At 31 December 2020 Melmoth Ltd had one subsidiary, Bulwer Ltd, as well as a number of

small investments.
On 1 January 2021 Melmoth Ltd acquired 100% of the ordinary share capital of Jozini Ltd.
On 1 July 2021 Melmoth Ltd acquired 30% of the ordinary share capital of Pennington Ltd
giving Melmoth Ltd significant influence.
The draft summarised statements of financial position for Melmoth Ltd, Bulwer Ltd and
Jozini Ltd, at 31 December 2021 are shown below.
Melmoth Bulwer Jozinl
£ £ £
ASSETS
PPE 510,000 332,000 305,920
Intangible assets - 33,000
Investments 590,000 - -
1,100,000 365,000 305,920
Currents Assets
Inventories 80,400 28,600 41,080
Trade &other receivables 56,900 18,700 10,800
Cash & cash equivalents 3,400 1,800 2,300
Total assets 1,240,700 414,100 360,100
Equity
Ordinary share capital (£1 shares) 550,000 250,000 180,000
Share premium 110,000 - -
Retained earnings 180,400 117,900 103,400
Non-Current liabilities
Bank Loan 250,000 - -
Current liabilities
Trade & other payables 87,900 24,700 52,000
Income tax 62,400 21,500 24,700
Total equity and liabilities 1,240,700 414,100 360,100
Additional information
(1) Melmoth Ltd recognises goodwill and the non-controlling interests at the acquisition date
using the proportionate method.
(2) Melmoth Ltd acquired 80% of the ordinary share capital of Bulwer Ltd on 1 January 2018
for £300,000 when Bulwer Ltd’s retained earnings were £81,400.
The fair values of Bulwer Ltd’s assets acquired and liabilities assumed at the acquisition date
were equal to their carrying amounts.
At the acquisition date the statement of financial position of Bulwer Ltd included goodwill
with a carrying amount of £45,000 which had arisen on the acquisition of a sole trader. Since
1 January 2018 impairment losses of £12,000 have been recognised by Bulwer Ltd in relation
to this goodwill.
(3) The total consideration for the acquisition of Jozini Ltd was £275,000 cash, of which
£175,000 was paid on 1 January 2021.
The remaining £100,000 is payable on 1 January 2023 if the post-acquisition profits of Jozini
Ltd exceed a certain amount at that date. At 1 January 2021 the probability of Jozini Ltd
hitting the profit target was such that the fair value of the potential cash payment was
£65,000. At 31 December 2021 the probability had risen such that the fair value of the
potential cash payment was judged to be £80,000.
No accounting entries were made for the outstanding cash balance of £100,000.
The fair values of Jozini Ltd’s assets acquired and liabilities assumed at the acquisition date
were equal to their carrying amounts.
Jozini Ltd values its inventories on a standard cost basis compared with the group’s
accounting policy of a weighted average basis. Jozini Ltd’s inventory valuation based on the
group’s accounting policy would increase by £2,000 and £8,000 at 1 January and 31
December 2021 respectively.
The retained earnings of Jozini Ltd were £28,900 at 1 January 2021.
(4) Melmoth Ltd acquired its 30% share in Pennington Ltd for cash of £87,400 at 1 July 2021.
At that date Pennington Ltd owned a property which had a fair value £75,000 in excess of its
carrying amount with a remaining useful life of 15 years.
In the year ended 31 December 2021 Pennington Ltd made a profit of £134,000 which
accrued evenly over the year.
(5) In December 2021 Jozini Ltd sold goods to Bulwer Ltd and Melmoth Ltd for £9,000 and
£15,000 respectively at a mark-up of 20%. At 31 December 2021 Bulwer Ltd held all these
goods, Melmoth Ltd held half of these goods and both invoices remained unpaid.
(6) Melmoth Ltd has undertaken its annual impairment review of goodwill and identified
that an impairment of £7,000 needs to be recognised in relation to the goodwill arising on
the acquisition of Bulwer Ltd. At 31 December 2020 there were no cumulative impairment
losses relating to goodwill.
Requirements
1. Prepare the consolidated statement of financial position of Melmoth Ltd as at 31
December 2021. (23 marks)
2. Explain the single entity concept and the distinction between control and ownership by
reference to the consolidated statement of financial position of Melmoth Ltd. (5 marks)