Exercise 6 Given Input Data

Summarized statements of financial position

Company AC BD CF
in thousands $ $'000 $'000 $'000

Assets
Non-current assets
Property, plant and equipment 25,700.00 28,000.00 15,000.00
Investments 34,300.00 - -
Current assets 17,000.00 14,000.00 6,000.00
Total assets 77,000.00 42,000.00 21,000.00

Equity and liabilities

Equity
Share capital ($1 ordinary shares) 30,000.00 20,000.00 8,000.00
Revaluation reserve 3,000.00 1,000.00 1,000.00
Other reserves 1,000.00 - -
Retained earnings 22,000.00 9,000.00 9,000.00
56,000.00 30,000.00 18,000.00
Liabilities
Non-current liabilities 6,000.00 4,000.00 -
Current liabilities 15,000.00 8,000.00 3,000.00
21,000.00 12,000.00 3,000.00
Total equity and liabilities 77,000.00 42,000.00 21,000.00

AC sold goods to CF
Sales value (in thousands $) 800.00
Goods remaining in inventories (in
thousands $) 400.00
Profit margin (%) 25%

Impairment of the goodwill from the acquisition of CF

Impairment (%) 30%
 Given additional information:
$'000
March 20X3 AC acquired 14 m $1 ordinary shares of BD for $18 m:
Ordinary shares of BD 14,000.00
Fair value of consideration 18,000.00

At the date of acquisition, BD had: Retained earnings 3,000.00

Revaluation reserve 1,000.00

01.07.20X8 AC acquired a further 20 % stake in BD for $7 m:

20 % shares of BD 7,000.00

31.12.20X8 BD made profits of $1.6 m: Profits 1,600.00

(accrued evenly throughout the year)

01.02.20X5 AC acquired 40 % of the shares of CF for $7 m:

40 % shares of CF 7,000.00

At the date of acquisition, CF had: Retained earnings 6,000.00

During the year, CF had: Revaluation gain 1,000.00

The remaining investment relates to an available for sale investment.

31.12.20X8 Investment (market value) 2,600.00

Percentage NCI

70% 30%

90% 10%

months July-December 6
20% months in a year 12

40%
a)  AC acquired $14m of $1 ordinary shares of BD on March 20X3 for $18m. The share capital of
70 per cent. AC has bought 70 per cent of $1 ordinary shares of BD. Since AC has over 50 per ce
financial activities of BD. Hence, BD is a subsidiary of AC. Later, AC acquired a further 20 per ce
the control over BD. Since the AC became a parent company as of the first acquisition of BD, BD
AC acquired 40 per cent of the $1 ordinary shares of CF. Therefore, AC ha
and CF is an associate company. In this case, the equity accounting method needs to be impl
The remaining investment relates to an available for sale investment. Therefore, it should be acco
for the year ended on 31 December 20X8.

$'000 %
Share capital of BD 20,000.00 100
Acquired ordinary shares of BD 14,000.00 70
18m. The share capital of BD was $ 20m. Therefore, ((14m*100%)/20m) equals to
nce AC has over 50 per cent of the shares of BD, it already has control over the
cquired a further 20 per cent shares of BD, which makes a total of 90 per cent of
first acquisition of BD, BD should be accounted for the full consolidation.
es of CF. Therefore, AC has a significant influence on the financial activities of CF,
method needs to be implemented.
herefore, it should be accounted for the market (fair) value in the accounts of AC
1) Goodwill for BD
March 20X3 in thousands $ in thousands $
$’000 $’000
Fair value of consideration 18,000.00

Fair value of net assets at date of acquisition

Ordinary share
(20000 x 70%)
14,000.00
Retained earnings
(3000 x 70%)
2,100.00
Revaluation reserve
(1000 x 70%)
700.00
16,800.00
1,200.00

2) Investment in CF
01.02.20X5 in thousands $ in thousands $
$’000 $’000
Fair value of consideration 7,000.00

Share of post-acquisition profits 1,200.00

(9000-6000 = 3000 x 40%)
Unrealized profits in inventory 40.00
((800/2 = 400 x 25%) = 100 x 40%)
Impairment of goodwill 420.00
(7000-((8000+6000) x 40%) = 1400 x 30%)
Revaluation gain 400.00
(1000 x 40%)
8,140.00

3) NCI for BD
in thousands $ in thousands $
$’000 $’000
NCI's share of the fair value of net assets at the
date of acquisition
Ordinary share 6,000.00
(20000 x 30%)
Retained earnings 2,460.00
 ((9000-1600)=7400+1600 x 6/12)=8200 x 30%)
Revaluation reserve 300.00
(1000 x 30%)
8,760.00

Retained earnings 80.00

((1600 x 6/12)=800* 10%)
8,840.00

NCI to OCE 5,840.00

((20000+8200+1000)=29200 x 20%)
3,000.00

4) Retained earnings
in thousands $ in thousands $
$’000 $’000
Retained earnings of AC 22,000.00

BD - Post-acquisition profits 4,360.00

(9000-2100-(2460+80))
Share of associates post-acquisition profits 1,200.00
(9000-6000=3000 x 40%)
Unrealized profits in inventory 40.00
((800/2=400 x 25%)=100 x 40%)
Impairment of goodwill 420.00
((7000-(8000+6000) x 40%)=1400 x 30%)
27,100.00

5) OCE
in thousands $ in thousands $
$’000 $’000
Fair value of consideration 7,000.00

From NCI 5,840.00

1,160.00
 Consolidated financial statement of AC group as of 31.

in thousands $
$’000
Assets
Non-current assets
Property, plant and equipment 53,700.00
Goodwill 1,200.00
Investment in associate 8,140.00
Investments 2,600.00
Total non-current assets 65,640.00

Current assets
~ of AC 17,000.00
~ of BD 14,000.00
Total current assets 31,000.00

Total assets 96,640.00

statement of AC group as of 31.12.20X8

in thousands $
$’000
Equity and liabilities
Equity
Equity shares of $1 each 30,000.00
Revaluation reserve 3,400.00
Other reserves 1,300.00
Retained earnings 27,100.00
Other components of equity 1,160.00
Equity attributable to equity holders of the parent 60,640.00
Non-controlling interest 3,000.00
Total equity 63,640.00

Liabilities
Non-current liabilities 10,000.00
Current liabilities 23,000.00
Total liabilities 33,000.00

Total equity and liabilities 96,640.00