ICAEW March 2020

Q4

Part 4.1
Chamba Ltd
Consolidated Statement of Financial Position
As at 30 September 2020
ASSETS £ £
Non-Current Assets
Property, plant and equipment (562,000+374,000+235,000–12,500) 1,158,500
Investments (565,000-290,000-250,000) 25,000
Intangible assets (40,000-6,000) 34,000
Goodwill 81,440
219,640
Current Assets
Inventories (72,000+59,400+35,300) 166,700
Trade and other receivables (47,800+31,000+29,400) 108,200
Cash and cash equivalents (7,100+3,200+1,800) 12,100
Total assets 287,000
1,585,940

EQUITY AND LIABILITIES

Equity attributable to owners of parent
Ordinary share capital (P only) 600,000
Share premium 200,000
Retained earnings 281,625
1,081,625
Non-controlling interests 197,515
Total equity 1,279,140
Current liabilities
Trade and other payables (93,000+40,9000+31,900) 165,800
Income tax (80,000+37,000+24,000) 141,000
306,800
1,585,940
Part 4.2

Journal entries:
2019 £ £
Sept 30 Dr. Net Assets 251,000
Intangible assets – Brand (40,000 – 6,000) 34,000
Goodwill 20,000
Amortisation expense – Brand 6,000
Impairment loss – Goodwil 3,000
Cr. Investment 250,000
NCI 64,000
(To record goodwill relating to the acquisition of
subsidiary)

WORKINGS:

(1) Group structure

Chamba Ltd

65% 80%

Hejazi Ltd Surati Bhd

(2) Fair value of identifiable assets acquired and liabilities assumed.

At year end At acquisition Post-acquisiton
Hejazi Ltd
Share capital 300,000 300,000 0
Retained earnings 89,700 42,400 47,300
389,700 342,400 47,300
Surati Ltd
Share capital 200,000 200,000 0
Retained earnings 79,600 91,000 (11,400)
279,600 291,000 (11,400)

Adjustment: Note 1
Internally-generated brand should be recognised in group accounts.
At acquisition, retained earnings = 51,000 + 40,000 = 91,000
At year end, retained earnings = 45,600 + (40,000 – 6,000) = 79,600
*Amortisation expense = 40,000/5 × 9/12 = 6,000
(3) Goodwill
Hejazi Ltd Surati Ltd Total
RM RM RM
Consideration transferred 290,000 250,000
NCI at acquisition
Subsidiary 1 (35% x 342,400) 119,840
Subsidiary 2 (fair value) 64,000
(-) Fair value of identifiable assets acquired
and liabilities assumed (342,400) (291,000)
Goodwill 67,440 23,000 90,440
(-) Impairment to date (6,000) (3,000) (9,000)
Goodwill c/f 61,440 20,000 81,440

Adjustment: Note 2
Consideration transferred at acquisition date
Hejazi Ltd
Paid on 1 October 2015 190,000
Deferred until 1 October 2016 (105,000/1.05) 100,000
290,000

(4) Non-controlling interest

Hejazi Ltd
Share of fair value of net assets at acquisition 119,840
(35% x 342,400)
Share of post-acquisition (35% x 47,300) 16,555
119,840
136,395
Share of fair value of net assets at acquisition 64,000
Share of post-acquisition (20% x (11,400)) (2,280)
61,720
(-) Impairment (600)
61,120
Non-controlling interest 197,515
(5) Retained earnings

Chamba Ltd (P) 280,900

Hejazi Ltd (65% x 47,300) 30,745
Surati Ltd (80% x (11,400)) (9,120)
Goodwill impairment to date
Hejazi Ltd (6,000)
Surati Ltd (80% x 3,000) (2,400)
Unrealised gain – PPE (12,500)
281,625

(6) Unrealised gain – PPE (Note 4)

Assets in Hejazi Ltd (63,000 – 10,500) 52,500

Assets in Chamba Ltd (48,000 – 8,000) (40,000)
Unrealised gain 281,625

*Depreciation expense in: Hejazi Ltd (63,000/6) = 10,500

Chamba Ltd (48,000/6) = 8,000

Adjustment:
Dr. Retanied Earnings 12,500
Cr. PPR 12,500