Question 1 (30 marks)

1. On 1 October 2013 P Ltd acquired 30% of the equity shares of A Ltd at a cost
of $7.50 per share in cash when the retained earnings of A Ltd stood at
$11,000.

2. On 1 October 2013, S acquired 80% of the share capital in SS Ltd for a cash
consideration of $8,000,000.

3. On 1 October 2014 P Ltd acquired 3 million equity shares in S Ltd by an

exchange of one share in P ltd for every 2 shares in S Ltd plus $1.25 per
acquired share in S Ltd. The market price of each share in P Ltd at the date of
acquisition was $6 and the market price of each share in S Ltd at the date of
acquisition was $3.25.

It should be noted that in the books of P Ltd, only the cash consideration of
the investment in S was recorded. In addition, $500,000 of professional costs
relating to the investment in S Ltd was also included as part of the cost of the
investment.

On 1 October 2014, P Ltd acquired a further tranche of 30% of the equity

shares of A Ltd at a price of $9 per share cash which reflected the fair value of
the share price of A Ltd. The fair value of the identifiable assets and liabilities
of A Ltd at 1 October 2014 reflected the firm’s book values.

4. At the date of acquisition, S Ltd had an intangible asset worth $1,000,000. The
intangible asset has an indefinite life and has not suffered any impairment
since acquisition.

5. On 1 October 2014, P Ltd sold an item of plant to S Ltd at its agreed fair value
of $2.5 million. Its carrying amount prior to sale was $2 million. The estimated
remaining life of the plant at the date of sale was 5 years.

6. During the year ended 30 September 2015, S Ltd sold goods to P Ltd for $2.7
million at a mark up of 50%. P Ltd had a third of the goods still in inventory at
30 September 2015. There were no intra-group receivables and payables at 30
September 2015.

7. The investments in equity instruments (other than those in S Ltd and A Ltd)
have a fair value of $9 million at 30 September 2015.
8. It is group policy to fair value non-controlling interest at the date of
acquisition only when positive goodwill exists. Negative goodwill is expected
to arise on the effective equity share which P Ltd acquired in SS Ltd.

9. The summarised draft statements of financial position of P Ltd, S Ltd and A

Ltd at 30 September 2015 are given below:

P Ltd S Ltd SS Ltd A Ltd

$’000 $’000 $’000 $’000
Non-current assets
Property, Plant and 18,400 10,400 20,000 18,000
equipment
Investments in S Ltd and A
Ltd (note 1 and 24,050
Investment in SS Ltd 8,000
Investments in equity
instruments 7,250
49,700 18,400 20,000 18,000
Current assets
Stocks 6,900 3,200 4,000 3,600
Trade receivables 3,200 1,500 1,000 7,400
Total assets 59,800 23,100 25,000 29,000

Equity and Liabilities

Ordinary shares of $1 10,000 4,000 5,000 4,000
Retained earnings:
At 30.09.2014 26,800 6,000 10,000 16,000
Profit for
Y/E 30.09.2015 10,000 2,900 5,000 5,000

Total equity 46,800 12,900 20,000 25,000

Non-current Liabilities
7% Loan notes 5,000 1,000 0 1,000
Current Liabilities
Trade payables 8,000 9,200 5,000 3,000
Total equity and Liabilities 59,800 23,100 25,000 29,000

Required:

Prepare the consolidated statement of financial position as at 30 September 2015

for the P Group. (30 marks)

End of Question

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Answer

1. P’s Consolidated Statement of Financial Position as at 30 September 2015 (30 marks)

$’000 $’000
Non-current assets
Property, Plant and equipment (-500+100 66400
Goodwill (4500+500+9600+6400 21000
Other intangibles(1000 1000
Investment in Associate(10500-10500 0
Investments in equity instruments(1750+7250 9000
97400
Current assets
Stocks(-300 17400
Trade receivables 13100 30500
Total assets 127900

Equity and Liabilities

Equity Attributable to owners of parent
Ordinary shares of $1 (+1500+10000 11500
Retained earnings(50375 50375
Share premium (7500 7500
69375
Non-controlling Interest(26325 26325
Total equity 95700
Non-current Liabilities
7% Loan notes 7000
Current Liabilities
Trade payables 25200
Total equity and Liabilities 127900

Total marks for balance sheet: 6 marks

2. Group Structure (total 1 mark)

Effective date of control for all subsidiaries: 1 October 2014

Parent Share NCI share Marks

S Ltd 75% 25%
SS Ltd 60% 40%
A Ltd 30% + 30%=60% 40%
3. Breakdown on Investment of P Ltd = 24050 (total 1 mark)

