Module 5.

3
Advanced Financial
Reporting
Week 1
Practice Problems and
Solutions

Chartered Professional Accountants of Canada, CPA Canada, CPA

are trademarks and/or certification marks of the Chartered Professional Accountants of Canada.

© 2017, Chartered Professional Accountants of Canada. All Rights Reserved.

Module 5.3 — Advanced Financial Reporting

ACCOUNTING FOR INVESTMENTS IN ASSOCIATES

Practice Problem 1: Multiple-choice questions

1. On January 1, 20X8, Bean Co. purchased a 30% interest in Dod Co. for $250,000. On this
date, Dod’s shareholders’ equity was $500,000. The carrying value of Dod’s identifiable net
assets was equal to book value. Bean correctly reports this significant influence investment
using the equity method. Both companies have a December 31 year end. For the year
ended December 31, 20X8, Dod reported net income of $150,000 and paid dividends of
$40,000.

Which of the following is the amount that Bean would report as its investment in Dod at
December 31, 20X8?

a) $250,000
b) $283,000
c) $295,000
d) $360,000

2. Price Co. has gradually been acquiring shares of Berry Co. and now owns 37% of the
outstanding voting ordinary shares. The remaining 63% of the shares are held by members
of the family of the company founder. To date, the family has elected all members of the
Board of Directors, and Price Co. has not been able to obtain a seat on the board. Price is
hoping to eventually buy a block of shares from an elderly family member and thus one day
own 60%.

How should the investment in Berry Co. be reported in the financial statements of Price Co.
given the following choices?

a) Consolidation
b) Cost method
c) Equity method
d) Fair value through profit and loss

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

3. GPL Inc. has a significant influence investment of 30% in Son Ltd. Son often sells
merchandise to GPL at a gross profit of 40%. At the beginning of the year, GPL had $6,000
of product purchased from Son in its inventory. During the year, GPL bought $60,000 of
product from Son. At the end of the year, GPL had $2,000 of product purchased from Son
in its inventory. Both companies pay income tax at a rate of 20%.

If Son’s net income for the current year is $150,000, what is the investment income in
associates that GPL will report for the current year?

a) $45,000
b) $45,384
c) $45,480
d) $45,576

Use the following information to answer questions 4 and 5:

On January 1, May Inc. purchased 40% of the shares of June Inc. for $100,000. At the time of
the purchase, June Inc. had reported net assets of $200,000. The fair values of the identifiable
assets and liabilities of June Inc. at the time of purchase approximated their book values,
except for a building with a remaining useful life of 10 years, which had a fair value $20,000
more than its book value. May Inc. has significant influence over the operating and financial
policies of June Inc.

4. What amount of the purchase price paid by May Inc. was for goodwill in the investment in
June Inc.?

a) $0
b) $12,000
c) $20,000
d) $28,000

5. By what amount would the earnings from June Inc. decrease as a result of the amortization
of any acquisition differential?

a) $0
b) $800
c) $2,000
d) $8,800

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Practice Problem 2
Grafton Company purchased 2,000 of the 10,000 outstanding shares of Prince Ltd. on
January 2, 20X4, for $300,000. At that date, the summary statement of financial position for
Prince was as follows:

Cash $ 100,000
Plant and equipment 1,200,000
Land 400,000
$ 1,700,000

Liabilities $ 400,000
Ordinary shares 800,000
Retained earnings 500,000
$ 1,700,000

For the year ended June 30, 20X4, Prince Ltd. reported net income of $200,000. Dividends of
$40,000 were paid on April 30, 20X4. Assume that income is earned evenly throughout the
year.

Required:

a) Prepare all the necessary journal entries on the books of Grafton, with respect to the
investment for the year ended June 30, 20X4, assuming that Grafton accounts for the
investment in Prince as an associate.
b) Discuss the relevant factors in the determination of whether or not significant influence
exists. Along with listing the factors, explain why they may have an impact on the
determination of significant influence.

Practice Problem 3
On January 1, 20X3, Kenny Ltd. purchased 250 of the 1,000 ordinary shares of Dolly Inc. for
$450,000. Kenny Ltd. has determined that it has significant influence over the operating and
financing policies of Dolly Inc. At the date of acquisition, Dolly’s assets and liabilities had the
following book values and fair values:
Book value Fair value
Cash $ 50,000 $ 50,000
Accounts receivable 250,000 230,000
Inventory 150,000 190,000
Land 70,000 180,000
Building (net) 300,000 460,000
Machinery (net) 250,000 226,000
Accounts payable 150,000 150,000
Bonds payable $ 500,000 $ 500,000

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

The land and building were purchased five years ago when Dolly Inc. was first formed. At that
time, it was determined that the building had a useful life of 35 years and would be depreciated
using the straight-line method. The machinery was acquired on December 31, 20X1, and is
being depreciated on a straight-line basis over seven years. The following are selected items
from Dolly Inc.’s financial statements for the year ended December 31, 20X3:
Net income $650,000
Dividends $400,000

Required:

a) Calculate the goodwill that was included in the purchase of the investment in Dolly Inc.
b) What amount would be reported on Kenny Ltd.’s December 31, 20X3, statement of
financial position for its investment in Dolly Inc.?

Practice Problem 4
It is currently December 31, 20X9. 11 years ago, Apple Ltd. acquired 40% of the ordinary
shares of Banana Ltd. for $3 million. This gave Apple Ltd. a significant influence over Banana
Ltd. At that date, Banana had $3.5 million of retained earnings and $1.5 million of ordinary
shares. The fair values of the identifiable assets and liabilities approximated their book values
except for a building with a fair value of $1,500,000 more than its book value. The building had
a remaining useful life of 20 years at the time of acquisition.

At December 31, 20X9, Banana’s retained earnings were $8.7 million.

For the year ended December 31, 20X9, Banana’s net income was $2.2 million. Banana
declared and paid a dividend of $700,000 during 20X9.

In its books, Apple Ltd. accounts for its investment in Banana Ltd. using the equity method.

Both companies have a gross margin of 35% and pay income tax at a rate of 30%.

