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Workings ($000)

1) Investment in Sub
Goodwill
Consideration transferred
Cash
Deferred (5,400 x 1/1.08)
Non controlling interest (2,000 x $3.50)

32,000
5,000
7,000

Fair value of identifiable net assets acquired


Equity shares
(10,000)
Retained earnings (pre)
(12,000)
Fair value adjustment
Plant
(4,000)
Intangibles
(3,000)
15,000
Dr Investment in Sub
Dr Finance cost (RE of P)
(8% x 5,000)
Cr Deferred con.

5,000

Dr PPE
Cr Fair value adj

4,000

Dr Depn (4,000 / 4yrs) (S)


Cr PPE

1,000

400
5,400

4,000

1,000

Addition to PPE : 4,000 - Depn (S) (4,000/ 4yrs = 1,000) = 3,000


Addition to Intangibles : 3,000 - Amo (S) (3,000/ 6yrs = 500) = 2,500

2) Investment in Associate
Goodwill
Consideration transferred
Share of net assets at fair value
Equity shares
10,000.00
Retained earnings (pre)
31,800 + (1,200 x 4/12)
32,200.00

10,000

42,200.00
x 25%
Bargain purchase

(10,550)
(550)

Cr Income (RE of P)
Dr Inv in A

Associate at year end


Cost of investment
(+) Bargain purchase
(+) Share of profit from associate
(8/12 x 1,200) x 25%
(-) Impairment loss

3) Intra group
%
Sales
130
Cost
100
Profit
30

550
550

10,000
550
200
(2,500)
8,250

RE of P
(1,750)

$000
2,600
600

Dr RE of P
Cr Inventory

600
600

4) Group retained earnings as at year end


Paladin (25,700 + 9,200)
(-) Finance cost W1
(-) Associate W2
(-) Unrealised profit W3
Saracen
Post acq
(-) Additional depreciation and amortisation

34,900
(400)
(1,750)
(600)

6,000
(1,500)
4,500
x 80%

5) Non controlling interests as at year end


At acq W1
Share of sub post acq profit (4,500 x 20%) W4

3,600
35,750

7,000
900

7,900

Answer
Paladin
Consolidated statement of financial position as at 30 Sept 2011
$000
$000
Assets
Non current assets
Property, plant and equipment
(40,000 + 31,000 + 3,000 W1)
74,000
Intangibles (7,500 + 2,500 W1)
10,000
Goodwill W1
15,000
Investment in associate W2
8,250
107,250
Current assets
Inventory (11,200 + 8,400 - 600 W3)
19,000
Trade receivables (7,400 + 5,300 - 1,300 intra g 11,400
Bank
3,400
33,800
Total assets
141,050
Equity and liabilities
Equity attributable to owners of Paladin
Equity shares
Retained earnings W4
Non controlling interest W5
Total equity

50,000
35,750
85,750
7,900
93,650

Non current liabilities


Deferred tax (15,000 + 8,000)

23,000

Current liabilities
Bank
Trade payable (11,600 + 6,200 - 1,300 intra
Deferred consideration W1
Total equity and liabilities

2,500
16,500
5,400

24,400
141,050

Workings ($000)
1) Investment in Sub
Goodwill
Consideration transferred
Shares (75% x 8,000 x 3/2 x 3.20)
Contingent
Non controlling interest (4.50 x 2,000)

28,800
4,200
9,000

Fair value of identifiable net assets acquired


Equity shares
(8,000)
Retained earnings (pre)
(16,500)
Fair value adjustment
Factory
(2,000)
Software
500
16,000
(-) Impairment (RE of S)
(3,800)
12,200
Addition to PPE : 2,000 - Depn (S) 100 = 1,900
Increase sub's post acq profit due to software w/off = 500
Dr Contingent con.
Cr RE of P (4,200 - 2,700)

1,500
1,500

2) Investment in associate
Goodwill
Consideration transferred
(45,000 - 28,800 - 4,200 W1)
Share of net assets at fair value
Equity shares
5,000.00
Retained earnings (pre)
15,000 + (6,000 x 6/12)
18,000.00
23,000.00
x 40%

12,000

(9,200)

2,800

Associate at year end


Cost of investment
(+) Share of profit from associate
(6,000 x 6/12) x 40%

12,000
1,200
13,200

3) Intra group
Dr Inventory
Dr Payable (balancing)
Cr Receivable

Sales
Cost
Profit

%
150
100
50

1,800.00
1,600.00
3,400

$000
1,800
600

Dr RE of P
Cr Inventory

600
600

4) Group retained earnings as at year end


Picant (16,200 + 11,000)
(+) reduction in contingent consideration W
(+) associate W2
(-) unrealised profit W3
Sander
Post acq
(-) Impairment W1
(-) Additional depn W1
(+) Software reversal

1,000.00
(3,800.00)
(100.00)
500.00
(2,400.00)
x 75%

5) Non controlling interests as at year end

27,200
1,500
1,200
(600)

(1,800)
27,500

At acq W1
Share of Sander post acq profit (-2,400 x 2

9,000
(600)
8,400

Answer
Picant
Consolidated statement of financial position as at 31 March 2010
$000
$000
Assets
Non current assets
Property, plant and equipment
(37,500 + 24,500 + 1,900 W1)
63,900
Goodwill W1
12,200
Investment in associate W2
13,200
89,300
Current assets
Inventory (10,000 + 9,000 + 1,800 - 600 W2 20,200
Trade receivables (6,500 + 1,500 - 3,400 W2 4,600
24,800
Total assets
114,100
Equity and liabilities
Equity attributable to owners of Picant
Equity shares
Share premium
Retained earnings (W4)
Non controlling interests (W5)
Total equity

