Head Limited sold off its entire shareholding of 80% in Shoulder Limited and acquired 75% of the shares of Stem Limited during the year ended...

Head Limited sold off its entire shareholding of 80% in Shoulder Limited and acquired 75% of the shares of Stem Limited during the year ended 30 September 2010. Head Limited also acquired 40% of the shares of Angle Limited.
The following income statements relate to the four companies:

Additional information:
1. Head Limited had acquired it s shareholding in Shoulder Limited at a cost of Sh 2200 million on 1 October 2007 when the retained earnings of Shoulder Limited were Sh.500 million. The ordinary share capital of Shoulder Limited was Sh. 2,000 million and there were no other reserves. The fair value of the non-controlling interest in Shoulder Limited on the same date was Sh.550 million.
2. During the year ended 30 September 2010, Head Limited acquired the investment in Stem Limited and Angle Limited. The details of the acquisitions are as follows:

On the date of its acquisition, Stem Limited had an item of plant that was Sh.270 million below its fair value. Plant is depreciated at 20% per annum with a full year’s charge in the year of purchase or revaluation.
3. On 1 July 2010, Head Limited sold its investment in Shoulder Limited at a price of Sh.3,430 million. This disposal has not been reflected in the income statement of Head Limited.
4. During the year, the companies traded as follows:

5. Goodwill of Shoulder Limited had been impaired by half as at 1 October 2009. Any goodwill arising in Stem Limited and Angle Limited is impaired by 20%.
6. All dividends were paid on 31 August 2010.

Required:
a) The group income statement for the year ended 30 September 2010.
b) The statement of changes in equity showing only the retained profits column.

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Kavungya answered the question on December 10, 2021 at 10:25

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