At the end of 20X8, Banana’s inventories included $200,000 of goods purchased from Apple.
The income tax effect pertaining to these unrealized profits was $200,000 × 35% gross margin
× 40% ownership × 30% income tax rate = $8,400.

At the end of 20X9, Banana’s inventories included $350,000 of goods purchased from Apple.
Apple’s inventories included $100,000 of goods purchased from Banana.

Required:

a) Prepare the journal entries to record the 20X9 transactions relative to Apple’s investment in
Banana.
b) Calculate the balance in the “Investment in associate” account at December 31, 20X9.

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Practice Problem 5
St. Pierre Corp. paid $250,000 for a 30% interest in Miquelon Limited on January 1, 20X6.
During 20X6, Miquelon paid dividends of $80,000 and reported profit as follows:

Net income before discontinued operations $ 300,000

Discontinued operations loss (net of tax) (40,000)
Net income 260,000
Other comprehensive income (net of tax) 50,000
Comprehensive income $ 310,000

Required:

Assuming that St. Pierre Corp. reports its investment using the equity method, prepare the
journal entry to record the receipt of the dividend from Miquelon and its share of the earnings
of Miquelon.

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Solutions

Solution to Practice Problem 1: Multiple-choice questions

1. Option b) is correct.

Investment account balance:

$ 250,000 purchase price
+ 45,000 share of Dod’s net income*
12,000 dividends**
$ 283,000

* Bean’s share of Dod’s net income: $150,000 × 30% = $45,000

** Bean’s share of dividend: $40,000 × 30% = $12,000

Option a) is incorrect. $250,000 was the initial cost of the investment. The investment is
subsequently measured at the purchase price plus the cumulative share of the associate’s
adjusted net income (in this case, one year only: $150,000 × 30% = $45,000) less
dividends received or receivable from the associate ($40,000 × 30% = $12,000). $250,000
+ $45,000 – $12,000 = $283,000

Option c) is incorrect. $295,000 is the $250,000 initial cost of the investment plus Bean’s
30% ownership share of the associate’s net income since acquisition date ($150,000 ×
30% = $45,000). Bean must also deduct the cumulative dividends received or receivable
from Dod from the investment account ($40,000 × 30% = $12,000). $250,000 + $45,000 –
$12,000 = $283,000

Option d) is incorrect. $360,000 is the $250,000 initial cost of the investment plus 100% of
the associate’s net income since the acquisition date ($150,000) less 100% of the
dividends declared by the associate since the acquisition date ($40,000). Bean only
includes its ownership share (30%) of Dod’s cumulative adjusted net income since the
acquisition date ($150,000 × 30% = $45,000), and deducts its ownership share (30%) of
the cumulative dividends since the acquisition date declared by Dod ($40,000 × 30% =
$12,000) from the initial cost of the investment when it is subsequently measuring the
investment. $250,000 + $45,000 – $12,000 = $283,000

Source: Topic 1.4-3

2. Option d) is correct. Normally, an investor that owns 37% of the voting shares of the
investee is presumed to have significant influence. Here, it has been clearly demonstrated
that this is not the case — because the controlling block of shares is owned by another
group, there isn’t any representation of Price Co. on the Board of Directors and there are
no other indicators of significant influence (for example, participation in policy-making
processes or material transactions between the investor and investee).

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Whether or not significant influence is exercised is a matter of professional judgment. In the

absence of significant influence or control, an investment in shares is normally accounted
for at fair value through profit or loss.

Option a) is incorrect. Consolidation is appropriate when control is evident, which is usually

the case when more than 50% of the voting shares are held.

Option b) is incorrect. While control investments are often recorded using the cost method,
investments are seldom ever reported using the cost method.

Option c) is incorrect. While a 37% voting interest is normally presumed to have significant
influence (in which case the equity method would be used), this is not the case in this
scenario based on the facts given.

Source: Topic 1.2

3. Option b) is correct.

Son’s net income $ 150,000

Plus: Realized after-tax profits in beginning inventory (6,000 × 40%) × (1 – 20%) 1,920
Less: Unrealized after-tax profits in ending inventory (2,000 × 40%) × (1 – 20%) (640)
151,280
Percentage acquired × 30%
Investment income in associates reported by GPL for the current year $ 45,384

Option a) is incorrect. This is GPL’s percentage of Son’s net income for the current year
($150,000 × 30%). However, the investee’s share of the profit or loss reported by the
associate must be adjusted for the realized after-tax profits in the beginning inventory and
the unrealized after-tax profits in ending inventory on intercompany transactions during the
year

Option c) is incorrect. While you adjusted the associate’s net income for the unrealized and
realized profits in inventory, you did so on a pre-tax rather than an after-tax basis
[($150,000 + $2,400 – $800) × 30%].

Option d) is incorrect. While you adjusted the associate’s net income for the realized after-
tax profits in opening inventory, you neglected to deduct the unrealized after-tax profits in
the closing inventory [($150,000 + $1,920) × 30%].

Source: Topic 1.4-2

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

4. Option b) is correct.

Acquisition price $ 100,000

Net assets (200,000 × 40%) (80,000)
Acquisition differential 20,000
Fair value (FV) differential — building (20,000 × 40%) (8,000)
Goodwill $ 12,000

Option a) is incorrect. While the goodwill arising on investments in associates is not

separately reported, it remains that the purchase price paid in excess of the investor’s
share of the fair value of the identifiable net assets is allocated to goodwill. You would also
have arrived at a goodwill value of $0 if you applied the whole fair value differential of
$20,000 to the acquisition differential rather than the portion attributable to the investor
($20,000 × 40% = $8,000).

Option c) is incorrect. You calculated the acquisition differential and assigned the entire
amount to goodwill. However, goodwill is the residual after the allocation of the acquisition
differential to any fair value differentials. In this case, the fair value differential of the
building ($8,000) must be subtracted from the acquisition differential ($20,000) in order to
obtain goodwill.

Option d) is incorrect. The fair value of the building was $20,000 greater than its book
value. In calculating goodwill, you added, rather than subtracted, the investor’s
proportionate share of this FV differential amount from the acquisition differential.

