BKAR3043 Financial Accounting & Reporting IV

BKAR 3043 Financial Accounting and Reporting IV

TUTORIAL 1 A202
Submission Date: 28/3/2021

QUESTION 1

JF Bhd acquired 60% interest in the equity capital of MN Bhd on 31 December 2020. At the
acquisition date, MN Bhd has disclosed in its notes to financial statement a contingent
liability of RM800,000 involving a pending lawsuit in which the lawyer advised that there
was a high probability that a company would lose the case.

Required:
Prepare consolidation journal entry of JF Bhd and MN Bhd.

QUESTION 2
TT Bhd acquired 60% interest in the equity capital of DD Bhd on 1 January 2020. The
purchased consideration was satisfied as follows:
 An immediate cash payment of RM1,000,000
 An amount of RM5,000,000 to be paid on 1 January 2022
 An issue of 2,000,000 TT’s shares issued at its fair value of RM6.00 each.

TT’s incremental borrowing cost was 5% per annum.

At the acquisition date, DD Bhd fair value of identifiable net assets is RM10 million (share
capital RM7 million, retained earnings RM2 million and revaluation reserve RM1 million).
Share price at the time of acquisition is RM1.50. Number of DD Bhd outstanding shares are 7
million units. TT Bhd uses proportionate share of net assets method to measure the non-
controlling interest.

Required:

(a) Calculate the cost of investment and prepare journal entry to record the acquisition.
(b) Compute goodwill on consolidation.
(c) Prepare consolidation journal entry at 1 January 2020.
(d) If NCI is measured at fair value, determine goodwill on consolidation. Prepare
consolidation journal entry.

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 BKAR3043 Financial Accounting & Reporting IV

QUESTION 3
TIME Bhd acquired 70% interest in Red Bhd on 31 December 2020. The acquisition was
paid in cash RM180,000 and issued 30,000 shares at market value of RM15 per share. The
fair value of the remaining 30% non-controlling interest was RM270,000. Other costs
incurred for the acquisition were legal fees RM8,000, consulting fees RM12,000 and
incidental costs RM10,000. The statement of financial position of TIME Bhd and Red Bhd
and the fair value of Red assets and liability on that date are as follows:
TIME Bhd Red Bhd
Cash RM 230,000 RM 35,000
Investment in Red Bhd 630,000 -
Account Receivable 100,000 50,000
Inventories 90,000 60,000
Land 400,000 200,000
Building – net 450,000 300,000
Equipment – net 320,000 140,000
Total assets RM2,220,000 RM 785,000
========== ==========
Share capital RM1,500,000 RM 300,000
Retained earnings 420,000 390,000
Long-term loan - 60,000
Account payables 300,000 35,000
Total liabilities and equity RM2,220,000 RM 785,000
========== ==========
All asset and liabilities were at fair value except:
Book value Fair value
Land RM 200,000 RM 250,000
Building – net 300,000 350,000
Equipment – net 140,000 150,000

TIME Bhd uses the fair value method to measure the non-controlling interest.

REQUIRED:
a) Prepare journal entries to record the acquisition of Red.
b) Calculate goodwill on consolidation.
c) Prepare consolidation journal entries of TIME Bhd and Red Bhd at 31 December 2020.
d) Prepare the Consolidated Statement of Financial Position of TIME Bhd and Subsidiary as
at 31 December 2020.
e) Prepare consolidation journal entry for NCI, if NCI is measured at proportionate share of
net asset method.