Question Tag: Business Combinations

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  • 20 Marks

FR – May 2016 – L2 – Q3 – Business Combinations

Calculate goodwill and prepare the consolidated income statement for Panda Group, including post-acquisition adjustments.

On October 1, 2015, Panda purchased 75% of the equity shares in Sanda through a share exchange of two shares in Panda for every three shares in Sanda. The stock market price of Panda’s shares on October 1, 2015, was N6 per share.

The summarized statements of comprehensive income for the two companies for the year ending March 31, 2016, are as follows:

Item Panda (N’000) Sanda (N’000)
Revenue 675,000 360,000
Cost of Sales (390,000) (165,000)
Gross Profit 285,000 195,000
Distribution Costs (35,400) (18,000)
Administrative Expenses (40,500) (34,500)
Finance Costs (2,250) (1,800)
Profit Before Tax 206,850 140,700
Income Tax Expense (72,000) (41,700)
Profit for the Year 134,850 99,900
Other Comprehensive Income
Gain on Revaluation of Land 3,750 1,500
Loss on Fair Value of Equity Financial Asset (1,050) (600)
Total Comprehensive Income 137,550 99,900

Additional Information:

  1. Equity at October 1, 2015:
    • Panda: Equity Shares (N1 each) N375,000, Share Premium N150,000, Revaluation Reserve (Land) N12,600, Retained Earnings N135,000
    • Sanda: Equity Shares (N1 each) N240,000, Retained Earnings N220,500
  2. Immediately after acquisition, Panda transferred a plant item to Sanda valued at N7.5 million (carrying amount: N4 million). The plant had a remaining life of two and a half years, and depreciation is charged to cost of sales.
  3. After the acquisition, Sanda sold goods to Panda for N60 million, which cost Sanda N45 million. N18 million of these goods remained in Panda’s closing inventory.
  4. Non-controlling interest in Sanda is valued at fair value, set at N150 million by Panda’s directors.
  5. The goodwill of Sanda has not suffered impairment.
  6. All items in the comprehensive income statements accrue evenly over the year.

Required:

a) Calculate the amount paid by Panda and the goodwill arising on the acquisition of Sanda. (6 Marks)

b) Prepare the consolidated statement of comprehensive income for Panda Group for the year ending March 31, 2016. (14 Marks)

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  • 20 Marks

FR – May 2022 – L2 – SB – Q3 – Consolidated Financial Statements

Prepare a consolidated statement of financial position for Daddy PLC as of December 31, 2020, incorporating the acquisition of Mummy PLC.

Daddy PLC is a first-tier entity quoted on the Nigerian Stock Exchange (NSE). The entity acquired 640 billion equity shares in Mummy PLC on January 1, 2020. The purchase consideration comprised the following:

  • Issue of one ordinary share of Daddy PLC in exchange for every two shares in Mummy PLC.
  • Issue of N100 12% loan notes in Daddy PLC in exchange for every 400 shares in Mummy PLC.
  • A cash payment of 15 kobo per share for every share acquired in Mummy PLC on January 1, 2020.

At the date of acquisition, the market price of Daddy PLC’s shares was 75 kobo each. The cost incurred by banks when a fixed-rate loan is paid out early is assumed to be nil. Also, Daddy PLC has recorded the 12% loan notes in the purchase consideration in the accounts.

Below are the statements of financial position for Daddy PLC and Mummy PLC as of December 31, 2020:

Additional Information:

  1. Mummy PLC’s net assets were at fair value except for an item of property, which had a fair value N50 billion higher than its carrying amount.
  2. The fair value of non-controlling interests at the date of acquisition was N100 billion.
  3. Mummy PLC sold goods worth N20 billion to Daddy PLC. N5 billion of these were included in Daddy PLC’s inventory as of December 31, 2020.
  4. Goodwill impairment of N30 billion.

You are required to prepare the consolidated statement of financial position as at December 31, 2020.

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  • 22 Marks

FR – NOV 2016 – L2 – Q1c – Business Combinations (IFRS 3)

Complex consolidation question involving share exchange, fair value adjustments, intra-group transactions, associate investments and goodwill impairment.