Source: Topic 1.4-15

5. Option b) is correct.

$20,000 × 40% = $8,000 FV differential of building

$8,000 / 10 years = $800 per year amortization of FV differential

Option a) is incorrect. The investor’s share of the fair value increment of the building must
be amortized over the asset’s remaining useful life. ($20,000 × 40% = $8,000; $8,000 / 10
years = $800 per year)

Option c) is incorrect. You amortized the entire $20,000 of the fair value increment ($20,000
/ 10 years), rather than the investor’s share ($8,000).

Option d) is incorrect. You amortized the investor’s 40% share of the $220,000 fair value of
the investee’s identifiable net assets over the 10-year remaining life of the building, rather
than the investor’s share of the fair value increment of $8,000.

Source: Topic 1.4-3

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Solution to Practice Problem 2

a) Investment income:
= share of Prince income
= $200,000 × 20% × ½ year
= $20,000

Journal entries:
DR Investment in Prince 300,000
CR Cash 300,000
To record the initial investment in Prince.

DR Investment in Prince 20,000

CR Investment income 20,000
To record share of Prince’s net income.

DR Cash (40,000 × 20%) 8,000

CR Investment in Prince 8,000
To record share of dividends paid.

b) The ability to exercise significant influence may be indicated by, for example,
representation on the Board of Directors, participation in policy-making processes, material
intercompany transactions, interchange of management personnel or provision of technical
information, as well as the pattern of share ownership.

These factors are highly interrelated, and each by itself may not be indicative of significant
influence. The relative importance of each factor would be evaluated within the context of
the situation, and the determination in any particular case would be a judgmental decision.

If the investor holds a small percentage of the voting interest in the investee, it should be
presumed that the investor does not have the ability to exercise significant influence, unless
such ability is clearly demonstrated. The holding of a large portion of the outstanding
shares would not necessarily guarantee significant influence, as there could be a single
shareholder with an even larger holding. However, note that the existence of a larger
holding owned by a single shareholder would not necessarily preclude the exercise of
significant influence in a particular case.

However, as a general rule, significant influence is presumed to exist when 20% or more of
the shares of another company are controlled. Because the percentage ownership in this
case is 20% exactly, a strong case would have to be made to show that no significant
influence exists.

Source: Topic 1.4

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Solution to Practice Problem 3

a) Goodwill calculation
Purchase price: $ 450,000
Book value of net assets acquired — $420,000* × 25% (105,000)
Acquisition differential: 345,000
Accounts receivable (20,000 × 25%) $ (5,000)
Inventory (40,000 × 25%) 10,000
Land (110,000 × 25%) 27,500
Building (160,000 × 25%) 40,000
Machinery (24,000 × 25%) (6,000) 66,500
Goodwill $ 278,500
* Net assets = 50 + 250 + 150 + 70 + 300 + 250 – 150 – 500 = 420,000

b) Calculation of investment account

Investment income — 20X3:
Share of Dolly Inc.’s income: $650,000 × 25% $ 162,500
Amortization of acquisition differential:
Accounts receivable $ 5,000
Inventory (10,000)
Building (40,000 / 30 years remaining) (1,333)
Machinery (6,000 / 6 years remaining) 1,000 (5,333)
$ 157,167
Investment account:
Initial cost of investment $ 450,000
Investment income (above) 157,167
Dividends (400,000 × 25%) (100,000)
$ 507,167

Source: Topics 1.4-1, 1.4-2 and 1.4-3

Solution to Practice Problem 4

a) Banana’s net income $ 2,200,000
Amortization of acquisition differential
($1,500,000 / 20) (75,000)
Downstream sale: Realized after-tax profits in opening
inventory ($200,000 × 35%) × (1 – 30%) 49,000
Downstream sale: Unrealized after-tax profits in ending
inventory ($350,000 × 35%) × (1 – 30%) (85,750)
2,088,250
Percentage acquired × 40%
835,300
Upstream sale: Unrealized after-tax profits in ending inventory
($100,000 × 35% × 40%) × (1 – 30%) (9,800)
Investment income in Banana — 20X9 $ 825,500

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Journal entries to record the 20X9 transactions:

DR Investment in associate 880,000

CR Investment income in associate 880,000
To record the investor’s share of the associate’s income.

DR Investment income in associate 30,000

CR Investment in associate 30,000
To record the investor’s share of the AD amortization.

DR Investment in associate 19,600

CR Investment income in associates 19,600
To record the realized after-tax profits.

DR Investment income in associate 44,100

CR Investment in associate 44,100
To remove the unrealized after-tax profits.

Alternatively, the entries above could be combined as follows:

DR Investment in associate 825,500
CR Investment income in associate 825,500
To record the 20X9 transactions.

DR Cash ($700,000 × 40%) 280,000

CR Investment in associate 280,000
To record the receipt of dividends.

b) Investment in associate account balance at December 31, 20X9:

Investment cost at acquisition $ 3,000,000
Net assets acquired [40% × (3,500,000 + 1,500,000)] (2,000,000)
Acquisition differential 1,000,000
FV difference in building (40% × 1,500,000) (600,000)
Goodwill $ 400,000

Investment — at acquisition $ 3,000,000

R/E of Banana — Dec. 31, 20X9 $ 8,700,000
R/E of Banana at acquisition (3,500,000)
Post-acquisition increase 5,200,000
Amortization AD ($1,500,000 / 20 × 11 years) (825,000)
Downstream unrealized after-tax profits in ending inv. (85,750)
4,289,250
Apple’s share × 40% 1,715,700
Upstream unrealized after-tax profits in ending inventory (9,800)
Account balance December 31, 20X9 $ 4,705,900

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Note that the opening inventory does not affect the ending investment account balance as
this inventory is no longer on hand.

Source: Topics 1.4-1, 1.4-2 and 1.4-3

Solution to Practice Problem 5

Dec. 31
DR Cash 24,000
CR Investment in associate 24,000
To record receipt of dividends (80,000 × 30%).

Dec. 31
DR Investment in associate (310,000 × 30%) 93,000
DR Loss on discontinued operations — associate 12,000
CR Investment income in associate (300,000 × 30%) 90,000
CR Other comprehensive income — associate
(50,000 × 30%) 15,000
To record share of Miquelon earnings for the period.

