Q1 part A ( i)

When calculating goodwill an entity should be include all types of purchase consideration including any
deferred consideration which is include at it present value and even recorded as liability, this is liability is
then unwounded at each year end.

In case of chandler, hill should be incorporate $ 29( $39m*5%) as deferred consideration while
calculating goodwill , further the liability shall also be unwound by $1.45M( 29*5%) which would result
the liability of $30.45M .

Hill Should be recognize the following adjustment correction:

Dr Goodwill $29M

Cr deferred consideration $29M

Dr finance cost $1.45M

Cr Deferred consideration $1.45M

All asset and Liability of subsidiary should be measured at fair value at the date of the Acquisition and
this fair value can be measured up to 12 months from the date of Acquisition

In case of chandler, the fair value of land at the date of the Acquisition was reduced by $ 10M after 3
months from the date of purchase, therefore, should be considered as pre acquisition fair value
adjustment.

Hill should be recognizing the following adjustment for correction

Dr NCI $2M

Dr goodwill $8M

Cr land $10M

In case of impairment of partial goodwill the impairment loss is the amount by which carrying amount
exceed the recoverable Amount , the carrying Amount and recoverable amount are multiplied by the
holding percentage of the parent before calculating the impairment loss , any loss is only allocated to
Parent .

In case chandler, an impairment loss of 20.6M( W1) should be recognized in profit and loss Account ,

Hill should be recognizing the following Adjustment

Dr PNL 20.6M

Cr goodwill 20.6M
Working 1

Goodwill w2

Cost 179
FV of NCI 0
179
Less : FV of NA 128 ( 160*80%)
Goodwill 51

W1 – Impairment loss

Net Asset (170-10+52) *80% 169.6

Goodwill 51

CA 220.6

Less recoverable Amount 250*80% 200

Impairment loss 20.6

Disposal of subsidiary

In case of disposal the subsidiary is derecognized from the consolidated financial statement by
derecognizing its net asset , goodwill, NCI, After recording the consideration received , the balancing
figure is the gain or loss on disposal of subsidiary

Doyle should recognize a gain of $47M in the financial statement

Investment in Associate 300

Dr bank 140M

Dr NCI (W3) 247

Cr net Asset 590

CR goodwill 50

Cr PNL 47

W3 NCI

At Acquisition 215

NCI% of post Acquisition profit 32 ( 590-510)*40%

NCI 247

After the share sale, Hill owns 40% of Doyle’s shares and has the ability to appoint two of the six

members of Doyle’s board of directors. IAS 28 Investments in Associates and Joint Ventures states

that an associate is an entity over which an investor has significant influence. Significant influence is

presumed when the investor has a shareholding of between 20 and 50%. Representation on the board of

directors provides further evidence that significant influence exists.

Therefore, the remaining 40% shareholding in Doyle should be accounted for as an associate. It will be

initially recognized at its fair value of $300 million and accounted for using the equity method. This

means that the group recognizes its share of the associate’s profit after tax, which equates to $24·6

million ($123m x 6/12 x 40%). As at the reporting date, the associate will be carried at $324·6 million

($300m + $24·6m) in the consolidated statement of financial position