25,000
19,800
27,500
72,300
8,400
80,700

Non current liabilities


Loan notes (14,500 + 2,000)

16,500

Current liabilities
Contingent consideration (4,200 - 1,500 W1
Others (8,300 + 7,500 - 1,600 W2)
Total equity and liabilitites

2,700
14,200

16,900
114,100

Workings ($000)
1) Investment in Sub
Goodwill
Consideration transferred (2,000 x 60% x 9
Non controlling interest (40% x 13,000)

10,800
5,200

Fair value of identifiable net assets acquired


Ordinary shares
2,000.00
Share premium
500.00
Retained earnings (pre)
(6,300 + 3,000 post loss)
9,300.00
Fair value adj (PPE)
1,200.00 (13,000)
3,000
(-) Impairment 12.5% RE of P
(375)
At year end
2,625

Addition to PPE : 1,200 - Depn (S) 300 = 900

2) Intra group
Dr Revenue
Cr Cost of sales (purchase)

Sales
Cost
Profit

%
100
95
5

30,000.00

$000
4,000
200

Dr RE of S
Cr Inventory

3) Group retained earnings as at year end


Hydan
(-) Impairment W1
Systan

30,000

200
200

20,000
(375)

Post loss
Additional depreciation W1
Unrealised profit W2

(3,000.00)
(300.00)
(200.00)
(3,500.00)
x 60%

4) Non controlling interests as at year end


At acq W1
Share of Systan post acq profit (-3,500 x 40

(2,100)
17,525

5,200
(1,400)
3,800

Answer
Hydan
Consolidated statement of profit or loss for the year ended 31 March 2006
$000
Revenue (98,000 + 35,200 - 30,000 W2)
103,200
Cost of sales (76,000 + 31,000 + 300 W1 - 30,000 W2 + 20 (77,500)
Gross profit
25,700
Operating expenses (11,800 + 8,000 + 375 imp W1)
(20,175)
Interest income (350 - 200 intra group)
150
Finance cost (420 + 200 - 200 intra group)
(420)
Profit before tax
5,255
Income tax expense (4,200 - 1,000 relief)
(3,200)
Profit for the year
2,055
Profit for the year attributable to :Owners of Hydan (residual)
Non controlling interest 40% x (-3,000 - 300 W1 - 20

3,455
(1,400)
2,055

Consolidated statement of financial position as at 31 March 2006


$000
Assets
Non current assets
Property, plant and equipment
(18,400 + 9,500 + 900 W1)
28,800
Goodwill W1
2,625
Other investment (16,000 - 10,800 W1 - 4,000 intra gr
1,200
32,625
Current assets (18,000 + 7,200 - 200 W2 - 1,000 intra
24,000
Total assets
56,625

Equity and liabilities


Equity attributable to owners of Hydan
Ordinary shares
Share premium
Retained earnings W3
Non controlling interest W4
Total equity
Non current liabilities
Bank loan
Current liabilities (11,400 + 3,900 - 1,000 intra group)
Total equity and liabilities

10,000
5,000
17,525
32,525
3,800
36,325

6,000
14,300
56,625

b) Systan post acq sales to Hydan, margin = 5%, external parties = 52%
Hydan passes huge amount of operating expenses to Systan in
post acq period.
Obviously Hydan acquired Systan only to secure the component supply.
Although the loss suffered by Systan is consolidated in the group result,
its loss will be shared by 40% non controlling interests, which is unfair
to them.
Hydan uses its controlling interest to take advantage on non controlling
interests. This is unethical and could be judge as fraud on minority.
Financial statements of Systan is not showing a true and fair view
without proper disclosure on these related parties disclosures.
Hydan obtains intangible return in the form of secured cheap supplies.

Assets
PPE cost
(+) provision 2 x 40%
(-) Dpn (6 + 0.8) / 10 yrs
Carrying amount at yr end

Income
6.00 Revenue (20 x 40%)
0.80
(0.68)
6.12

Receivable

8.00

Liab
Provision
(+) Unwinding finance cost
(0.80 x 5%)

Expense
0.80 Depreciation
Finance cost
0.04 Cost of sales (16 x 40%)
0.84 Operating cost (0.5 x 40%)

Payable (6.4 + 0.2)

6.60

8.00

0.68
0.04
6.40
0.20

1. Associate = equity accounting, Sub = acquisition accounting.


2. Cash consideration = face value, equity consideration = fair value of parent's shares
at date of transfer.
3. Transaction cost (i) consol F/S = expenses (for cash consideration related) or
within equity (for equity consideration related).
(ii) separate F/S = may be capitalised to investment in sub.
4. Issue of share option at acquisition, if obliged = part of consideration transferred;
if voluntary, part of employee benefits. For this case, voluntary, it will be part
of staff costs.
5. Contingent consideration = payment depends on prescribed conditions. Any
subsequent remeasurement will not affect the goodwill measurement.
In this case = financial liab, because the units to be issued are not fixed.

6. IAS 38, recognition of Int Asset needs reliable measurement. These intangible assets
however can be recognised in consol F/S as the group can measure them reliably.
At acq, measured at fair value (the cost at consol level), in post acq period, amortise
over the expected useful life.
7. Full & partial GW = accounting policy choices, apply to subs on case by case basis.
Full goodwill = higher net assets of the group, and if impairment, higher losses.
Also easier to test impairment as no re-gross of GW needed.
8. Generally, nature of consideration will not affect calculation of GW as they are
measure at fair value, except for :i) no subsequent remeasurement of GW for contingent consideration
ii) non financial asset transferred to sub is measured at carrying amount of
transferor.
9. Expected reorganisation cannot be recognised as provision (give reason).