Source: Topics 1.4-2 and 1.4-3

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

BUSINESS COMBINATIONS AND CONSOLIDATION ON THE DATE OF ACQUISITION

Practice Problem 1: Multiple-choice questions

1. When a parent company consolidates a wholly owned subsidiary, what amount will appear
as “ordinary shares” in the equity section of the consolidated statement of financial
position?

a) The book value of the parent’s ordinary shares plus the book value of the subsidiary’s
ordinary shares at the date of consolidation
b) The book value of the parent’s ordinary shares plus the fair value of the subsidiary’s
ordinary shares at the date of consolidation
c) The fair value of the parent’s ordinary shares on the date of the purchase of the
subsidiary
d) The book value of the parent’s ordinary shares at the date of consolidation

2. When one company controls another company, IFRS 10 requires that the parent report the
subsidiary on a consolidated basis. Which of the following best describes the primary
reason for this recommendation?

a) To report the combined retained earnings of the two companies, allowing shareholders
to better predict dividend payments
b) To allow for taxation of the combined entity
c) To report the total resources of the combined economic entity under the control of the
parent’s shareholders
d) To meet the requirements of federal and provincial securities commissions

The following information applies to questions 3 and 4, though each question should be
considered independently.

A parent company acquires 80% of the shares of a subsidiary for $400,000. At the date of
acquisition, the carrying (book) value of the subsidiary’s net assets is $360,000. The fair value
of the identifiable net assets of the subsidiary is $380,000.

3. Which of the following represents the amount of goodwill that should be recorded at the
time of the acquisition, assuming that the company chooses to value the non-controlling
interest (NCI) using the fair value enterprise (FVE) approach?

a) $20,000
b) $96,000
c) $120,000
d) $140,000

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

4. Which of the following represents the NCI’s that should be recorded when the acquisition
takes place, assuming the NCI is valued using the FVE approach?

a) $72,000
b) $76,000
c) $80,000
d) $100,000

Practice Problem 2 — consolidation with less than 100% control

You are the financial controller of Quarter Gill Inc. (QG). The directors of QG have been
successful in acquiring control of Speyside Distilleries Inc. QG acquired 90% of the issued
ordinary shares of Speyside on March 31, 20X1. You are preparing the consolidated financial
statements for the year ended December 31, 20X1.

Costs incurred in the acquisition of Speyside included (in ’000s):

March 31, 20X1
Cash paid $ 124,800
Professional fees 850
Merchant bank fees 7,000
$ 132,650

In addition, QG issued 20,000,000 ordinary shares to the shareholders of Speyside as part of

the consideration. At March 31, 20X1, the shares had a market value of $1.50 each. The cost
of the share issue was $450,000.

The net assets of Speyside acquired by QG according to the financial statements prepared at
the date of acquisition were (in ’000s):
March 31, 20X1
Cash and cash equivalents $ 763
Accounts receivable 17,931
Other current assets 2,059
Inventories 59,981
Property, plant and equipment 31,713
Intangible assets 1,500
Other assets 1,215
Total assets $ 115,162

Current liabilities $ 17,540

Non-current liabilities 1,000
Bank loans 23,442
Deferred tax 5,900
Total liabilities $ 47,882
Net assets $ 67,280

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Further information:
1. At the date of acquisition, the directors of QG obtained a professional valuation of the fair
value of the property, plant and equipment of Speyside. The results were as follows:
Valuation — fair value March 31, 20X1
(in ’000s)
Land and buildings $ 15,000
Plant and equipment 30,200
$ 45,200

2. The directors also conducted an exercise to determine the fair value of the bulk whisky
inventories at the date of acquisition that are included in the above statement of financial
position at a cost of $54,981,000. The selling price was estimated at $75,000,000. Costs to
completion were estimated at $9,000,000.
3. Wooden casks included in inventories at March 31, 20X1, at $5,000,000 were considered
to have a fair value of $7,917,000.
4. The directors recognized that Speyside’s popular brand whisky, Dramnaglass, carried as
an intangible asset at $1,500,000, had been the subject of recent unsuccessful purchase
negotiations between Multibrand Inc. and Speyside. An offer of $4,000,000 for the brand
had been made at February 28, 20X1, by Multibrand Inc., which Speyside found attractive
as it was in line with the value obtained by the model Speyside uses to estimate brand
values. The offer was withdrawn when QG’s takeover was proposed. Both QG and
Speyside have several brands of whisky and have sold a number of these in recent years.
5. Following the change in ownership, the board of QG felt it was unable to work alongside
the directors of Speyside. The total cost of cancelling the Speyside directors’ three-year
service contracts has been estimated at $650,000.
6. A few months after acquisition, the distilling director of QG has, based on future demand
forecasts, determined that there is surplus capacity in the market and that two of
Speyside’s distilleries, Glenbarrel and Hogshead, will have to be sold. These distilleries
have been included in the professional valuation as at March 31, 20X1 (see #1 above), at
market value of $2,600,000 and $1,900,000 respectively. It is estimated that the market
value would be $1,500,000 and $1,000,000 respectively at the date of disposal due to the
collapse of the East Asia market in mid-20X1.
7. The directors of QG consider that it will be necessary to slim down the workforce of the
combined group. They have calculated that $600,000 is a reasonable estimate of
severance costs.
8. Following due diligence work, it is estimated that accruals of Speyside at March 31, 20X1,
were understated by $325,000 and that a decrease of $130,000 in the bad debt provision
was reasonable to reflect the fair value of receivables at that date.
9. Speyside is at the forefront of attempts to develop a less costly distillation process and has
spent over $500,000 on developing a low-temperature, high-pressure process. None of this
is reflected on the statement of financial position of the company, though the directors of

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

QG estimate that it has a fair value of $300,000 at the date of acquisition. Speyside has a
patent for the process.
10. It is the policy of QG to measure non-controlling interest at the acquisition date based on
the value using the imputed purchase price (FV approach).