On January 1, 2016 Kehinde Plc acquired 45million of the Equity shares of Taiwo Plc in a share exchange in which Kehinde Plc issued two (2) new shares for every three (3) shares it acquired in Taiwo Plc. This gave Kehinde Plc a holding of 90%, additionally on 31 December, 2016, Kehinde Plc will pay shareholders of Taiwo Plc N1.76 per share acquired. Kehinde Plc cost of capital is 10% per annum.

At the date of acquisition, the shares in Kehinde Plc and Taiwo Plc had a market price of N6.50 and N2.50 respectively.

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED SEPTEMBER 30, 2016

KEHINDE PLC TAIWO PLC
N’000 N’000
Revenue 323,000 190,000
Cost of Sales (256,000) (130,000)
Gross Profit 67,000 60,000
Distribution Cost (8,000) (9,000)
Administrative Expenses (19,000) (12,000)
Investment Income 2,500 –
Finance Cost (2,100) –
Profit before Tax 40,400 39,000
Income Tax Expenses (14,000) (8,000)
Profit for the year 26,400 31,000

Equity as at October 1, 2015:
Share Capital(N1 per share) 300,000 75,000
Retained Earnings 270,000 175,000

The following additional information is also relevant:

(i) At the date of acquisition the Fair Value of Taiwo Plc’s assets and liabilities were equal to their carrying amount with the exception of two items:

  • An item of plant had a fair value of N9million above the carrying amount. The remaining life of the plant at the date of acquisition was three (3) years. Depreciation is charged to cost of sales.
  • Taiwo Plc had a contingent liability which Kehinde Plc estimated to have a fair value of N2.25million. This has not changed as at September 30, 2016.
  • Taiwo Plc has not incorporated this fair value changes into its financial statements.

(ii) It is Kehinde Plc’s policy to value non-controlling interest at fair value at the date of acquisition. For this purpose, Taiwo Plc share price at the date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.

(iii) Sales from Kehinde Plc to Taiwo Plc throughout the year ended September 30, 2016 had consistently been N4million per month. Kehinde Plc made a mark-up of 25% on these sales. Taiwo Plc had N7.5million of these goods in inventory as at September 30, 2016.

(iv) Kehinde Plc’s investment income is a dividend received from its investment in a 40% owned associates which it has held for several years. The underlying earnings of the associate for the year ended September 30, 2016 were N10million.

(v) Although Taiwo Plc has been profitable since its acquisition by Kehinde Plc, the market for Taiwo Plc’s product has been badly hit in recent months and Kehinde Plc has calculated that the goodwill has been impaired by N10million as at September 30, 2016.

Required:

(i) Calculate the goodwill on acquisition of Taiwo Plc. (7 Marks)

(ii) Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive Income for Kehinde Plc group for the year ended September 30, 2016. (15 Marks)

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  • 3 Marks

FR – NOV 2016 – L2 – Q1b – Business Combinations (IFRS 3)

Calculation of gain on bargain purchase arising from business acquisition with consideration of fair values and non-controlling interests.

Harmony Limited acquired 70% interest in the equity shares of Foremost Limited for N3,000,000 on January 1, 2015. The abridged Statement of Financial Position of both companies at the date of acquisition were as follows:

HARMONY LIMITED FOREMOST LIMITED
N’000 N’000
Identifiable Assets 32,800 8,000
Investment in Foremost Limited 3,000 _____
35,800 8,000
Equity 24,000 4,800
Identifiable Liabilities 11,800 3,200
35,800 8,000

The fair value of the identifiable assets of Foremost Limited amounts to N11,200,000 and the fair value of its liabilities is N3,200,000. The Non-Controlling Interest will be measured as a percentage of the Net Asset of the acquiree.

Required:

Calculate the Gain on Bargain Purchase arising from the acquisition.

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  • 5 Marks

FR – NOV 2016 – L2 – Q1a – Business Combinations (IFRS 3)

Question tests understanding of IFRS 3 treatment of non-controlling interests and its impact on consolidated financial statements.

IFRS 3 on Business Combination permits a non-controlling interest at the date of acquisition to be valued by one of two methods. i. At its proportionate share of the subsidiary’s identifiable Net Assets or ii. At its Fair Value (usually determined by the directors of the parent Company).

Required:

Explain the difference that the accounting treatment of these alternative methods could have on the Consolidated Financial Statements, including where Consolidated Goodwill may be impaired.