Cash consideration of investment in S Ltd (4000x75%x1.25) + 500 4250

Investment in A Ltd (1st tranche) 4000 x 30% x 7.50 9000
Investment in A Ltd (2nd tranche) 4000 x 30% x 9 10800

4.(a) Goodwill in S and SS(total marks 4)

Goodwill ($000) S SS
Parent NCI Parent NCI
Investment:
S (4250+9000-500) 12750
SS (75% of $8000) or 8000- 6000
2000
FV of NCI
S (1000 shares x $3.25) 3,250
SS(Deemed equal to FVNA) 6000
FV of NAA: S
Share capital 4000
Ret Profits at 1 oct 2014 6000
Other reserves 1000
11000
75%/25% 8250 2750
FV of NAA: SS
Share capital 5000
Ret Profits 10000
15000
60%/40% 9000 6000
Goodwill at 1 Oct 2012 4500 500 (3000) 0
Marks 1 1 1 1
4 (b) Goodwill in A Ltd (subsidiary at 1 October 2014)

Parent NCI
Investment: 60% 40%
30% on 1 october 2014 (30% x 10800
4000 x $9)
FV on 1 oct 2014 of Inestment 10800
on 1 Oct 2013 (30% x 2
4000 x $9)
FV of NCI (40% x 4000 x $9) 14,400
FV of NAA: S
Share capital 4000
Ret Profits at 1 oct 2014 16000
20000
60%/40% 8250 2750
Goodwill at 1 oct 2014 9600 6400
Marks 1 1
5.Investment in Associates (total 2 marks)

Cost of Investment in Ass on 1 October 2013 (1200 shares 9000 Marks

x $7.5)
Share of post-acquisition retained profits (1/10/13-
1/10/14)
30% x 5000 1500
CA at 1 October 2014 10500 2
Deemed sale on 1 October 2014 (10500)
CA at I Oct 2014 0

6. Retained Earnings of S Ltd (total 2 marks)

Balance at 30 Sept 2015 8900 Marks

Add excess depreciation 100 1
Unrealised profit on sale made by S (300) 1
Revised balance at 30 Sept 2013 8700

7. Consolidated Retained Earnings (total 10 marks)

Professional costs w.r.t investment in S ltd (500) 0.5

UP on sale of PPE by P to S (500) 0.5
Changes in FV of P’s equity investments (9000-7250) 1750 0.5
Share of post acquisition profits of the associate 1500 0.5
Retained earnings of P (26800+10000) 36800 0.5
Share of post acquisition profits of S 75%(8700-6000) 2025 0.5
Share of post acquisition profits of SS 60%(15000-10000) 3000 0.5
Share of post acquisition profits of A 60%(21000-16000) 3,000 0.5
Negative goodwill on share purchased by parent in S 3000 0.5
Profit on deemed disposal of Associate (10800-10500) 300 0.5
Total 50375
Total: 5 marks
6. Non Controlling Interest (4 marks)

NCI investment in SS Ltd (25% of 8000) (2000) 0.5

Goodwill attributable to NCI (500+0+6400) 6900 0.5
NCI share of Net assets of S 25% of (4000+8700+1000) 3425 0.5
NCI share of Net assets of SS 40% of (5000+15000) 8000 0.5
NCI share of Net assets of A 40% of (4000+21000) 10000
Total 26325
OR

NCI investment in SS Ltd (25% of 8000) (2000)

FV of NCI at acquisition of S 3250
 FV of NCI at acquisition of SS 6000
FV of NCI at acquisition of A (4000 x 40% x $9) 14400
NCI share of post acquisition retained profits of S 25% of (8700-6000) 675
NCI share of post acquisition retained profits of SS 40% of (15000-10000) 2000
NCI share of post acquisition retained profits of A 40% of (21000-16000) 2000
Total 26325
7. Journal Entries (1 mark for each= MAXIMUM =5marks)

Dr Cr
(a) Cost of Investment in S 9000
(3,000/2*1*6)
Share capital (1500*1) 1500
Share premium 7500

(b) Consolidated RE 500

Investment in S Ltd 500

(c) Intangible assets 1000

Rev reserve at Acq in S 1000

(d) Goodwill in S 500

NCI 500

(e) Dr NCI 2000

Cr Cost of investment 2000

(f) Consolidated RE 500

PPE 500

(g) PPE 100

RE of S 100

(f) RE of S 300
(2700x0.3333x50/150)
Stock 300

(g) Investment in equity 1750

instruments (9000-7250)
Consolidated RE 1750

(i) Investment in Associates 500

Consolidated Retained 500
earnings

(K) Dr Investment in A Ltd on 1 10800

October 2014
Cr Invest in Associate 10500
Cr Profit on deemed 300
disposal of Associate