- 20 Marks
FR – May 2016 – L2 – Q3 – Business Combinations
Calculate goodwill and prepare the consolidated income statement for Panda Group, including post-acquisition adjustments.
Question
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:
- 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
- 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.
- 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.
- Non-controlling interest in Sanda is valued at fair value, set at N150 million by Panda’s directors.
- The goodwill of Sanda has not suffered impairment.
- 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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