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  • 1 Marks

FA – May 2014 – L1 – SA – Q12 – Partnership Account

This question tests knowledge of the term used when multiple partnerships combine to form a new partnership.

The process where two or more Partnerships combine to form a new Partnership is known as…………………

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  • 20 Marks

CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position

Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.

Phato Ltd, is a Public Limited Liability Company which operates in the service sector in Ghana. Phato Ltd has a business relationship with two other Ghanaian companies, Sakara Ltd and Saadi Ltd, which are public limited liability companies too. The draft statements of financial position of these three companies are as below as at 30 September 2019.

Phato Ltd GH¢ million Sakara Ltd GH¢ million Saadi Ltd GH¢ million
Assets:
Non-current assets
Property, plant, and equipment 460.0 150.0
Investment in subsidiaries
Sakara Ltd 365.0
Saadi Ltd 160.0
Investment in Azuri Ltd 24.0
Intangible assets 99.0 15.0
Total Non-current assets 948.0 325.0
Current assets 447.5 240.0
Total assets 1,395.5 565.0
Equity and liabilities:
Equity:
Share capital 460.0 200.0
Other components of equity 36.5 18.5
Retained earnings 447.5 221.0
Total equity 944.0 439.5
Non-current liabilities 247.5 61.5
Current liabilities 204.0 64.0
Total liabilities 451.5 125.5
Total equity and liabilities 1,395.5 565.0

Additional relevant information:

  1. Phato Ltd, on 1 October 2017, acquired 60% of the equity interests of Sakara Ltd. The cost of the investment comprised cash of GH¢360 million. At acquisition, the fair value of the non-controlling interest in Sakara Ltd was estimated at GH¢146 million. The fair value of the identifiable net assets acquired totaled GH¢417.5 million, including retained earnings of GH¢159.5 million and other components of equity at GH¢13.5 million. The excess in fair value results from non-depreciable land.
  2. Sakara Ltd, on 1 October 2018, acquired 70% of Saadi Ltd for GH¢160 million. The fair value of non-controlling interest was estimated at GH¢36 million. The fair value of the identifiable net assets of Saadi Ltd at acquisition was GH¢181 million, retained earnings GH¢53 million, and other components of equity GH¢10 million.
  3. Phato Ltd acquired a 14% interest in Azuri Ltd for GH¢9 million on 1 October 2017. On 1 April 2019, Phato Ltd acquired an additional 16% interest in Azuri Ltd for GH¢13.5 million, achieving significant influence.
  4. Phato Ltd purchased patents for GH¢5 million and incurred other development costs for product development.
  5. Impairment tests were conducted on Sakara Ltd and Saadi Ltd.

Required:
Prepare the consolidated statement of financial position for the Phato Ltd Group as at 30 September 2019.

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  • 5 Marks

CR – Nov 2020 – L3 – Q4b – Fair Value in Consolidation

Explain why a fair value exercise is performed when a parent acquires a controlling stake in a subsidiary.

Under IFRS 3: Business Combinations, the identifiable assets, liabilities, and contingent liabilities of subsidiaries are required to be brought into the consolidated financial statements at their fair value rather than their book value.

Required:
Explain the justification for undertaking a fair value exercise when a parent acquires a controlling stake in a subsidiary company.

 

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  • 20 Marks

CR – May 2021 – L3 – Q1 – Consolidation with Subsidiaries and Associate

Prepare consolidated statement of financial position including two subsidiaries and an associate. Adjust for goodwill, non-controlling interest, and contingent consideration.

Required:
Prepare a consolidated statement of financial position as of 31 May 2020 for the Blavo Group.

 

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  • 4 Marks

FR – May 2018 – L2 – Q1b – Business Combinations (IFRS 3)

Calculate goodwill on acquisition based on fair value measurement of the non-controlling interest.

A parent acquired 600,000 equity shares of its subsidiary three years ago for N1,200,000. The subsidiary’s issued equity share capital on that date was N250,000, with each share having a nominal value of 25 kobo. Other components of the subsidiary’s net assets at the acquisition date included share premium of N550,000 and retained earnings of N680,000. The subsidiary’s shares were quoted at N1.80 per share when the parent took control.

Required: Calculate the goodwill on acquisition if the parent measures non-controlling interest at its fair value.

