jun
e2006270Working4$m$mTaxation:Balanceat1July2005Income
tax185Deferredtax25Incomestatements(210–10)200Taxpaid(
difference)(190)Balanceat30June2006Incometax190Deferred
tax30220Working5$mInterestpaid:Balanceat1July200545Inc
omestatement40Unwindingofdiscountonpurchase(4)Cashpaid
(difference)(31)Closingbalanceat30June200650Working6The
cashpaymenttoRivershouldbeshownas“investingactivities”
of$400millionandthedividendpaidwillthenbe$(446-400)mi
llion,ie$46million.(b)Thedefinitionof“control”underpinst
hedefinitionoftheparentandsubsidiaryrelationship.IAS27Co
nsolidatedandseparatefinancialstatementsstatesthatcontrol
ispresumedwhentheparentacquiresmorethanhalfofthevoting
rightsoftheenterprise.Evenwhenmorethanonehalfofthevo
tingrightsisnotacquired,controlmaybeevidencedbypower(I
AS27,para13)(i)overmorethanonehalfofthevotingrightsby
virtueofanagreementwithotherinvestors;or(ii)togovernth
efinancialandoperatingpoliciesoftheotherenterpriseunder
astatuteoranagreement;or(iii)toappointorremovethemajor
ityofthemembersoftheboardofdirectors;or(iv)tocastthe
majorityofvotesatameetingoftheboardofdirectors.IAS27em
phasisesthatthereferencetopowerinthedefinitionof“contro
l”meanstheabilitytodooraffectsomething.Asaresultanen
tityhascontroloveranotherentitywhenithastheabilitytoe
xercisethatpower,regardlessofwhethercontrolisactivelydem
onstratedorpassiveinnature.FurtherSIC12,Consolidation–Sp
ecialPurposeEntitiessaysthatspecialpurposeentities(SPEs)
shouldbeconsolidatedwherethesubstanceoftherelationshipin
dicatesthattheSPEiscontrolledbythereportingenterprise.T
hismayariseevenwheretheactivitiesoftheSPEarepredetermi
nedorwhetherthemajorityofvotingorequityarenotheldbyt
hereportingenterprise.UnderIAS27controlofanentitycomprise
stheabilitytocontroltheentity’sdecisionmakingwithaview
toobtainingbenefitsfromtheentity.Theabilitytocontrolde
cisionmakingaloneisnotsufficienttoestablishcontrolforac
countingpurposesbutmustbeaccompaniedbytheobjectiveofobt
ainingbenefitsfromtheentity’sactivities.Ifacompanyobtain
sthebenefitsofownership,isexposedtotherisksofownership,andcanexercisedecisionmakingpowerstoobtainthosebenefits,thenthecompanymustcontrolthethirdparty.ZambezeshouldconsolidateRiverasZambezecontrolstheitthroughtheoperatingguidelines.Zambezealsoreceives95%oftheprofitsandsuffersallthelossesofRiver.TheguidelinesweresetupwhenRiverwasformedand,therefore,thecompanywassetupasavehiclewiththeobjectiveofkeepingcertaintransactionsoffthebalancesheetofZambeze.TheinvestmentmanagermanagestheinvestmentsofRiverwithintheguidelinesandincursnoriskandreceives5%oftheprofitsforthemanagementservices. |
|
