QUESTION 1

On 1 October 2018, ABC Ltd acquired 37 500 ordinary shares in XYZ Pvt Ltd. At the date of
acquisition, the retained earnings of XYZ Pvt Ltd amounted to $30 000. The acquisition of
shares was financed by the immediate payment of $10 000 cash together with the issue by ABC
Ltd of one share for each XYZ Pvt Ltd share acquired. At 1 October 2018, the fair value of a
ABC Ltd share was $2. At 31 December 2018, only the payment of cash had been accounted
for.
At the date of acquisition, the fair value of the non-controlling interest in XYZ Pvt Ltd was $20
000.
The statements of financial position of the two entities at 31 December 2018 were as follows:
ABC XYZ
$ $
Non-current assets 210 000 110 600
Current assets 113 100 43 400
Investment in XYZ 10 000
––––––– –––––––
333 100 154 000
––––––– –––––––

Ordinary share capital @ $1 100 000 50 000

Retained earnings 157 000 38 000
Sundry payables 76 100 66 000
––––––– –––––––
333 100 154 000
––––––– –––––––
Required:
Prepare the consolidated statement of financial position of ABC Ltd and its subsidiary as
at 31 December 2018.

SOLUTION Q1
Consolidated statement of financial position as at 31 December 2023
$
Assets
Non-current assets
 Intangible – goodwill (W3) 25,000
Other (210 + 110.6) 320,600
–––––––
345,600
Current assets (113.1 + 43.4) 156,500
–––––––
502,100
–––––––
Equity and liabilities
Issued share capital (100,000 + 37,500(W3)) 137,500
Share premium (W3) 37,500
Retained earnings (W5) 163,000
–––––––
338,000
NCI (W4) 22,000
–––––––
Total equity 360,000
Current liabilities (76.1 + 66) 142,100
–––––––
502,100
–––––––
Workings
(W1) Group structure – shareholdings in XYZ
Ordinary
Group 75%
Non-controlling interest 25%
–––––
100%
–––––
 (W2) Net assets of XYZ
At At
Acquisition reporting
date date
$ $
Share capital 50,000 50,000
Retained earnings 30,000 38,000
––––––– –––––––
80,000 88,000
––––––– –––––––
(W3) Goodwill
$
Cost of investment in XYZ:
Cash 10,000
Fair value of shares issued 37,500 × $2 75,000
(share capital 37,500 × $1 = $37,500)
(share premium 37,500 × $1 = $37,500) –––––––
85,000
Fair value of NCI in XYZ at acquisition 20,000
–––––––
105,000
Less: Net assets at acquisition (W2) (80,000)
–––––––
Goodwill at acquisition 25,000
–––––––
(W4) Non-controlling interest
$
Fair value of NCI in XYZ at acquisition 20,000
NCI share of post-acquisition retained 2,000
earnings: 25% × (88,000 – 80,000)(W2)
–––––––
22,000
–––––––
(W3) Group retained earnings
$
ABC: Retained earnings (given) 157,000
XYZ: 75% × (88,000 – 80,000)(W2) 6,000
–––––––
163,000
–––––––

QUESTION 2
North Ltd has acquired 100% of the shares of South Pvt Ltd. The statements of financial
position of both companies immediately after the acquisition are as follows:
 North Ltd South Pvt Ltd
$000 $000 $000 $000
Non-current assets
Intangible 4 000
Tangible 10 000 15 000
Investment in South Pvt Ltd 31 000

–––––– ––––––

41 000 19 000
Current assets
Inventory 10 000 4 000
Receivables 2 000 4 000
Cash 1 000 4 000