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  • 20 Marks

FR – May 2016 – L2 – Q3 – Business Combinations

Calculate goodwill and prepare the consolidated income statement for Panda Group, including post-acquisition adjustments.

On October 1, 2015, Panda purchased 75% of the equity shares in Sanda through a share exchange of two shares in Panda for every three shares in Sanda. The stock market price of Panda’s shares on October 1, 2015, was N6 per share.

The summarized statements of comprehensive income for the two companies for the year ending March 31, 2016, are as follows:

Item Panda (N’000) Sanda (N’000)
Revenue 675,000 360,000
Cost of Sales (390,000) (165,000)
Gross Profit 285,000 195,000
Distribution Costs (35,400) (18,000)
Administrative Expenses (40,500) (34,500)
Finance Costs (2,250) (1,800)
Profit Before Tax 206,850 140,700
Income Tax Expense (72,000) (41,700)
Profit for the Year 134,850 99,900
Other Comprehensive Income
Gain on Revaluation of Land 3,750 1,500
Loss on Fair Value of Equity Financial Asset (1,050) (600)
Total Comprehensive Income 137,550 99,900

Additional Information:

  1. Equity at October 1, 2015:
    • Panda: Equity Shares (N1 each) N375,000, Share Premium N150,000, Revaluation Reserve (Land) N12,600, Retained Earnings N135,000
    • Sanda: Equity Shares (N1 each) N240,000, Retained Earnings N220,500
  2. Immediately after acquisition, Panda transferred a plant item to Sanda valued at N7.5 million (carrying amount: N4 million). The plant had a remaining life of two and a half years, and depreciation is charged to cost of sales.
  3. After the acquisition, Sanda sold goods to Panda for N60 million, which cost Sanda N45 million. N18 million of these goods remained in Panda’s closing inventory.
  4. Non-controlling interest in Sanda is valued at fair value, set at N150 million by Panda’s directors.
  5. The goodwill of Sanda has not suffered impairment.
  6. All items in the comprehensive income statements accrue evenly over the year.

Required:

a) Calculate the amount paid by Panda and the goodwill arising on the acquisition of Sanda. (6 Marks)

b) Prepare the consolidated statement of comprehensive income for Panda Group for the year ending March 31, 2016. (14 Marks)

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  • 20 Marks

FR – May 2022 – L2 – SB – Q3 – Consolidated Financial Statements

Prepare a consolidated statement of financial position for Daddy PLC as of December 31, 2020, incorporating the acquisition of Mummy PLC.

Daddy PLC is a first-tier entity quoted on the Nigerian Stock Exchange (NSE). The entity acquired 640 billion equity shares in Mummy PLC on January 1, 2020. The purchase consideration comprised the following:

  • Issue of one ordinary share of Daddy PLC in exchange for every two shares in Mummy PLC.
  • Issue of N100 12% loan notes in Daddy PLC in exchange for every 400 shares in Mummy PLC.
  • A cash payment of 15 kobo per share for every share acquired in Mummy PLC on January 1, 2020.

At the date of acquisition, the market price of Daddy PLC’s shares was 75 kobo each. The cost incurred by banks when a fixed-rate loan is paid out early is assumed to be nil. Also, Daddy PLC has recorded the 12% loan notes in the purchase consideration in the accounts.

Below are the statements of financial position for Daddy PLC and Mummy PLC as of December 31, 2020:

Additional Information:

  1. Mummy PLC’s net assets were at fair value except for an item of property, which had a fair value N50 billion higher than its carrying amount.
  2. The fair value of non-controlling interests at the date of acquisition was N100 billion.
  3. Mummy PLC sold goods worth N20 billion to Daddy PLC. N5 billion of these were included in Daddy PLC’s inventory as of December 31, 2020.
  4. Goodwill impairment of N30 billion.

You are required to prepare the consolidated statement of financial position as at December 31, 2020.

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  • 22 Marks

FR – NOV 2016 – L2 – Q1c – Business Combinations (IFRS 3)

Complex consolidation question involving share exchange, fair value adjustments, intra-group transactions, associate investments and goodwill impairment.

