Question 1

A Ltd acquired 80% of the ordinary shares of B Ltd for £100,000 on 31st December 2000. At that
date the net assets of B Ltd were £80,000. Calculate goodwill.

Question 2
A Ltd acquired 80% of the ordinary shares of B Ltd for £100,000 on 31st December 2000. At that
date the net assets of B Ltd per their accounts were £80,000. The net assets included land and
buildings with a book value of £75,000, which could be sold on the open market for £110,000 and
stock with a book value of £15,000 but which only has a net realizable value of £10,000.
Calculate goodwill.

Question 3
A Ltd acquired 80% of the ordinary shares of B Ltd for £100,000 and 10,000 £1.00 preference
shares for £15,000 on 31st December 2000. At that date the net assets of B Ltd were £80,000.
The financing section of B Ltd is shown below.
£
Preference shares 20,000
Ordinary shares 50,000
Retained profits 10,000
80,000

Calculate Goodwill.

Question 4
A Ltd acquired 80% of the ordinary shares of B Ltd on 31st December 2000 by issuing 40,000 of
its own £1.00 ordinary shares to the share holders of B ltd. At that date the net assets of B ltd
were £80,000. The market value of each share in A ltd is £2.50. Calculate Goodwill.

Question 5
Alpha Ltd acquired 80% of the ordinary shares of Beta Ltd on 31 December 2000. At that date
Alpha’s own reserves were £20,000 and Beta’s reserves were £12,000. At the 31 December 2001
Alpha’s own reserves were £30,000 and Beta’s reserves were £17,000 (ignore goodwill).
Calculate consolidated reserves.

Question 6
Aria Ltd acquired 75% of the ordinary shares of Hymn Ltd on 31 December 1999. At that date
Aria’s own reserves were £20,000 and Hymn’s reserves were £12,000. At the 31 December 2001
Aria’s own reserves were £40,000 and Hymn’s reserves were £22,000. Goodwill of £10,000 arose
upon the acquisition of Hymn Ltd. Its recoverable amount was assessed at £8,000 Calculate
consolidate reserves on 31/12/2001.

Question 7

Cow Ltd acquired 75% of Chicken Ltd on 31 December 20x0. The balance sheet extracts of
Chicken Ltd as at 31 December 20x0 and 20x4 are shown below:

20x0 20x4

£1.00 ordinary shares £100 £100

Retained profits £200 (£300)

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Calculate minority interest.

Question 8

Cardiff Ltd acquired 80% of the ordinary shares and 10% of the preference shares of Derby Ltd a
number of years ago. The net assets of Derby Ltd as at 31 December 20x1 are represented
below:

£000’s

Ordinary shares 1,000

Preference shares 400

Retained profits 4,000

Net assets 5,400

Calculate minority interest.

Multiple Choice Questions

1. Parent plc acquired 70% of the ordinary shares of Baby plc for £100,000 on 31st
December 2001. At that date the net assets of Baby plc were £110,000.

What is the goodwill arising upon the acquisition of Baby plc?

a. £10,000
b. £23,000
c. £40,000
d. £10,000 capital reserve

2. Bee plc acquired 90% of the ordinary shares of Wasp plc for £100,000 on 31st December
2001. The book values and fair values of the assets and liabilities of Wasp plc at the
acquisition date are shown below. An external values agreed the fair values.

£ £

Book value Fair value

Land & buildings 12,000 40,000

Vehicles 26,000 23,000

Stock 35,000 30,000

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 Debtors 27,000 27,000

Creditors 10,000 10,000

What is the goodwill arising upon the acquisition of Wasp plc?

a. £1,000
b. £19,000

c. £100,000

d. £1000 capital reserve

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3. Rugby plc acquired 60% of the ordinary shares and 50% of the preference shares of Soccer plc for £100,000 on
31st December 2001. An extract from Soccer plc's balance sheet as at December 31st 2001 is shown in Figure
4.

£
Net assets 150,000
Financed by
Ordinary shares 100,000
Preference shares 40,000
Retained profits 10,000
150,000
Calculate the goodwill arising upon the acquisition of Soccer plc.
a. £10,000
b. £14,000
c. £34,000
d. £40,000
4. Aardvark plc acquired 75% of the ordinary shares of Bobbin plc on 31st December 2001.
The consideration consisted of 10,000 of its own £1.00 ordinary shares and £80,000 in
cash. At the acquisition date the net assets of B Ltd were £100,000. The market value of
each share in Aardvark plc is £4.00.

What is the goodwill arising upon consolidation?

a. £5,000
b. £10,000

c. £20,000

d. £45,000

5. Monster plc acquires all of the share capital of Minnow plc on December 31st 2001 by issuing 80,000 of its own
shares. The financing section of Monster plc's consolidated balance sheet prior to the acquisition is shown in
Figure 5. The fair value of a Monster plc's share is £3.00. No goodwill or capital reserve arose upon the
acquisition.

