Question 1 - Workings W1 Group Structure Parent

100% 1.1.X7 Daughter W2 Net Assets of Daughter at date of acquisition Ordinary shares of 1 each Retained earnings a. W3 Goodwill Parent investment at fair value - Cash paid Less Fair value of net assets at acquisition Goodwill on acquisition 10,800 (10,800) 0 9,000 1,800 10,800

Parent Ltd statement of financial position as at 1 January 20X7 Investment in Daughter Ltd 10,800 Cash (20,000 10,800) 9,200 Other net assets 25,000 45,000 Ordinary shares of 1 each 40,500 Retained earnings 4,500 45,000 Note: The investment is shown as its fair value of 10,800 and the cash has been reduced by consideration. Consolidated Statement of Financial Position Parent Statement of Investment in Daughter 10,800 Daughter Consolidated

Financial Position

Cash Other Net Assets

9,200 25,000 45,000 40,500 4,500 45,000

2,000 8,800 10,800 9,000 1,800 10,800

11,200 33,800 45,000 40,500 4,500 45,000

Ordinary Shares Retained earnings

Note: Parents investment in Daughter is cancelled out against the Ordinary shares and retained earnings of Daughter.

Question 1 b W3 Goodwill Parent investment at fair value 5,400 shares @2 Less Fair value of net assets at acquisition Goodwill on acquisition

10,800 (10,800) 0

Parent Ltd statement of financial position as at 1 January 20X7 Investment in Daughter Ltd Cash 000 Other net assets

10,800 20,

25,000 55,800 40,500 +

Ordinary shares of 1 each 5,400 45,900 Share Premium 5,400 * (21) Retained earnings

5,400 4,500 5

5,800 Note: the investment is shown as its fair value of 10,800 and the shares are issued at their fair value of 5,400 par value and 5,400 premium

Consolidated Statement of Financial Position Parent Statement of Investment in Daughter Cash Other Net Assets 10,800 20,000 25,000 55,800 45,900 5,400 4,500 45,000 Daughter Consolidated

Financial Position 2,000 8,800 10,800 9,000 1,800 10,800 22,000 33,800 55,000 45,900 5,400 4,500 55,800

Ordinary Shares Share Premium Retained earnings

Note: Parents investment in Daughter is cancelled out against the Ordinary shares and retained earnings of Daughter.

Question 2 Workings W1 Group Structure Parent

100% 1.1.X7 Daughter W2 Net Assets of Daughter at date of acquisition Ordinary shares of 1 each Retained earnings a. W3 Goodwill Parent investment at fair value - Cash paid Less Fair value of net assets at acquisition Goodwill on acquisition 16,200 (10,800) 5,400 9,000 1,800 10,800

Parent Ltd statement of financial position as at 1 January 20X7 Investment in Daughter Ltd 16,200 Cash (20,000 16,200) 3,800 Other net assets 25,000 45,000 Ordinary shares of 1 each 40,500 Retained earnings 4,500 45,000 Note: The investment is shown as its fair value of 16,200 and the cash has been reduced by consideration. Consolidated Statement of Financial Position

Parent Statement of Investment in Daughter Goodwill Cash Other Net Assets 16,200 3,800 25,000 45,000 40,500 4,500 45,000

Daughter

Consolidated

Financial Position 5,400 5,800 33,800 45,000 40,500 4,500 45,000

2,000 8,800 10,800 9,000 1,800 10,800

Ordinary Shares Retained earnings

Note: Because the cash paid exceeded the value of the net assets acquired, there was a difference on consolidation of 5,400 which appears in the consolidated statement of financial position as an asset goodwill this will be reviewed for pssible impairment. Question 2 b W3 Goodwill Parent investment at fair value 5,400 shares @3 Less Fair value of net assets at acquisition Goodwill on acquisition

16,200 (10,800) 5,400

Parent Ltd statement of financial position as at 1 January 20X7 Investment in Daughter Ltd Cash 000 Other net assets 1,200 Ordinary shares of 1 each 5,400 45,900 Share Premium 5,400 * (31) Retained earnings 1,200 Note: The investment is shown as its fair value of 16,200 and the shares are issued at their fir value of 5,400 par value and 10,800 premium. 40,500 +

16,200 20,

25,000 6

10,800 4,500 6

Consolidated Statement of Financial Position Parent Statement of Investment in Daughter Goodwill Cash Other Net Assets 16,200 20,000 25,000 61,200 45,900 10,800 4,500 61,200 2,000 8,800 10,800 9,000 1,800 10,800 5,400 22,000 33,800 61,200 45,900 10,800 4,500 61,200 Daughter Consolidated

Financial Position

Ordinary Shares Share Premium Retained earnings

Note: Because the value of the shares issued exceeded the value of the net assets acquired, there was a difference on consolidation, which is included as goodwill int eh statement of financial position.

