Comprehensive Illustrations solution - consolidation

Comprehensive Illustrations solution - consolidation -...

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Unformatted text preview: Comprehensive Illustration 1 (H & S) Statement of Financial Position before acquisition: H Limited S Limited $m $m Tangible non-current assets 500 350 Investment in S Limited 525 Current assets Cash 805 500 Accounts Receivable 700 420 Inventories 200 100 Total assets 2,730 1,370 Share Capital ($1 each) 800 300 Share Premium 190- Retained Profits: At acquisition 450 400 After acquisition 400 300 Total equity 1,840 1,000 Current liabilities Accounts payable 890 370 Total equity and liabilities 2,730 1,370 H Limited acquired 70% the shares in S Limited by an exchange of one share in H for every two (2) shares in S, plus $0.5 per acquired S share in cash. The market price of each Hs share at the date of acquisition was $4, and the market price of each Ss share at the date of acquisition was $2.5. At the date of acquisition, the fair values of Ss assets were equal to their carrying amounts. S Ltd declared and paid $80m dividends from current year profits. H Ltd account for the dividend received as dividend income in its statement of income. Required: (i) Calculate the goodwill arising on acquisition of S Limited using: (a) Fair value approach (b) Net asset approach (ii) Prepare the consolidated journal entries, using fair value approach to determine goodwill arising on acquisition. (iii) Prepare the consolidation statement of financial position for H Group after acquisition. Comprehensive Illustrative 1 (H & S) (i) (a) Goodwill in S: Fair value approach $m $m Cost of investment: Shares issued (210/2 x $4) 420 Cash (210 x $0.5) 105 Total consideration 525 Equity shares of S 300 Pre-acquisition reserves 400 700 x 70% 490 Parents share of goodwill 35 Fair value of NCI at date of acquisition 90 shares at $2.5 225 NCI share of Shoulders net asset at date of acquisition 700 x 30% 210 NCI share of goodwill 15 Total goodwill 50 OR $m $m Cost of investment: Shares issued (210/2 x $4) 420 Cash (310 x $0.5) 105 Total consideration 525 Fair value of NCI at date of acquisition 80 shares at $2.5 225 750 Equity shares of Shoulder 300 Pre-acquisition reserves 400 700 Total goodwill 50 (ii) Consolidated journal entries Debit (m) Credit(m) Share Capital - S 300 Retained Earnings - S 400 (b) Net asset approach Goodwill arising on consolidation 50 Investment in S 525 NCI 225 (W1 Elimination of investment in S) Dividend Income - H 56 NCI 24 Dividend declared and paid S 80 (W2 Elimination of inter-company dividend) Retained profits after acquisition 114 NCI (300+80) x 30% 114 (W2 allocation of post-acquisition profit to NCI) (iii) Consolidated Worksheet H S Debit Credit...
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This note was uploaded on 02/24/2012 for the course ACT 407 taught by Professor Mshui during the Fall '11 term at The Open University.

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Comprehensive Illustrations solution - consolidation -...

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