Required:

a) Explain the fair value adjustments required in respect of items 1 to 10 above.

b) Calculate the purchased goodwill arising on the date of acquisition of Speyside.

Practice Problem 3 — consolidation with less than 100% control

Compo Inc. acquired 80% of the ordinary shares of Woodlee Ltd. and 70% of the ordinary
shares of Row Ltd. on January 1, 20X1.

Extracts of the statements of financial position of the two companies at that date are as
follows:
(in ’000s)
Woodlee Row
Net assets $ 15,000 $ 8,500

Equity
Ordinary shares $ 2,000 $ 5,500
Contributed surplus 1,000 2,000
AOCI — revaluation 4,500 3,700
Retained earnings 7,500 (2,700)
$ 15,000 $ 8,500

Compo Inc. paid $16 million to acquire the shares in Woodlee and $4.2 million to acquire the
holding in Row.

All of the assets and liabilities are at fair value as at the date of acquisition, except for a
property of Woodlee, which has a book value of $3 million and a fair value of $5.6 million.
Compo uses the FVE approach to value the NCI at the date of acquisition.

At the date of acquisition, the non-controlling interest is based on the imputed purchase price.

Required:

Calculate the goodwill arising on the acquisition date of Woodlee and Row.

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Practice Problem 4 — consolidation with 100% control and less than 100% control
On December 31, 20X1, Perks Company made an investment in Serge Inc. The statements of
financial position for both companies at the date of acquisition are as follows:
Perks Serge Serge
Carrying Carrying Fair
value value value
Cash $ 135,000 $ 80,000 $ 80,000
Accounts receivable 540,000 240,000 240,000
Inventory 980,000 325,000 350,000
Land 1,000,000 160,000 200,000
Buildings and equipment 2,900,000 570,000 520,000
$ 5,555,000 $ 1,375,000

Current liabilities $ 950,000 $ 350,000 $ 350,000

Long-term liabilities 1,500,000 500,000 480,000
Ordinary shares 1,000,000 100,000
Retained earnings 2,105,000 425,000
$ 5,555,000 $ 1,375,000

Both companies use the straight-line method of depreciation/amortization. On the date of

acquisition, Serge’s buildings and equipment have a remaining useful life of five years and the
long-term liabilities mature on December 31, 20X9.

Perks incurred the following transaction costs to facilitate the acquisition:

Share issue costs $ 35,000
Legal and accounting fees 18,000

Required:
a) Perks purchased all the assets and liabilities of Serge for $650,000 by issuing shares.
Prepare the journal entry on the books of Perks on the date of acquisition.

For each of the assumptions below, prepare (i) the purchase price allocation and (ii) the
consolidated statement of financial position on the date of acquisition. In all situations,
Perks issued its own shares in exchange for the shares of Serge. Note that there is a
significant amount of repetition between parts (a) and (d). When solving for (b) through (d),
try to focus on the elements that are changing.
b) Perks purchased 100% of the shares of Serge for $650,000.
c) Perks purchased 75% of the shares of Serge for $540,000 and accounts for the non-
controlling interest using the FVE method.
d) Perks purchased 75% of the shares of Serge for $540,000 and accounts for the non-
controlling interest using the identifiable net assets (INA) method.
e) Assuming the same facts as in part d), what is the total amount that will be reported as
shareholder’s equity on Perks’ consolidated statement of financial position?

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Practice Problem 5 — consolidation with 100% control and less than 100% control
On December 31, 20X6, Posnan Company acquired 100% of the outstanding shares of
Sosnan Company for $20,000,000. The purchase was financed by the issue of $20,000,000
face value bonds. The following are taken from the statements of financial position of both
companies immediately before the purchase transaction:
Posnan Sosnan
Book values Book values Fair values
Cash and current receivables $ 29,700,000 $ 702,000 $ 400,000
Inventories 28,800,000 10,800,000 9,000,000
Land 72,000,000 6,300,000 8,000,000
Plant and equipment (net) 135,000,000 7,560,000 7,000,000
$ 265,500,000 $ 25,362,000

Current liabilities $ 23,400,000 $ 2,167,400 2,160,000

Bonds payable 90,000,000 6,472,600 6,500,000
Ordinary shares 36,000,000 11,520,000
Retained earnings 116,100,000 5,202,000
$ 265,500,000 $ 25,362,000

In addition to this information, Sosnan owns a trademark that has a fair value of $3,000,000.

Posnan Company incurred $1,300,000 of professional fees relative to this acquisition.

Required:

Note that there is a significant amount of repetition between parts (a) and (c). When solving for
(b) through (c), try to focus on the elements that are changing.

a) Prepare the purchase price allocation and the consolidated statement of financial position
on the date of acquisition.
b) Repeat part (a) on the assumption that Posnan purchased 85% of the shares of Sosnan for
$17,000,000 face value bonds and used the FVE method to account for the non-controlling
interest.
c) Repeat part (a) on the assumption that Posnan purchased 85% of the shares of Sosnan for
$17,000,000 face value bonds and used the INA method to account for the non-controlling
interest.

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Solutions

Solution to Practice Problem 1: Multiple-choice questions

1. Option d) is correct. The subsidiary’s shareholdings and retained earnings are not reported
in the equity section of the consolidated financial statements.

Options a), b), and c) are incorrect. The book value of the parent’s ordinary shares at the
date of consolidation is reported as ordinary shares on the consolidated statement of
financial position. The subsidiary’s shareholdings are not included in this total.

Source: Topic 1.12

2. Option c) is correct. IFRS 10 requires that the parent report the subsidiary on a
consolidated basis so that the total resources of the combined economic entity under the
control of the parent’s shareholders are reported in the consolidated financial statements.

Option a) is incorrect. The subsidiary’s retained earnings are not included in consolidated
retained earnings. Moreover, retained earnings, in and of itself, is not a predictor of
dividend payments.

Option b) is incorrect. In many jurisdictions, including Canada, the consolidated entity does
not pay income tax. Rather, the parent and subsidiary prepare separate income tax returns
and individually pay income tax on their respective earnings.