Question 3 - Workings W1 Group Structure Parent

100% 1.1.X7 Daughter W2 Net Assets of Daughter at date of acquisition Ordinary shares of 1 each Retained earnings Fair Value adjustment a. W3 Goodwill Parent investment at fair value - Cash paid Less Fair value of net assets at acquisition Goodwill on acquisition 16,200 (12,000) 4,200 9,000 1,800 10,800 1,200 12,000

Parent Ltd statement of financial position as at 1 January 20X7 Investment in Daughter Ltd Cash (20,000 16,200) Other net assets 16,200 3,800 25,000 45,000 40,500 4,500 45,000

Ordinary shares of 1 each Retained earnings

Note: The investment is shown as its fair value of 16,200 and the cash has been reduced by consideration. Consolidated Statement of Financial Position

Parent Statement of Investment in Daughter Goodwill Revaluation increase Cash Other Net Assets 16,200

Daughter

Consolidated

Financial Position 4,200 1,200 5,800 33,800 45,000 40,500 4,500 45,000

3,800 25,000 45,000 40,500 4,500 45,000

2,000 8,800 10,800 9,000 1,800 10,800

Ordinary Shares Retained earnings

Note: The net assets in the consolidated statement of financial position will be increased by 1,200.

Question 3 b W3 Goodwill

Question 3 b W3 Goodwill Parent investment at fair value 5,400 shares @3 16,200 Less Fair value of net assets at acquisition Goodwill on acquisition 4,200

(12,000

Parent Ltd statement of financial position as at 1 January 20X7 Investment in Daughter Ltd 16,200 Cash 20,000 Other net assets 25,000 61,200 Ordinary shares of 1 each 40,500 + 5,400 45,900 Share Premium 5,400 * (3-1) 10,800 Retained earnings 4,500 61,200 Note: The investment is shown as its fair value of 16,200 and the shares are issued at their fir value of 5,400 par value and 10,800 premium. Consolidated Statement of Financial Position

Parent Daughter Consolidated Statement of Financial Position Investment in Daughter 16,200 Goodwill 4,200 Revaluation increase 1,200 Cash 20,000 2,000 22,000 Other Net Assets 25,000 8,800 33,800 61,200 10,800 61,200 Ordinary Shares 45,900 9,000 45,900 Share Premium 10,800 10,800 Retained earnings 4,500 1,800 4,500 61,200 10,800 61,200 Note: The net assets in the statement of financial position will be increased by 1,200. Question 4 - Workings W1 Group Structure Parent

100% 1.1.X7 Daughter W2 Net Assets of Daughter at date of acquisition Ordinary shares of 1 each 9,000 Retained earnings 1,800 10,800 W3 Goodwill Parent investment at fair value - Cash paid 6,000 Less Fair value of net assets at acquisition (10,800) Negative Goodwill on acquisition (4,800) Parent Ltd statement of financial position as at 1 January 20X7 Investment in Daughter Ltd Cash (20,000 6,000) 14,000 Other net assets 25,000 45,000 6,000

Ordinary shares of 1 each Retained earnings 4,500 45,000

40,500

Note: The investment is shown as its fair value of 6,000 and the cash has been reduced by consideration. Consolidated Statement of Financial Position Parent Daughter Consolidated Statement of Financial Position Investment in Daughter 6,000 Cash 14,000 2,000 16,000 Other Net Assets 25,000 8,800 33,800 45,000 10,800 49,800 Ordinary Shares 40,500 9,000 40,500 Retained earnings 4,500 1,800 4,500 Negative goodwill 4,800 45,000 10,800 49,800 Note: Because the cash paid was less than the value of the net assets acquired, there was a credit difference on consolidation, negative goodwill, which will be credited to the retained earnings.

Question 5 - Workings W1 Group Structure Parent

75% 1.1.X7 Daughter W2 Net Assets of Daughter at date of acquisition Ordinary shares of 1 each 9,000 Retained earnings 1,800 10,800

W3 Goodwill Parent investment at fair value

- Cash paid 9,000

Less Parents share of Daughters capital 75% * 9000 (6750) Parents share of Daughters Retained earnings 75% * 1,800 (1,350) Goodwill on acquisition 900 W4 Non-controlling Interest Share of Ordinary Shares 25% * 9000 2,250 Share of Retained Earnings 25% * 1,800 450 2700 Parent Ltd statement of financial position as at 1 January 20X7 Investment in Daughter Ltd 9,000 Cash (20,000 9,000) 11,000 Other net assets 25,000 45,000 Ordinary shares of 1 each Retained earnings 4,500 45,000 40,500

Note: The investment is shown as its fair value of 9,000 and the cash has been reduced by consideration. Consolidated Statement of Financial Position Parent Daughter Consolidated Statement of Financial Position Investment in Daughter 9,000 Goodwill 900 Cash 11,000 2,000 13,000 Other Net Assets 25,000 8,800 33,800 45,000 10,800 47,700 Ordinary Shares 40,500 9,000 40,500 Retained earnings 4,500 1,800 4,500 Non-controlling Interest 2,700 45,000 10,800 47,700

Question 7 a Workings W1 Group Structure Ham

100%

1.1.20X0 Burg W2 Net Assets of Burg at date of acquisition Ordinary shares of 1 each 100 Retained earnings 10

110

W3 Goodwill Ham - investment at fair value 90 Less Fair Value of Burgs net assets acquired (110) Negative Goodwill (20)

Consolidated Statement of Financial Position as at January 20X0 Assets Non-current assets Property, plant and equipment (250 + 100) 350 Current Assets (100 + 70) 170

Total Assets 520 Equity and Liabilities Capital and reserves Ordinary shares 200 Retained Earnings (160 + 20neg goodwill) 180 380 Current Liabilities (80 + 60) 140 Total equity and liabilities 520 b. See discussion in chapter Copyright: Financial Accounting and Reporting by Elliott & Elliott, 15th Edition, FT Prentice Hall