Share capital 1,000,000

Share premium reserve 50,000
Group retained profits nil

What are the consolidated reserves of Monster plc on December 31st 2001?

a. Share capital £920,000, Share premium £50,000

b. Share capital £1,000,000, Share premium £80,000

c. Share capital £1,080,000, Share premium £130,000

d. Share capital £1,080,000, Share premium £210,000

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6. Koala Ltd acquired 60% of the ordinary share capital of Bear Ltd on 31 December 20x1. At
that date Koala’s own reserves were £10,000 and Bear’s reserves were £15,000. At 31
December 20x4 Koala’s own reserves were £40,000 and Bear’s reserves were £25,000
(ignore goodwill).

What are the consolidated group reserves as at 31 December 20x4?

a. £10,000
b. £40,000
c. £46,000
d. £65,000

7. Lion Ltd acquired 80% of the ordinary share capital of Tiger Ltd and 60% of the ordinary
share capital of Cub Ltd a number of years ago. At the acquisition date, the retained reserves
of Tiger were £10,000 and the retained reserves of Cub showed an accumulated loss of
£5,000.

Extracts from the balance sheets of the companies as at 31 December 20x1 are shown
below.

What are the consolidated group reserves as at 31 December 20x1?

Lion Ltd Tiger Ltd Cub Ltd

£000’s £000’s £000’s
£1 Ordinary Shares 50,000 40,000 30,000

Reserves 20,000 15,000

10,000
a. £33,000
b. £39,000
c. £45,000
d. £50,000

8. Christmas Ltd acquired 90% of the ordinary share capital of Tree Ltd on 31 December
20x2. At that date Christmas’s own reserves were £30,000 and Tree’s reserves were
£15,000. At 31 December 20x4 Christmas’s own reserves were £60,000 and Tree’s
reserves were £25,000. Goodwill of £5,000 arose upon the acquisition. Its recoverable
amount is Rs 3,000.

What are the consolidated group reserves as at 31 December 20x4?

a. £60,000
b. £67,000
c. £69,000
d. £70,000

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9. Newbridge Ltd acquired 80% of the ordinary share capital and 30% of the preference
share capital of Pontypool Ltd many years ago. Balance Sheet extracts of Pontypool Ltd
as at 31 December 20x1 are shown below.

What figure should appear as minority interest in the consolidated balance sheet of Newbridge Ltd as at 31
December 20x1?

£000’s
£1.00 preference shares 1,000
£1.00 ordinary shares 8,000
Retained profits 2,000
a. £2,000
b. £2,200
c. £2,300
d. £2,700

The following information relates to Questions 10,11, and 12.

Horse Ltd has owned 60% of the ordinary share capital of Pony Ltd since incorporation.

Balance sheet extracts for Horse Ltd and Pony Ltd as at 31 December 2001 are shown below:

Horse Ltd Pony Ltd

£ £
Fixed Assets 15,000 17,000
Investment in Pony Ltd 10,000 -
Debtors 20,000 11,000
Creditors (5,000) (3,000)
40,000 25,000

£1 Ordinary Shares 20,000 10,000

Reserves 20,000 15,000
30,000 25,000

Following the preparation of the above financial statements, Pony Ltd decides to pay a dividend
for the year-end December 2001 of £5,000.

10. What double entry will need to be posted in Horse Ltd’s accounts in respect of the
proposed dividend?

a. Debit Dividends Receivable £5,000

Credit Dividend Income £5,000
b. Debit Dividends Receivable £3,000
Credit Dividend Income £3,000
c. Debit Dividends Owing £5,000
Credit Dividend Income £5,000
d. Debit Trade debtors £3,000
Credit Dividend Owing £3,000

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11. What double entry will need to be posted in Pony Ltd’s accounts in respect of the
proposed dividend?

a. Debit Dividends Receivable £5,000

Credit Dividend Income £5,000
b. Debit Dividends Owing £3,000
Credit Ordinary Dividends £3,000
c. Debit Ordinary Dividends £5,000
Credit Dividend Income £5,000
d. Debit Ordinary Dividends £5,000
Credit Dividend Owing £5,000

12. What are the group’s consolidated reserves after adjusting for the proposed dividend?

a. £26,000
b. £29,000
c. £30,000
d. £35,000

13. Louise Ltd owns 70% of the ordinary share capital of Geraint Ltd. The debtors and creditors of Louise Ltd and
Geraint Ltd as at 31 December 2001 are shown below:

Louise Ltd Geraint Ltd

Debtors £100,000 £150,000
Creditors £250,000 £110,000

Following the calculation of the above debtors and creditors, Geraint proposes a final
dividend of £20,000 in respect of the year end 31 December 2001.

What will the debtors be stated at in the group consolidated balance sheet?

a. £230,000
b. £244,000
c. £250,000
d. £264,000

14. Park Ltd has owned 75% of the ordinary share capital of Gate Ltd since incorporation. Balance sheet extracts
for Park Ltd and Gate Ltd as at 31 December 2001 are shown below:

Park Ltd Gate Ltd

£ £
Investment in Gate Ltd 8,000 -
Debtors 20,000 35,000
Creditors (10,000) (15,000)
18,000 20,000

£1 Ordinary Shares 10,000 10,000

Reserves 8,000 10,000
18,000 20,000

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Gate Ltd has proposed a final dividend of £6,000. Both companies have already
accounted for the proposed dividend.

What are the group’s retained reserves?

a. £8,000
b. £15,500
c. £16,500
d. £18,000

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