STUDY UNIT 4:

INTERIM ACQUISITIONS
Group statements Vol 1 Chapter 8
 OUTCOMES OF THE STUDY
UNIT
• Determine the effective date of acquisition of a
subsidiary in accordance with the requirements of IFRS 3
• Allocate individual items of profit or loss between the
pre-acquisition and post-acquisition periods; and
• Prepare Consolidated Financial Statements in accordance
with generally accepted accounting practice.
 INTERIM ACQUISITIONS
 This is when the parent acquires an interest in the subsidiary sometime during the
CURRENT REPORTING PERIOD.
 In such a case we need to split the profit of S Ltd in the current year between
the pre-and post-acquisition periods. The Pre acquisition profits become part of
Retained earnings.
 If consolidated financial statements were prepared at date of acquisition i.e. the
interim acquisition date then there is a need to separate the 12 month income,
expenses and other comprehensive income into pre and post acquisition periods
and the pre-acquisition is added to Retained earnings at acquisition.
 SPLITTING PROFITS
 Income and expenses must be examined individually in order to determine the basis on which each
item should be apportioned
 If profits are accrued evenly during the year, the split is simply done on a pro-rata basis based
on the number of months before and after the acquisition date. For example
 Accrue on daily basis: depreciation, water and electricity, administrative expenses, interest,

 However, look out for items that did not accrue evenly.
 Accrue on a specific date: profit on the sale of PPE,directors ‘ remuneration etc.

 Allocation of TAX
 Apportioned according in the ratio of the taxable income i.e. apportioned
to recalculated profits before and since acquisition
 ALLOCATION OF OCI & SCE ITEMS

• OCI items
are mainly allocated to the date of the fair valuation/revaluation e.g the Market to market
reserve in shares and the revaluation surplus both should be included in the actual period they
occurred.
• SCE Items
Cumulative preference dividends
These are term costs which should be allocated pro rata even if they are not declared.
Ordinary dividend
These are only taken into account in the period the dividend is declared.
 EXAMPLE

H Ltd S Ltd
Year end 31 December 2022 N$ N$
Revenue 550 000.00 440 000.00
Cost of sales 300 000.00 240 000.00
Operating expenses 50 000.00 40000.00
Income tax expense 56 000.00 51200.00
Dividends paid (31/12/2022) 40 000.00 80 000.00

Additional Information
 Sales and cost of sales increased by 10% from 1 April
 H Ltd acquired 60 000 shares in S Ltd on 1 April 2022. Operating expenses accrued evenly during the
2022 (for cost N$160 000). The net assets of S year.
Ltd consisted of the following:  Prepare the analysis of owners’ equity that will be
 Share capital 80 000 used to consolidate S Ltd. (Tax rate 32%)
 Retained earnings (2022/01/22) 110
000
 SOLUTION
• W1 :GROUP STRUCTURE
DOA: 01/04/22
RD: 31/12/22
DOC: 60000/80000*100%= 75% NCI 25%
W2: Split SCI items
Revenue and Cost of sales increased by 10% from 1 April therefore calculate the amount of
Revenue and COS before and after the increase which is also the date of acquisition
 USE A MATHEMATICAL EQUATION
TO SPLIT REVENUE &COS
Say the monthly Revenue before 1 April 2022 is equal to x

• Then 3x + (9 x 1.1)x = 440 000 or 3x+(9x*1.1)=12,9x=440 000

• = 12.9x = 440 000

• If we solve for x : x = 34 109 = monthly sales before 1 April 2022

 Which means that monthly sales after 1 April 2022 = 34 109 x 1.1 = 37 519
• Monthly Cost of Sales before 1 April 2022= 34 109 x 240/440 = 18 605
 Monthly Cost of Sales after 1 April 2022 = 37 519 x 240/440 = 20 465
 Note that the effective tax rate (as derived from information in the question)
is 32%.
•This is calculated as 51 200 / 160 000 (profit before tax) = 32%
 APPORTIONMENT
01/01/2022 – 01/04/2022 – Total
31/03/2022 31/12/2022

Revenue (1) 102 326 337 674 440 000

Cost of sales (2) (55 815) (184 185) (240 000)
(10 000) (30 000) (40 000)
Operating expenses (3)
Profit before tax 36 511 123 489 160 000

Taxation (4) (11 684) (39 516) (51 200)

Profit for the period 24 827 83 973 108 200

 WORKINGS
(1)34 109 x 3 = 102 326; 37 519 x 9 = 337 671 made *337674

(2)240/440 of the amounts in (1)

(3)40 000 x 3/12 = 10 000; 40 000 x 9/12 = 30 000

(4)32% of the profit before tax

•* You may find small differences due to rounding
 ANALYSIS
TOTAL H LTD (75%) NCI (25%)

AT SINCE

AT ACQUISITION:
Share capital 80 000 60 000 20 000

Retained earnings (110 000 + 24 134 828 101121 33 707

828)

214828 161 121 53 707

Investment (consideration) (160 000)
1 121
Gain from bargain purchase

SINCE ACQUISITION:
Current year
Profit 83 972 62 979 20 993
Dividends paid (80 000) (60 000) (20 000)
218 800 2 979 54 700
 SELF STUDY AND HOMEWORK

•Self Study - Group Statements Text Book

•¡ Examples 8.1-8.4 & Question 8.1 and self assessment questions