–––––– 13 000 –––––– 12 000

–––––– ––––––

Total Assets 54 000 31 000

–––––– ––––––

Share capital $1 10 000 10 000

Retained earnings 40 000 11 000

–––––– ––––––

50 000 21 000
Loans 1 000 8 000
Current liabilities 3 000 2 000

–––––– ––––––

Total Equity and Liabilities 54 000 31 000

–––––– ––––––

Additional Information
(i) North Ltd has recorded the cost of the investment in South Pvt Ltd at only the cash
consideration initially paid. Under the terms of the take-over a further $6 million must
be paid in two years' time.
North Ltd also issued two shares for every five it acquired in South Pvt Ltd. The market value
of North Ltd's shares at the date of acquisition was $1.40. Neither the share issue nor the
deferred consideration has yet been recorded by North Ltd.
(ii) South Pvt Ltd's intangible non-current asset is not capable of reliable external
measurement.
(iii)The long-term loan in South Pvt Ltd's statement of financial position is repayable in
three years' time and bears an annual interest rate of only 5% which is paid at the end
of each year.
(iv) The value of South Pvt Ltd's inventory which consists of finished goods is:
At cost $4m
NRV $8m
Profit allowance $3m
(v) South Pvt Ltd’s tangible non-current assets include an item whose market value is $3m
with carrying value being $2m. There is another item included whose carrying value is
$4m but no reliable market value exists for this item. A new asset would cost $20m and
be expected to last for four years. The asset held in South Pvt Ltd’s books is three years
old.
(vi) North Ltd intends to reorganise South Pvt Ltd and estimates that the cost of this will be
$2 million. South Pvt Ltd already has a provision for reorganisation as it planned to
restructure the company anyway, regardless of the merger with North Ltd. This
provision is for $500,000 and is included in South Pvt Ltd’s payables balance.

(vii) A court case is underway and South Pvt Ltd is being sued by an ex-employee for
damages. This matter has been treated as a contingent liability in the financial statements
of South Pvt Ltd. The legal advisors of South Pvt Ltd anticipate a liability of $1m arising
if South Pvt Ltd lose the case.
(viii) Current interest rates are 7%.
Required:
Consolidated statement of financial position

SOLUTION Q2

$000 $000
Cash paid for South Pvt (Ltd) 31 000
Deferred consideration (6 000 × 0.873) 5 238
Shares at market value (10 000 × 2/5 × $1.40) 5 600

–––––
 41 838
Fair value of net assets @ acquisition
Ordinary share capital 10 000
Pre-acquisition reserves 11 000
Fair value adjs (W1) (1 577)

–––––

(19 423)

–––––

Goodwill 22 415

–––––

Workings
(W1) Fair values computation
Book value FV adjs Fair value

Non-current assets – intangible 4 000 (4 000) 0

Loan (W2) (8 000) 423 (7 577)

Inventory 4 000 1 000 5 000

Non-current assets – tangible (W3) 15 000 2 000 17 000

Provisions – existing (500) 0 (500)

Contingencies 0 (1 000) (1 000)

–––––

Fair value adjustment (1 577)

–––––

(W2) Loan
Fair value of the loan will be the present value of the future cash flows arising under the loan.
Year Cash flow Discount factor Present value
1

8000 × 5% = 400 × –––– = 0.935 374

2 8000 × 5% = 400 x –––– = 0.873 349

3 8000 × 5% 400
+ Capital 8 000

–––––

8 400 × –––– = 0.816 6 854

––––– –––––

Total 7 577
(W3) Tangible non-current assets
* Depreciated replacement cost as follows:
One year remains of estimated four-year life so the DRC will be;

¼ × 20 000 = 5000.

Book value FV adjs Fair value

Item 1 2 000 1 000 3 000
Item 2 * 4 000 1 000 5 000
Others therefore 9 000 0 9 000

––––– ––––– –––––

Total 15 000 2 000 17 000

QUESTION 3
The statements of financial position of Alpha and its investee undertakings, Beta and Omega
at the 30 September 2019 are given below:
Alpha Beta Omega
$000 $000 $000 $000 $000 $000
Non-current assets 9 100 9 000 8 000

Investments 11 600 − −

–––– –––– ––––

20 700 9 000 8 000

Inventory 4 000 3 000 2 500
Receivables 3 000 2 500 2 000
Bank & cash 800 700 600

–––– –––– ––––

7 800 6 200 5 100

––––– ––––– –––––

28 500 15 200 13 100

––––– ––––– –––––

Share capital $1 5 000 4 000 4 000

Retained earnings 8 600 3 400 2 500

––––– ––––– –––––

13 600 7 400 6 500

Loans 8 000 2 000 2 000
Payables 3 100 2 500 1 700
Taxation 600 500 450
Overdraft 3 200 2 800 2 450

––––– ––––– –––––

6 900 5 800 4 600

––––– ––––– –––––

28 500 15 200 13 100

––––– ––––– –––––

Additional Information
(i) Alpha subscribed for all the shares in Beta a number of years ago on its incorporation.
(ii) On 1 June 2019, Alpha purchased 100% of the shares in Omega at an agreed value of
$1.90 per share.
(iii) Omega produced interim financial statements drawn up as at 1 June 2019 in connection
with the acquisition by Alpha. The statement of financial position of Omega at that date
showed the following (all in $000).
Non-current asset 7 875 Payables 1 600
Inventory 2 000 Taxation 300
Receivables 1 450 Overdraft 1 825
Cash and bank 600 Loans 2 000
Share capital 4 000
Retained earnings 2 200