Option d) is incorrect. While various regulators, such as federal and provincial securities
commissions, may require companies to file consolidated financial statements, this is not a
primary concern of the International Accounting Standards Board (IASB). Rather, the IASB,
through IFRS, sets out the basis on which financial statements are to be prepared in
accordance with generally accepted accounting principles. These principles may or may
not align with regulator requirements. For example, Canada Revenue Agency requires that
the individual companies use their stand-alone statements as a starting point and then
adjust revenues and expenses determined under IFRS to those required and allowed under
the Income Tax Act.

Source: Topic 1.9

3. Option c) is correct.

Purchase price imputed at 100%: $400,000 / 0.80 $ 500,000

Less: Book value of Sub (360,000)
Acquisition differential 140,000
Allocated to difference between FV – BV (20,000)
Goodwill under the FVE approach $ 120,000

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Option a) is incorrect. You have used the purchase price of $400,000, not the imputed fair
value of the subsidiary ($500,000) to calculate an acquisition differential of $40,000 and a
goodwill amount of $20,000.

Option b) is incorrect. $96,000 is the amount of goodwill that would have been reported had
the INA approach been used to value goodwill:

Purchase price for 80% interest $ 400,000

NCI: 20% of FV of INA ($360,000 + $20,000) 76,000
Implied value using the INA approach 476,000
Less: Book value of Sub (360,000)
Acquisition differential 116,000
Allocated to difference between FV – BV (20,000)
Goodwill under the INA approach $ 96,000

Option d) is incorrect. $140,000 is the amount of goodwill that would have been reported if
there were no FV differentials. In other words, had the fair value of the identifiable net
assets equalled their book value. ($400,000 / 80% = $500,000; $500,000 – $360,000 =
$140,000).

Source: Topic 1.10-4

4. Option d) is correct.

Imputed price of acquired subsidiary: $400,000 / 80% = $500,000

NCI based on FV of investment: $500,000 × 20% = $100,000

Option a) is incorrect. You have calculated the NCI using the INA method and using the
book value of the net assets of the subsidiary, rather than on the net assets’ fair value.
($360,000 × 20% = $72,000).

Option b) is incorrect. $76,000 is the amount of NCI that would have been reported had the
INA approach been used ($360,000 + $20,000 = $380,000; $380,000 × 20% = $76,000).

Option c) is incorrect. You have calculated NCI on the price paid by the parent, instead of
the fair market value of the net assets of the subsidiary ($400,000 × 20% = $80,000).

Source: Topic 1.10-4

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Solution to Practice Problem 2

a) Quarter Gill Inc. fair value adjustments:
1. Property, plant and equipment:
This should be stated at fair value if available. In this case, a professional valuation has
been carried out and this would be used.

This will create an increase in the asset value of $13,487,000 ($45,200,000 –

31,713,000), which will be noted as a fair value increment related to the property, plant
and equipment.

2. Whisky inventories:
Whisky inventories should be stated at selling price less costs to completion — this
represents fair value at the date of acquisition. This gives a value of $66,000,000
($75,000,000 – $9,000,000). This represents an $11,019,000 increase that will be noted
as an acquisition differential.

3. Wooden casks:
Wooden casks should be valued at fair value. This will result in an additional allocation
of the acquisition differential related to inventory of $2,917,000 (7,917,000 – 5,000,000).

4. Intangible assets:
Identifiable intangible assets that can be disposed of separately from the company itself
should be stated at fair value or at an amount based on the best information available.
The fact that Speyside was intending to sell the brand indicates that the asset is a
stand-alone one. Evidence of the value comes from the attractive offer of $4,000,000
made only one month ago. In addition, the company has several brands and has sold a
number of them recently. The valuation is in line with Speyside’s valuation model. All of
this provides evidence of the value of the brand. As a result, there is a fair value
increment related to the brand of $2,500,000 ($4,000,000 – $1,500,000), which will be
an allocation of the acquisition differential.

5. Change in ownership:
The decision to cancel the directors’ contracts was made following the change in
ownership, and therefore, the $650,000 was not a liability existing at the date of
acquisition. There is no evidence of a pre-existing plan to remove the directors or of any
golden parachute arrangements. No adjustment is required.

6. Surplus capacity:
The decision to close the two Speyside distilleries was made by the QG distillery
director post-acquisition. The fall in value has taken place after the acquisition and
should be reflected in post-acquisition results, not in goodwill. It does not give additional
information about conditions existing at the date of acquisition.

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

7. Severance costs:
These do not reflect liabilities that existed at the date of acquisition. There is no
indication that this was an existing obligation to restructure. No adjustment should be
made.

8. Following due diligence:

Errors, omissions and revisions to the financial statements as at the date of acquisition
should be adjusted for in the opening figures to represent best estimates of conditions
existing at the date of acquisition. As a result, there is a fair value increase to the current
liabilities of $325,000 and the accounts receivable of $130,000.

9. Development costs:
The development costs should be recognized at fair value of $300,000. Although not
recognized in the financial statements of Speyside, the development is identifiable — it
could be licensed or rented to a third party — and should be recognized on acquisition.

10. Non-controlling interest:

See the calculation of NCI based on the imputed acquisition price in the table below.

b) Calculation of goodwill:
(in ’000s)
Consideration given (calculation 1) $ 154,800
Non-controlling interest ($154,800 / 90% × 10%) 17,200
Imputed price of investment in Speyside: ($154,800 / 90%) 172,000
Book value per financial statements 67,280
Acquisition differential 104,720
Fair value of net assets acquired:
PPE adjustment $13,487
Whisky inventories adjustment 11,019
Wooden casks adjustment 2,917
Brand name adjustment 2,500
Current liabilities (325)
Accounts receivable (bad debt provision) 130
Development project 300 30,028
Goodwill $ 74,692

Calculation 1:
Calculation of consideration given
(in ’000s)
Cash $ 124,800
Share issue (20,000,000 × $1.50) 30,000
$ 154,800
The expenses of acquisition and share issue costs are not included as a cost of the
investment. The expenses would be written off to income or loss and the cost of issuing
shares charged to the share capital account.
Source: Topics 1.9, 1.10 and 1.11

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Solution to Practice Problem 3

