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1) Investment in Sub
Goodwill
Consideration transferred
Cash
Deferred (5,400 x 1/1.08)
Non controlling interest (2,000 x $3.50)
32,000
5,000
7,000
5,000
Dr PPE
Cr Fair value adj
4,000
1,000
400
5,400
4,000
1,000
2) Investment in Associate
Goodwill
Consideration transferred
Share of net assets at fair value
Equity shares
10,000.00
Retained earnings (pre)
31,800 + (1,200 x 4/12)
32,200.00
10,000
42,200.00
x 25%
Bargain purchase
(10,550)
(550)
Cr Income (RE of P)
Dr Inv in A
3) Intra group
%
Sales
130
Cost
100
Profit
30
550
550
10,000
550
200
(2,500)
8,250
RE of P
(1,750)
$000
2,600
600
Dr RE of P
Cr Inventory
600
600
34,900
(400)
(1,750)
(600)
6,000
(1,500)
4,500
x 80%
3,600
35,750
7,000
900
7,900
Answer
Paladin
Consolidated statement of financial position as at 30 Sept 2011
$000
$000
Assets
Non current assets
Property, plant and equipment
(40,000 + 31,000 + 3,000 W1)
74,000
Intangibles (7,500 + 2,500 W1)
10,000
Goodwill W1
15,000
Investment in associate W2
8,250
107,250
Current assets
Inventory (11,200 + 8,400 - 600 W3)
19,000
Trade receivables (7,400 + 5,300 - 1,300 intra g 11,400
Bank
3,400
33,800
Total assets
141,050
Equity and liabilities
Equity attributable to owners of Paladin
Equity shares
Retained earnings W4
Non controlling interest W5
Total equity
50,000
35,750
85,750
7,900
93,650
23,000
Current liabilities
Bank
Trade payable (11,600 + 6,200 - 1,300 intra
Deferred consideration W1
Total equity and liabilities
2,500
16,500
5,400
24,400
141,050
Workings ($000)
1) Investment in Sub
Goodwill
Consideration transferred
Shares (75% x 8,000 x 3/2 x 3.20)
Contingent
Non controlling interest (4.50 x 2,000)
28,800
4,200
9,000
1,500
1,500
2) Investment in associate
Goodwill
Consideration transferred
(45,000 - 28,800 - 4,200 W1)
Share of net assets at fair value
Equity shares
5,000.00
Retained earnings (pre)
15,000 + (6,000 x 6/12)
18,000.00
23,000.00
x 40%
12,000
(9,200)
2,800
12,000
1,200
13,200
3) Intra group
Dr Inventory
Dr Payable (balancing)
Cr Receivable
Sales
Cost
Profit
%
150
100
50
1,800.00
1,600.00
3,400
$000
1,800
600
Dr RE of P
Cr Inventory
600
600
1,000.00
(3,800.00)
(100.00)
500.00
(2,400.00)
x 75%
27,200
1,500
1,200
(600)
(1,800)
27,500
At acq W1
Share of Sander post acq profit (-2,400 x 2
9,000
(600)
8,400
Answer
Picant
Consolidated statement of financial position as at 31 March 2010
$000
$000
Assets
Non current assets
Property, plant and equipment
(37,500 + 24,500 + 1,900 W1)
63,900
Goodwill W1
12,200
Investment in associate W2
13,200
89,300
Current assets
Inventory (10,000 + 9,000 + 1,800 - 600 W2 20,200
Trade receivables (6,500 + 1,500 - 3,400 W2 4,600
24,800
Total assets
114,100
Equity and liabilities
Equity attributable to owners of Picant
Equity shares
Share premium
Retained earnings (W4)
Non controlling interests (W5)
Total equity
25,000
19,800
27,500
72,300
8,400
80,700
16,500
Current liabilities
Contingent consideration (4,200 - 1,500 W1
Others (8,300 + 7,500 - 1,600 W2)
Total equity and liabilitites
2,700
14,200
16,900
114,100
Workings ($000)
1) Investment in Sub
Goodwill
Consideration transferred (2,000 x 60% x 9
Non controlling interest (40% x 13,000)
10,800
5,200
2) Intra group
Dr Revenue
Cr Cost of sales (purchase)
Sales
Cost
Profit
%
100
95
5
30,000.00
$000
4,000
200
Dr RE of S
Cr Inventory
30,000
200
200
20,000
(375)
Post loss
Additional depreciation W1
Unrealised profit W2
(3,000.00)
(300.00)
(200.00)
(3,500.00)
x 60%
(2,100)
17,525
5,200
(1,400)
3,800
Answer
Hydan
Consolidated statement of profit or loss for the year ended 31 March 2006
$000
Revenue (98,000 + 35,200 - 30,000 W2)
103,200
Cost of sales (76,000 + 31,000 + 300 W1 - 30,000 W2 + 20 (77,500)
Gross profit
25,700
Operating expenses (11,800 + 8,000 + 375 imp W1)
(20,175)
Interest income (350 - 200 intra group)
150
Finance cost (420 + 200 - 200 intra group)
(420)
Profit before tax
5,255
Income tax expense (4,200 - 1,000 relief)
(3,200)
Profit for the year
2,055
Profit for the year attributable to :Owners of Hydan (residual)
Non controlling interest 40% x (-3,000 - 300 W1 - 20
3,455
(1,400)
2,055
10,000
5,000
17,525
32,525
3,800
36,325
6,000
14,300
56,625
b) Systan post acq sales to Hydan, margin = 5%, external parties = 52%
Hydan passes huge amount of operating expenses to Systan in
post acq period.
Obviously Hydan acquired Systan only to secure the component supply.
Although the loss suffered by Systan is consolidated in the group result,
its loss will be shared by 40% non controlling interests, which is unfair
to them.
Hydan uses its controlling interest to take advantage on non controlling
interests. This is unethical and could be judge as fraud on minority.
Financial statements of Systan is not showing a true and fair view
without proper disclosure on these related parties disclosures.
Hydan obtains intangible return in the form of secured cheap supplies.
Assets
PPE cost
(+) provision 2 x 40%
(-) Dpn (6 + 0.8) / 10 yrs
Carrying amount at yr end
Income
6.00 Revenue (20 x 40%)
0.80
(0.68)
6.12
Receivable
8.00
Liab
Provision
(+) Unwinding finance cost
(0.80 x 5%)
Expense
0.80 Depreciation
Finance cost
0.04 Cost of sales (16 x 40%)
0.84 Operating cost (0.5 x 40%)
6.60
8.00
0.68
0.04
6.40
0.20
6. IAS 38, recognition of Int Asset needs reliable measurement. These intangible assets
however can be recognised in consol F/S as the group can measure them reliably.
At acq, measured at fair value (the cost at consol level), in post acq period, amortise
over the expected useful life.
7. Full & partial GW = accounting policy choices, apply to subs on case by case basis.
Full goodwill = higher net assets of the group, and if impairment, higher losses.
Also easier to test impairment as no re-gross of GW needed.
8. Generally, nature of consideration will not affect calculation of GW as they are
measure at fair value, except for :i) no subsequent remeasurement of GW for contingent consideration
ii) non financial asset transferred to sub is measured at carrying amount of
transferor.
9. Expected reorganisation cannot be recognised as provision (give reason).