––––– –––––

11 925 11 925
(iv) The non-current asset has no reliable market value indicator due to its specialist nature.
The price to buy a new equivalent asset at acquisition date would be $16,590. The asset in
the subsidiary is two years old and the expected useful economic life of such an asset is
four years.
(v) Depreciation in the books of Omega is calculated at 25% reducing balance basis and this
is the same in the group accounts.
(vi) The inventory of Omega which is shown in the interim financial statements at cost to
Omega of $2 million had an estimated net realisable value less reasonable profit allowance
of $2.1 million at 1 June 2019. Of the inventory of Omega in hand at 1 June 2019, 75%
had been sold by the 30 September 2019.
(vii) The long-term loan of Omega carries a fixed interest rate of 10% per annum, payable
on 31 May annually in arrears. The loan is redeemable at par on 31 May 2023. If the loan
had been issued on 1 June 2019 then the interest rate would have been 12%.
(viii) On 1 June 2019, Alpha took a decision to rationalise the group so as to integrate Omega.
The costs of rationalisation, which were borne by Alpha, were estimated to total $1.5
million and the process was due to start on 1 December 2019. The decision to reorganise
had been made public knowledge via a press release during September 2019.
(ix) Goodwill should be impaired by allowing for a 3% impairment loss for the period up to
30 September 2019.
Required:
Prepare the consolidated statement of financial position (CSFP) for the Alpha group at 30
September 2019.

QUESTION 4
ABC Ltd acquired 100% of the share capital of XYZ Pvt Ltd for $40,000 on 1.1.2015 when
the balance on the retained earnings of XYZ Pvt Ltd stood at $9,000. The statements of
financial position of the two companies are as follows at the 31.12.2018:

ABC Ltd XYZ Pvt Ltd

$000 $000 $000 $000

Non-current assets

Tangible 88 39
Investment in XYZ Pvt Ltd 40

––– –––

128 39

Current assets

Inventory 80 26

Receivables 24 32

Bank and cash 15

––– –––

104 73

––– –––

232 112

––– –––

Equity

Called-up share capital 100 24

Retained earnings 46 48

Current liabilities

Overdraft 14 10

Payables 72 30

––– –––

86 40

––– –––

232 112

––– –––

Additional Information
 (i) At the date of acquisition, the fair value of XYZ Pvt Ltd's tangible non-current assets
were $5 000 higher than their carrying value. They were estimated to have a remaining
useful economic life of ten years at this date. A full year's depreciation charge is made
in the year of acquisition.
(ii) The fair value of all other net assets were equal to their carrying values.
(iii)ABC Ltd's payables balance includes $6 000 payable to XYZ Pvt Ltd, and XYZ Pvt
Ltd's receivables balance includes $20 000 owing from ABC Ltd.
(iv) At the year end, it was established that XYZ Pvt Ltd had despatched goods to ABC Ltd
with a selling price of $9 000 and that ABC Ltd did not receive delivery of these items
until after the year end. At the same time, ABC Ltd had put a cheque in the post to XYZ
Pvt Ltd for $5 000 which also did not arrive until after the year end.

In addition to the goods in transit of $9 000, there were also some items included in ABC Ltd's
inventory which had been purchased by ABC Ltd at the price of $21 000 from XYZ Pvt Ltd.
XYZ Pvt Ltd had priced these goods at a markup of 20%.

(v) The group policy toward goodwill arising on consolidation is to subject it to an annual
impairment review. It was felt that the goodwill should be carried at 60% of its original
value.
Required:

A consolidated statement of financial position (CSFP) as at 31.12.2018 for the ABC Ltd Group.

SOLUTION TO Q4
Consolidated statement of financial position – ABC Ltd Group as at 31 Dec 2018

Workings $000
Goodwill (W3) 1.2

Tangible non-current assets(88 + 39 + 5 fair value adj – 2 depn onfair value adj) 130.0

Inventory (80 + 26 + 9 goods in transit – 5 pup) 110.0

Receivables (24 + 32 – 20 interco) 36.0

Bank & cash (15 + 5 cash in transit) 20.0

––––
 297.2

––––

Share capital 100.0

Retained earnings (W5) 77.2
Non-controlling interest (W4) 0.0
Overdraft (14 + 10) 24.0

Payables (72 + 30 – 6 interco) 96.0

––––

297.2
WORKING
(W1) Group structure

(W2) Net assets of subsidiary

Acquisition date Reporting date
Share capital 24 24
Retained earnings 9 48
Fair value adjustment 5 5