Calculation of goodwill using FVE method (in ’000s):
Woodlee Row
Cost of acquisition $ 16,000 $ 4,200
NCI ($16,000 / 80% × 20%); ($4,200 / 70%
× 30%) 4,000 1,800
Implied price of investment in subsidiary
using the FVE approach
($16,000 / 80%); ($4,200 / 80%) $ 20,000 $ 6,000

Book value of subsidiary:

Ordinary shares $ 2,000 $ 5,500
Contributed surplus 1,000 2,000
AOCI — Revaluation surplus at
Jan. 1, 20X1 4,500 3,700
Retained earnings 7,500 (2,700)
Book value of net assets 15,000 8,500
Acquisition differential 5,000 $ (2,500)*
Allocation to PPE (Woodlee) (2,600)
Goodwill (Woodlee) $ 2,400

* As we have established that there is a bargain purchase for Row using the FVE method, we
must now recalculate the acquisition differential using the INA method in order to determine the
correct bargain purchase gain.

Calculation of bargain purchase using INA method (in ’000s):

Row
Cost of acquisition (70%) $ 4,200
NCI ($8,500 FV of net assets × 30%) 2,550
Implied price of investment in subsidiary using the INA method 6,750

Book value of subsidiary:

Ordinary shares $ 5,000
Contributed surplus 2,000
AOCI — Revaluation surplus at Jan. 1, 20X1 3,700
Retained earnings (2,700)
Book value of net assets 8,500
Acquisition differential (1,750)
Allocation to FV differentials —
Bargain purchase (Row) $ (1,750)

Source: Topic 1.10-4

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

Note: In the following solutions, the ∑ symbol is used to indicate that we are adding up the
carrying values of the parent company and the subsidiary company from their separate entity
financial statements.

Solution to Practice Problem 4

a) Journal entries at the date of acquisition assuming 100% acquisition:
Purchase price $ 650,000
Net assets of Serge acquired:
Ordinary shares $100,000
Retained earnings 425,000 525,000
Acquisition differential 125,000
Allocation of acquisition differential:
Inventory $ 25,000
Land 40,000
Buildings and equipment (50,000)
Long-term liabilities 20,000 35,000
Goodwill $ 90,000

DR Cash 80,000
DR Accounts receivable 240,000
DR Inventory 350,000
DR Land 200,000
DR Buildings and equipment 520,000
DR Goodwill 90,000
CR Current liabilities 350,000
CR Long-term liabilities 480,000
CR Ordinary shares 650,000
To record acquisition of investment.

DR Ordinary shares 35,000

CR Cash 35,000
To record share issue costs.

DR Professional fees expense 18,000

CR Cash 18,000
To record legal and accounting fees.

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

b) Perks purchased 100% of the shares of Serge:

i) Purchase price allocation: (Note that the purchase price allocation is the same as the
one done in requirement a.)
Purchase price $ 650,000
Net assets of Serge acquired:
Ordinary shares $100,000
Retained earnings 425,000 525,000
Acquisition differential 125,000
Allocation of the acquisition differential:
Inventory $ 25,000
Land 40,000
Buildings and equipment (50,000)
Long-term liabilities 20,000 35,000
Goodwill $ 90,000

ii) Consolidated statement of financial position on the date of acquisition:

Perks Company
Consolidated statement of financial position
As at December 31, 20X1

Cash (∑ – 18,000 Prof fees – 35,000 Share issue costs) $ 162,000

Accounts receivable (∑) 780,000
Inventory (∑ + 25,000 AD) 1,330,000
Land (∑ + 40,000 AD) 1,200,000
Buildings and equipment (∑ – 50,000 AD) 3,420,000
Goodwill (AD) 90,000
Total assets $ 6,982,000

Current liabilities (∑) $ 1,300,000

Long-term liabilities (∑ – 20,000 AD) 1,980,000
Ordinary shares ($1,000,000 + 650,000 – 35,000 Share issue costs) 1,615,000
Retained earnings ($2,105,000 – 18,000 Prof fees) 2,087,000
Total liabilities and equity $ 6,982,000

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

c) Perks purchased 75% of the shares of Serge for $540,000 and accounts for the NCI using
the FVE method:
i) Purchase price allocation:
Purchase price imputed to 100% ($540,000 / 0.75) $ 720,000
Net assets of Serge acquired:
Ordinary shares $100,000
Retained earnings 425,000 525,000
Acquisition differential 195,000
Allocation of the acquisition differential:
Inventory $ 25,000
Land 40,000
Buildings and equipment (50,000)
Long-term liabilities 20,000 35,000
Goodwill $ 160,000

ii) Consolidated statement of financial position on the date of acquisition:

Perks Company
Consolidated statement of financial position
As at December 31, 20X1

Cash (∑ – 18,000 Prof fees – 35,000 Share issue costs) $ 162,000

Accounts receivable (∑) 780,000
Inventory (∑ + 25,000 AD) 1,330,000
Land (∑ + 40,000 AD) 1,200,000
Buildings and equipment (∑ – 50,000 AD) 3,420,000
Goodwill (AD) 160,000
Total assets $ 7,052,000

Current liabilities (∑) $ 1,300,000

Long-term liabilities (∑ – 20,000 AD) 1,980,000
Ordinary shares ($1,000,000 + 540,000 – 35,000 Share issue costs) 1,505,000
Retained earnings ($2,105,000 – 18,000 Prof fees) 2,087,000
Non-controlling interest ($720,000 imputed price × 25%) 180,000
Total liabilities and equity $ 7,052,000

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

d) Perks purchased 75% of the shares of Serge for $540,000 and accounts for the NCI using
the INA method:
i) Purchase price allocation:
Purchase price paid for 75% $ 540,000
Non-controlling interest:
$560,000 FV of Serge’s net assets × 25% 140,000
680,000
Net assets of Serge acquired:
Ordinary shares $100,000
Retained earnings 425,000 525,000
Acquisition differential 155,000
Allocation of acquisition differential:
Inventory $ 25,000
Land 40,000
Buildings and equipment (50,000)
Long-term liabilities 20,000 35,000
Goodwill $ 120,000

ii) Consolidated statement of financial position on the date of acquisition:

Perks Company
Consolidated statement of financial position
As at December 31, 20X1

Cash (∑ – 18,000 Prof fees – 35,000 Share issue costs) $ 162,000

Accounts receivable (∑) 780,000
Inventory (∑ + 25,000 AD) 1,330,000
Land (∑ + 40,000 AD) 1,200,000
Buildings and equipment (∑ – 50,000 AD) 3,420,000
Goodwill (AD) 120,000
Total assets $ 7,012,000

Current liabilities (∑) $ 1,300,000

Long-term liabilities (∑ – 20,000 AD) 1,980,000
Ordinary shares ($1,000,000 + 540,000 – 35,000 Share issue costs) 1,505,000
Retained earnings ($2,105,000 – 18,000 Prof fees) 2,087,000
Non-controlling interest (FV of Serge’s net assets × 25%) 140,000
Total liabilities and equity $ 7,012,000

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

e) Under the INA method, the following is the total amount to be reported as shareholder’s
equity on the consolidated statement of financial position:
Ordinary shares of Parent less issuance costs $ 1,505,000
Parent’s equity at book value less professional 2,087,000
fees
NCI using INA approach 140,000
Consolidated equity $ 3,732,000
Source: Topics 1.9 and 1.10

Solution to Practice Problem 5

a) Purchase price allocation and consolidated statement of financial position:
Purchase price $ 20,000,000
Net assets of S acquired:
Ordinary shares $11,520,000
Retained earnings 5,202,000 16,722,000
Acquisition differential 3,278,000
Allocation of acquisition differential:
Cash and other receivables $ (302,000)
Inventories (1,800,000)
Land 1,700,000
Plant and equipment (560,000)
Trademark 3,000,000
Current liabilities 7,400
Bonds payable (27,400) 2,018,000
Goodwill $ 1,260,000
Posnan Company
Consolidated statement of financial position
As at December 31, 20X6

Cash and current receivables

(∑ – 1,300,000 Prof fees – 302,000 AD) $ 28,800,000
Inventories (∑ – 1,800,000 AD) 37,800,000
Land (∑ + 1,700,000 AD) 80,000,000
Plant and equipment (∑ – 560,000 AD) 142,000,000
Trademark (AD) 3,000,000
Goodwill (AD) 1,260,000
$ 292,860,000

Current liabilities (∑ – 7,400 AD) $ 25,560,000

Bonds payable (∑ + 20,000,000 New bond issue + 27,400 AD) 116,500,000
Ordinary shares 36,000,000
Retained earnings ($116,100,000 – 1,300,000 Prof fees) 114,800,000
$ 292,860,000

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

b) Posnan purchased 85% of the shares of Sosnan and accounts for the NCI using the FVE
method:
Note that given that this solution is practically identical to the one in part (a), changes are
identified in italics.

Purchase price imputed to 100% ($17,000,000 / 0.85) $ 20,000,000

Net assets of S acquired:
Ordinary shares $11,520,000
Retained earnings 5,202,000 16,722,000
Acquisition differential 3,278,000
Allocation of the acquisition differential:
Cash and other receivables $ (302,000)
Inventories (1,800,000)
Land 1,700,000
Plant and equipment (560,000)
Trademark 3,000,000
Current liabilities 7,400
Bonds payable (27,400) 2,018,000
Goodwill $ 1,260,000

Posnan Company
Consolidated statement of financial position
As at December 31, 20X6

Cash and current receivables (∑ – 1,300,000 Prof fees – 302,000 AD) $ 28,800,000
Inventories (∑ – 1,800,000 AD) 37,800,000
Land (∑ + 1,700,000 AD) 80,000,000
Plant and equipment (∑ – 560,000 AD) 142,000,000
Trademark (AD) 3,000,000
Goodwill (AD) 1,260,000
$ 292,860,000

Current liabilities (∑ – 7,400 AD) $ 25,560,000

Bonds payable (∑ + 17,000,000 New bond issue + 27,400 AD) 113,500,000
Common stock 36,000,000
Retained earnings ($116,100,000 – 1,300,000 Prof fees) 114,800,000
Non-controlling interest (20,000,000 × 15%) 3,000,000
$ 292,860,000

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Module 5.3 — Advanced Financial Reporting Week 1 — Practice Problems and Solutions

c) Posnan purchased 85% of the shares of Sosnan and accounts for the NCI using the INA
method:
Note: As this solution is practically identical to the one in part a), changes are identified in
italics.
Purchase price paid for 85% $ 17,000,000
NCI ($18,740,000* FV of Sosnan’s net assets × 15%) 2,811,000
19,811,000
Net assets of S acquired:
Ordinary shares $11,520,000
Retained earnings 5,202,000 16,722,000
Acquisition differential 3,089,000
Allocation of the acquisition differential:
Cash and other receivables $ (302,000)
Inventories (1,800,000)
Land 1,700,000
Plant and equipment (560,000)
Trademark 3,000,000
Current liabilities 7,400
Bonds payable (27,400) 2,018,000
Goodwill $ 1,071,000

Posnan Company
Consolidated statement of financial position
As at December 31, 20X6

Cash and current receivables (∑ – 1,300,000 Prof fees – 302,000 AD) $ 28,800,000
Inventories (∑ – 1,800,000 AD) 37,800,000
Land (∑ + 1,700,000 AD) 80,000,000
Plant and equipment (∑ – 560,000 AD) 142,000,000
Trademark (AD) 3,000,000
Goodwill (AD) 1,071,000
$ 292,671,000

Current liabilities (∑ – 7,400 AD) $ 25,560,000

Bonds payable (∑ + 17,000,000 New bond issue + 27,400 AD) 113,500,000
Ordinary shares 36,000,000
Retained earnings ($116,100,000 – 1,300,000 Prof fees) 114,800,000
Non-controlling interest (FV of S’s net assets × 15%) 2,811,000
$ 292,671,000

* $400,000 + 9,000,000 + 8,000,000 + 7,000,000 + 3,000,000 (trademark) – 2,160,000 –

6,500,000
Source: Topics 1.6, 1.9 and 1.10

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