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TOPIC 11
COMPLEX STRUCTURE : EFFECTIVE ACQUISITION DATE

QUESTION 1

On 31 December 2007, L Bhd acquired M Bhd for a consideration of RM75,000,000. On that

date, the net assets of M Bhd were RM85,000,000 (share capital of RM60,000,000 and retained
profits were RM25,000,000).

On 31 December 2009, M Bhd acquired N Bhd for consideration of RM36,000,000. On that

date, the net assets of N Bhd were RM65,000,000 (RM50,000,000 share capital and retained
profits of RM15,000,000).

The Statement of Financial Position of L Bhd, M Bhd and N Bhd as at 31 December 2012 are as follows:
L Bhd M Bhd N Bhd
RM’000 RM’000 RM’000
Ordinary share capital of RM1 each 100,000 60,000 50,000
Retained profits 65,000 55,000 25,000
165,000 115,000 75,000

Investment
48,000,000 shares in M Bhd 75,000 - -
30,000,000 shares in N Bhd - 39,000 -
Other net assets 90,000 76,000 75,000
165,000 115,000 75,000

Required:
a) State the effective acquisition date of the group.

b) Show the equity interest computation of group’s complex structure.

c) Using acquisition date share of identifiable net assets to measure the non-controlling
interest, calculate the goodwill on combination arising in the intermediate parent (M Bhd)
sub-group level and the goodwill in the ultimate group level (L Bhd).

d) Using consolidation of consolidation method (multiple stage method), prepare :

i. the consolidation journal entry
ii. the Consolidated Statement of Financial Position of L Bhd and its subsidiaries as at 31
December 2012.

Solution:
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(a) Deemed effective acquisition date : 31 December 2009.

(b)
M Bhd N Bhd
Group
Direct 80% -
Indirect (80% x 60%) - 48%

Minority Interest
Direct 20% 40%
Indirect (20% x 60%) - 12%

(c) Goodwill on consolidation:

M N
(RM) (RM)
Aggregate of:
Cash consideration 75,000 39,000
NCI at net asset
 25% x 85,000 17,000
 40% x 65,000 26,000
92,000 65,000

Less: Net assets 85,000 65,000

Goodwill on consolidation 7,000 0

d) (i) Consolidation JE

1. M Bhd + N Bhd
RM’00 RM’00
0 0
i Share capital (N) [60% x 50] 30000
Retained profit (N) – pre acquisition [60% x 15] 9000
Goodwill 0
Investment in N Bhd 39000
(to eliminate investment account)

ii Retained profit (N) [60% x (25-15)] 6000

Retained profit (M) 6000
(to transfer post-acquisition retained profit)

ii Share capital (N) [40% x 50] 20000

i
Retained profit (N) [40% x 25] 10000
NCI (SOFP) 30000
(to record NCI)
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2. L Bhd + (M Bhd + N Bhd)

RM’00 RM’00
0 0
i Share capital (M) [80% x 60] 48000
Retained profit (M) – pre acquisition [80% x 25] 20000
Goodwill on consolidation 7000
Investment in M Bhd 75000
(to eliminate investment account)

ii Retained profit (M) 28800

= 80% x [(55m-25m) + 60% x(25m-15m)]
= 80% x (30+6)
Retained profit (L) 28800
(to transfer post-acquisition retained profit)

ii Share capital (M) [20% x 60] 12000

i
Retained profit (M) – pre acqn [20% x (55+6m)] 12200
NCI (SOFP) 24200
(to record NCI)

iv NCI (SOFP) 0
Goodwill 0
To eliminate goodwill of sub group
(nil because there is no goodwill in sub group)

(d) (ii)
L Bhd and its subsidiaries
Consolidated Statement of Financial Position
As at 31 December 2012
RM’000
Goodwill on consolidation 7,000
Investment , at cost
Shares in M Bhd 0
Shares in N Bhd 0
Other net assets (90+76+75) 241,000
248,000

Share capital (100+60+50-30-20-48-12) 100,000

Retained profit (65+55+25-9-4-6-2-10-5) 93,800
NCI (4+26+10+17) 54,200
248,000
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