Depreciation adj (5 × 4/10) – (2)

PUP (W6) – (5)

––––– –––––

38 70

––––– –––––

(W3) Goodwill
Cost of investment 40
Fair value of net assets acquired (100% × 38 (W2)) (38)

–––

2
Impairment (40% x 2) (0.8)
 –––

Goodwill at reporting date 1.2

–––

(W4) Non-controlling interests

N/A

(W5) Retained earnings

ABC Ltd 46

XYZ Pvt (Ltd) (100% × (70 – 38)(W2)) 32

Impairment (W3) (0.8)

–––––

77.2

–––––

(W6) PUP
Goods in ABC Ltd inventory 21
Goods in transit 9

––––

30

PUP = 20/120 × 30 = 5

XYZ Pvt (Ltd) (sub) sold the goods – adjust W2 and inventory on CSFP.

––––

QUESTION 5
On 1 May 2018 K bought 100% of S paying $140,000 cash.
The summarised statements of financial position for the two companies as at 30 November
2018 are:
The following information is relevant:
K S
$ $
Non-current assets
Property, plant and equipment 138 000 115 000
Investments 162 000
–––––– ––––––
300 000 115 000
Current assets
Inventory 15 000 17 000
Receivables 19 000 20 000
Bank and cash 2 000 –
–––––– ––––––
36 000 37 000
–––––– ––––––
336 000 152 000
–––––– ––––––
Equity
Called-up share capital 114 000 40 000
Retained earnings 189 000 69 000
–––––– ––––––
303 000 109 000
Non-current liabilities
8% Debentures – 20 000
Current liabilities
Payables 33 000 23 000
–––––––– ––––––––
33 000 43 000
Total Equity & Liabilities 336 000 152 000

(i) The inventory of S includes $8 000 of goods purchased from K at cost plus 25%.
(ii) On 1 May 2018 a piece of plant with a carrying value of $30 000 had a fair value of
$48 000. It had a remaining life of 10 years as at this date.
(iii)Impairments to date total $5 100.
(iv) S earned a profit after tax of $9 000 in the year ended 30 November 2018 and did not
pay any dividends during the year.
(v) The debenture in S's books represents monies borrowed from K on 1 May 2018. All
of the debenture interest has been accounted for.
(vi) Included in K's receivables is $4 000 relating to inventory sold to S since acquisition.
S raised a cheque for $2 500 and sent it to K on 29 November 2018. K did not receive
this cheque until 4 December 2018.

Required:

Prepare the consolidated statement of financial position (CSFP) of the K group as at 30

November 2018.

SOLUTION TO Q5
Consolidated statement of financial position – K Group as at 30 November 2018
Workings $ $
Non-current assets
Goodwill (W3) 13,150
Property, plant and equipment (138,000 + 115,000 + 18,000 –1,050) 269,950
Investments (162,000 – 140,000 – 20,000) 2,000
––––––
285,100
Current Assets
Inventory (15,000 + 17,000 – 1,600 (W6)) 30,400
Receivables (19,000 + 20,000 – 4,000 interco) 35,000
Bank & cash (2,000 + 0 + 2,500 cash in transit) 4,500
––––––
 69 900
Total Assets 355,000
––––––
Equity
Share capital 114,000
Retained earnings (W5) 186,500
Non-controlling interest (W4) 0
300 500

Non-current liabilities
8% Debentures (0 + 20,000 – 20,000) –
Current liabilities
Payables (33,000 + 23,000 – 1,500 interco) 54,500
––––––
54 500
Total Equity and Liabilities 355,000

(W1) Group structure

(W2) Net assets of subsidiary
Acquisition Reporting
Date date
Share capital 40,000 40,000
Retained earnings (69,000 – (7/12 ×9,000)) 63,750 69,000
FV adj (48,000 – 30,000) 18,000 18,000
Depreciation adj(18,000 × 1/10 × 7/12) – (1,050)
––––––– –––––––
121,750 125,950
––––––– –––––––
(W3) Goodwill
Cost of investment 140,000
Fair value of net assets acquired
(100% × 121,750) (121,750)
––––––
Goodwill @ acquisition 18,250
Impairment (5,100)
––––––
Goodwill @ reporting date 13,150
––––––
(W4) Non-controlling interests
N/A
(W5) Retained earnings
K 189,000
PUP (W6) (1,600)
S (100% × (125,950 – 121,750)(W2)) 4,200
Impairment (W3) (5,100)
––––––––
186,500