The following draft statement of financial positions relate

to Largo #4704
The following draft statement of financial positions relate to Largo, a public limited company,
Fusion, a public limited company and Spine, a public limited company, as at 30 November
20X3.The following information is relevant to the preparation of the group financial
statements:(i) Largo acquired 90% of the ordinary share capital of Fusion and 26% of the
ordinary share capital of Spine on 1 December 20X2 in a share for share exchange when the
accumulated reserves were Fusion $136 million and Spine $30 million. The fair value of the net
assets at 1 December 20X2 was Largo $650 million, Fusion $330 million and Spine $128
million. Any increase in the consolidated fair value of the net assets over the carrying value is
deemed to be attributable to property held by the companies. There had been no new issue of
shares since 1 December 20X2. (ii) In arriving at the fair value of net assets acquired at 1
December 20X2, Largo has not accounted for the deferred tax arising on the increase in the
value of the property of both Fusion and Spine. The deferred tax arising on the fair valuation of
the property was Fusion $15 million and Spine $9 million.(iii) Fusion had acquired a 60%
holding in Spine on 1 December 19W9 for a consideration of $50 million when the accumulated
reserve of Spine was $10 million. The fair value of the net assets at that date was $80 million
with the increase in fair value attributable to property held by the companies. Property is
depreciated within the group at 5% per annum.(iv) The directors of Largo wish to account for the
business combination as a uniting of interests. On 1 December 20X2, before the share
exchange, the market capitalization of the companies was $644 million: Largo; $310 million:
Fusion; and $310 million: Spine. The number of employees of Largo was 50% more than the
combined total of the employees of both Fusion and Spine. The new Board of Directors will
comprise ten directors, seven of whom will be nominated by Largo. As a result of the directors'
wish to use the pooling accounting method, the cost of the investment in Fusion and Spine,
shown in the financial statements of Largo, is simply the nominal value of the share capital
issued. The directors feel that pooling accounting is appropriate as former institutional
shareholders of Fusion own a substantial amount of equity in the new business combination
with the result that Largo cannot dominate the new business combination because of their
influence over the management of the new entity.(v) Largo purchased a 40% interest in Micro, a
limited liability investment company on 1 December 20X2. The only asset of the company is a
portfolio of investments which is held for trading purposes. The stake in Micro was purchased
for cash for $11 million. The carrying value of the net assets of Micro on 1 December 20X2 was
$18 million and their fair value was $20 million. On 30 November 20X3, the fair value of the net
assets was $24 million. Largo exercises significant influence over Micro. Micro values the
portfolio on a 'mark to market' basis.(vi) Fusion has included a brand name in its tangible non-
current assets at the cost of $9 million. The brand earnings can be separately identified and
could be sold separately from the rest of the business. The fair value of the brand at 30
November 20X3 was $7 million. The fair value of the brand at the time of Fusion's acquisition by
Largo was $9 million.Required:Prepare the consolidated statement of financial position of the
Largo Group at the year ended 30 November 20X3 in accordance with International Financial
Reporting Standards, explaining the reasons why pooling of interests accounting would not be
used for the business combination.View Solution:
The following draft statement of financial positions relate to Largo

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