On January 1, 2016 Kehinde Plc acquired 45million of the Equity shares of Taiwo Plc in a share exchange in which Kehinde Plc issued two (2) new shares for every three (3) shares it acquired in Taiwo Plc. This gave Kehinde Plc a holding of 90%, additionally on 31 December, 2016, Kehinde Plc will pay shareholders of Taiwo Plc N1.76 per share acquired. Kehinde Plc cost of capital is 10% per annum.

At the date of acquisition, the shares in Kehinde Plc and Taiwo Plc had a market price of N6.50 and N2.50 respectively.

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED SEPTEMBER 30, 2016

KEHINDE PLC TAIWO PLC
N’000 N’000
Revenue 323,000 190,000
Cost of Sales (256,000) (130,000)
Gross Profit 67,000 60,000
Distribution Cost (8,000) (9,000)
Administrative Expenses (19,000) (12,000)
Investment Income 2,500 –
Finance Cost (2,100) –
Profit before Tax 40,400 39,000
Income Tax Expenses (14,000) (8,000)
Profit for the year 26,400 31,000

Equity as at October 1, 2015:
Share Capital(N1 per share) 300,000 75,000
Retained Earnings 270,000 175,000

The following additional information is also relevant:

(i) At the date of acquisition the Fair Value of Taiwo Plc’s assets and liabilities were equal to their carrying amount with the exception of two items:

  • An item of plant had a fair value of N9million above the carrying amount. The remaining life of the plant at the date of acquisition was three (3) years. Depreciation is charged to cost of sales.
  • Taiwo Plc had a contingent liability which Kehinde Plc estimated to have a fair value of N2.25million. This has not changed as at September 30, 2016.
  • Taiwo Plc has not incorporated this fair value changes into its financial statements.

(ii) It is Kehinde Plc’s policy to value non-controlling interest at fair value at the date of acquisition. For this purpose, Taiwo Plc share price at the date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.

(iii) Sales from Kehinde Plc to Taiwo Plc throughout the year ended September 30, 2016 had consistently been N4million per month. Kehinde Plc made a mark-up of 25% on these sales. Taiwo Plc had N7.5million of these goods in inventory as at September 30, 2016.

(iv) Kehinde Plc’s investment income is a dividend received from its investment in a 40% owned associates which it has held for several years. The underlying earnings of the associate for the year ended September 30, 2016 were N10million.

(v) Although Taiwo Plc has been profitable since its acquisition by Kehinde Plc, the market for Taiwo Plc’s product has been badly hit in recent months and Kehinde Plc has calculated that the goodwill has been impaired by N10million as at September 30, 2016.

Required:

(i) Calculate the goodwill on acquisition of Taiwo Plc. (7 Marks)

(ii) Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive Income for Kehinde Plc group for the year ended September 30, 2016. (15 Marks)

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  • 3 Marks

FR – NOV 2016 – L2 – Q1b – Business Combinations (IFRS 3)

Calculation of gain on bargain purchase arising from business acquisition with consideration of fair values and non-controlling interests.

Harmony Limited acquired 70% interest in the equity shares of Foremost Limited for N3,000,000 on January 1, 2015. The abridged Statement of Financial Position of both companies at the date of acquisition were as follows:

HARMONY LIMITED FOREMOST LIMITED
N’000 N’000
Identifiable Assets 32,800 8,000
Investment in Foremost Limited 3,000 _____
35,800 8,000
Equity 24,000 4,800
Identifiable Liabilities 11,800 3,200
35,800 8,000

The fair value of the identifiable assets of Foremost Limited amounts to N11,200,000 and the fair value of its liabilities is N3,200,000. The Non-Controlling Interest will be measured as a percentage of the Net Asset of the acquiree.

Required:

Calculate the Gain on Bargain Purchase arising from the acquisition.

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  • 5 Marks

FR – NOV 2016 – L2 – Q1a – Business Combinations (IFRS 3)

Question tests understanding of IFRS 3 treatment of non-controlling interests and its impact on consolidated financial statements.

IFRS 3 on Business Combination permits a non-controlling interest at the date of acquisition to be valued by one of two methods. i. At its proportionate share of the subsidiary’s identifiable Net Assets or ii. At its Fair Value (usually determined by the directors of the parent Company).

Required:

Explain the difference that the accounting treatment of these alternative methods could have on the Consolidated Financial Statements, including where Consolidated Goodwill may be impaired.

