Consolidation Subsequent To The Date Of Acquisition

Example:
The following are financial statements provided by FXS Group Bhd.
Statement of Comprehensive Income for the year ended 31 December 2011
FXS Bhd
CST Bhd
RM000
RM000
Turnover
200,000
120,000
Cost of sales
150,000
101,000
Gross profit
50,000
19,000
Profit from sale of non current assets
3,750

Less: Operating expenses

27,250
12,000
Profit before taxation
26,500
7,000
Less: Taxation
10,220
3,360
Profit for the period
16,280
3,640
Dividends paid
4,320

Retained profit for current year

11,960
3,640
Retained profit brought forward
25,840
8,360
Retained profit carried forward
37,800
12,000
Statement of Financial Position as at 31 December 2011
FXS Bhd
CST Bhd
RM000
RM000
Investment in CST Bhd
69,000

Other non-current assets (net)

126,000
80,000
Current assets
47,800
30,000
242,800
110,000
Financed by:
Ordinary shares (RM1 each)
160,000
80,000
Retained profit
37,800
12,000
Non-current liabilities
30,000
12,500
Current liabilities
15,000
5,500
242,800
110,000
Additional information:
1.

FXS Bhd acquired 70% of CST Bhd equity at RM69 million on 17 April 2008 when the
retained profit of CST Bhd was RM3.2 million. On that date, the fair value of the
remaining 30% non-controlling interest was RM28 million. Also included in the noncurrent assets of CST Bhd was an equipment recorded at cost of RM4.08 million. But the
equipment was said to have a fair value of RM7.38 million on the date of acquisition. No
adjustment has been made in both companies accounts to reflect the fair values of that
asset.

2.

In the year 2011, FXS Bhd sold a piece of land to CST Bhd at RM8.5 million. The land
was originally purchased on 24 July 2007 with a cost of RM4.75 million. No revaluation
has been made on the land since the date of acquisition.

3.

FXS Bhd purchased merchandise from CST Bhd at 120% on sales. In year 2011, the
related purchases was RM12 million and out of that amount, RM2.5 million still remain
in the FXS Bhds ending inventories. The corresponding ending inventories amount in
the prior year was RM5 million.

4.

CST Bhd sold a machine to FXS Bhd on 31 March 2009 for RM15 million. The carrying
value of this machine on this date was RM10 million. Group accounting policy is to
depreciate such assets using straight line method over a remaining life of 10 years and
provide a full year depreciation in the year of acquisition.

5.

The tax effects on unrealized profit for inter companies transactions need to be accounted
for.

6.

Assume no changes in the share capital for both companies and the companys income
tax rate remains 26% throughout the years.

REQUIRED:
(a)

Calculate the goodwill on consolidation assuming the companies used the fair value
method to record the non-controlling interest.

(b)

Prepare the relevant consolidation journal entries for the year ended 31 December 2011.

(c)

Prepare the consolidated statement of comprehensive income for FXS Bhd and its
subsidiary for the year ended 31 December 2011.

(d)

Prepare the consolidated statements of changes in equity for FXS Bhd and its subsidiary
for the year ended 31 December 2011.

(e)

Prepare the consolidated statement of financial position for FXS Bhd and its subsidiary as
at 31 December 2011.