Question :
On 1 April 2015, Para acquired 70% of Sunna’s equity shares paying $205,800. The summarized statements of financial position of the two companies at 31 December 2015 are:
| Para | Sunna | Note | |
| $’000 | $’000 | ||
| Non-Current Assets | |||
| Property, Plant and Equipment | 200 | 230 | 1 |
| Investments | 256 | 10 | 2 |
| 456 | 240 | ||
| Current Assets | |||
| Inventory | 30 | 34 | 3 |
| Trade Receivables | 40 | 40 | 4 |
| Bank | 10 | 7 | |
| 80 | 81 | ||
| Total Assets | 536 | 321 | |
| Equity and Liabilities | |||
| Equity | |||
| Equity Shares | 266 | 80 | |
| Retained Earnings: | |||
| at 1 January 2015 | 170 | 120 | |
| for year ended 31 December 2015 | 20 | 20 | |
| 456 | 220 | ||
| Non-Current Liabilities | |||
| 10% Loan Notes | 40 | 5 | |
| 9% Loan Notes | 30 | ||
| 30 | 40 | ||
| Current Liabilities | |||
| Trade payables | 50 | 46 | |
| Other payables | 15 | ||
| 50 | 61 | ||
| Total Equity and liabilities | 536 | 321 |
At the date of acquisition, Para conducted a fair value exercise on Sunna’s net assets which were equal to their carrying amounts.
Para’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, a share price of Sunna of $2 each is representative of the fair value of the 44,100 shares held by the non-controlling interest.
Notes
The following information is relevant.
Note 1:
On 1 May 2015 Sunna transferred an item of plant to Para for $30,000. Its carrying amount at that date was $20,000. The asset had a remaining useful economic life of 5 years.
Note 2:
Investments:
- The Investments in Parra’s books represents amount for Sunna and outside group.
- The investments in Sunna’s books represents amount for outside group investment.
Note 3:
The inventory of Sunna includes $20,000 of goods purchased from Para at cost plus 30%.
Note 4:
Included in Para’s receivables is $8,000 relating to inventory sold to Sunna during the year. Sunna raised a cheque for $5,000 and sent it to Para on 1 December 2015. Para did not receive this cheque until 3 January 2016.
Note 5:
The loan note in Sunna’s books represents monies borrowed from Para during the year. All of the loan note interest has been accounted for.
Note 6:
An impairment loss of $2,000 is to be charged against goodwill at the year-end.
Required
Prepare the consolidated statement of financial position for Para as at 31 December 2015.
Answer :
| Working | ||
| W1 Group Structure | ||
| 70% | ||
| 1-Apr-15 | ||
| 9 month | ||
| W2 Net assets of investee ( go to W7 first) | Acquisition date | Reporting Date |
| share capital | 80,000 | 80,000 |
| Retained Earning (120 + 20/12 x 3 =125) | 125,000 | 140,000 |
| PURP-Plant (W7) | (8,667) | |
| Net asset | 205,000 | 211,333 |
| W3 Goodwill | ||
| Para paid | 205,800 | |
| NCI | 88200 | 44,100 x 2 |
| 294,000 | ||
| Less: | ||
| Fair value of Sunna’s net asset | 205,000 | |
| Goodwill | 89,000 | |
| Less Impairment | -2,000 | |
| Carrying Goodwill | 87,000 | |
| W4 Non-Controlling Interest | ||
| NCI at acquisition | 88200 | |
| NCI share of post acquisition | 1900 | (211,333 – 205,000)x 30% |
| Impairment Loss | -600 | 2,000 x 30% |
| 89500 | ||
| W5 Group Retained Earnings ( go to W6 first) | ||
| RE at Para’s reporting date | 190,000 | 170,000 + 20,000 |
| PURP-Inventory ( W6) | (4,615) | |
| Post Acquisition share | 4,433 | (211,333 – 205,000)x 70% |
| Impairment Loss | (1,400) | 2,000 x 70% |
| Group Retained Earning | 188,418 | |
| W6 PURP-inventory | 4,615 | 20,000/130 x 30 |
| W7 PURP-Plant | ||
| NBV transferred ( 30,000-30,000/5 x 8/12) | 26,000 | |
| NBV before transfered (20,000-20,000/5 x 8/12) | 17,333 | |
| PURP………………………………… | 8,667 | |
| Para Group | ||
| Consolidated Statement of Financial Position | ||
| Year Ended 31 December 2015 | ||
| Non-Current Assets | Explanation | |
| Goodwill (W3) | 87,000 | |
| Property, Plant and Equipment ( W7) | 421,333 | 200,000+230,000-8,667 |
| Investments (256,000 +10,000-205,800-40,00 ) | 20,200 | Note: eliminate group transactions, keep only outside group transaction |
| 528,533 | ||
| Current Assets | ||
| Inventory ( W6) | 59,385 | 30,000+34,000-4,615 |
| Trade Receivables | 72,000 | 40,000 + 40,000 – (5,000 + 3,000) |
| Bank | 22,000 | 10,000 + 7,000 + 5,000 |
| 153,385 | ||
| Total Assets | 681,918 | |
| Equity and Liabilities | ||
| Equity | ||
| Equity Shares | 266,000 | only parent’ share |
| Group Retained Earning (W5) | 188,418 | |
| Non-Controlling Interest ( W4) | 89,500 | |
| 543,918 | ||
| Non-Current Liabilities | ||
| 9% Loan Notes | 30,000 | Note: eliminated 10% loan note because of group loan |
| Current Liabilities | ||
| Trade payable | 93,000 | 50,000+46,000-3,000 |
| Other payable | 15,000 | |
| 138,000 | ||
| Total Equity and liabilities | 681,918 | |