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  • 1 Marks

FA – May 2014 – L1 – SA – Q12 – Partnership Account

This question tests knowledge of the term used when multiple partnerships combine to form a new partnership.

The process where two or more Partnerships combine to form a new Partnership is known as…………………

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  • 20 Marks

CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position

Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.

Phato Ltd, is a Public Limited Liability Company which operates in the service sector in Ghana. Phato Ltd has a business relationship with two other Ghanaian companies, Sakara Ltd and Saadi Ltd, which are public limited liability companies too. The draft statements of financial position of these three companies are as below as at 30 September 2019.

Phato Ltd GH¢ million Sakara Ltd GH¢ million Saadi Ltd GH¢ million
Assets:
Non-current assets
Property, plant, and equipment 460.0 150.0
Investment in subsidiaries
Sakara Ltd 365.0
Saadi Ltd 160.0
Investment in Azuri Ltd 24.0
Intangible assets 99.0 15.0
Total Non-current assets 948.0 325.0
Current assets 447.5 240.0
Total assets 1,395.5 565.0
Equity and liabilities:
Equity:
Share capital 460.0 200.0
Other components of equity 36.5 18.5
Retained earnings 447.5 221.0
Total equity 944.0 439.5
Non-current liabilities 247.5 61.5
Current liabilities 204.0 64.0
Total liabilities 451.5 125.5
Total equity and liabilities 1,395.5 565.0

Additional relevant information:

  1. Phato Ltd, on 1 October 2017, acquired 60% of the equity interests of Sakara Ltd. The cost of the investment comprised cash of GH¢360 million. At acquisition, the fair value of the non-controlling interest in Sakara Ltd was estimated at GH¢146 million. The fair value of the identifiable net assets acquired totaled GH¢417.5 million, including retained earnings of GH¢159.5 million and other components of equity at GH¢13.5 million. The excess in fair value results from non-depreciable land.
  2. Sakara Ltd, on 1 October 2018, acquired 70% of Saadi Ltd for GH¢160 million. The fair value of non-controlling interest was estimated at GH¢36 million. The fair value of the identifiable net assets of Saadi Ltd at acquisition was GH¢181 million, retained earnings GH¢53 million, and other components of equity GH¢10 million.
  3. Phato Ltd acquired a 14% interest in Azuri Ltd for GH¢9 million on 1 October 2017. On 1 April 2019, Phato Ltd acquired an additional 16% interest in Azuri Ltd for GH¢13.5 million, achieving significant influence.
  4. Phato Ltd purchased patents for GH¢5 million and incurred other development costs for product development.
  5. Impairment tests were conducted on Sakara Ltd and Saadi Ltd.

Required:
Prepare the consolidated statement of financial position for the Phato Ltd Group as at 30 September 2019.

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  • 5 Marks

CR – Nov 2020 – L3 – Q4b – Fair Value in Consolidation

Explain why a fair value exercise is performed when a parent acquires a controlling stake in a subsidiary.

Under IFRS 3: Business Combinations, the identifiable assets, liabilities, and contingent liabilities of subsidiaries are required to be brought into the consolidated financial statements at their fair value rather than their book value.

Required:
Explain the justification for undertaking a fair value exercise when a parent acquires a controlling stake in a subsidiary company.

 

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  • 20 Marks

CR – May 2021 – L3 – Q1 – Consolidation with Subsidiaries and Associate

Prepare consolidated statement of financial position including two subsidiaries and an associate. Adjust for goodwill, non-controlling interest, and contingent consideration.

Required:
Prepare a consolidated statement of financial position as of 31 May 2020 for the Blavo Group.

 

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  • 4 Marks

FR – May 2018 – L2 – Q1b – Business Combinations (IFRS 3)

Calculate goodwill on acquisition based on fair value measurement of the non-controlling interest.

A parent acquired 600,000 equity shares of its subsidiary three years ago for N1,200,000. The subsidiary’s issued equity share capital on that date was N250,000, with each share having a nominal value of 25 kobo. Other components of the subsidiary’s net assets at the acquisition date included share premium of N550,000 and retained earnings of N680,000. The subsidiary’s shares were quoted at N1.80 per share when the parent took control.

Required: Calculate the goodwill on acquisition if the parent measures non-controlling interest at its fair value.

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