Sheet1Workings ($000)1) Investment in SubGoodwillConsideration transferred Cash32,000 Deferred (5,400 x 1/1.08)5,000Non controlling interest (2,000 x $3.50)7,000Fair value of identifiable net assets acquired Equity shares(10,000) Retained earnings (pre)(12,000) Fair value adjustment Plant(4,000) Intangibles(3,000)15,000

Dr Investment in Sub5,000Dr Finance cost (RE of P) (8% x 5,000)400 Cr Deferred con. 5,400Dr PPE4,000 Cr Fair value adj4,000Dr Depn (4,000 / 4yrs) (S)1,000 Cr PPE1,000Addition to PPE : 4,000 - Depn (S) (4,000/ 4yrs = 1,000) = 3,000Addition to Intangibles : 3,000 - Amo (S) (3,000/ 6yrs = 500) = 2,5002) Investment in AssociateGoodwillConsideration transferred10,000Share of net assets at fair value Equity shares10,000.00 Retained earnings (pre) 31,800 + (1,200 x 4/12)32,200.0042,200.00 x 25%(10,550)Bargain purchase(550)

Cr Income (RE of P)550Dr Inv in A550Associate at year endCost of investment10,000(+) Bargain purchase550RE of P(1,750)(+) Share of profit from associate (8/12 x 1,200) x 25%200(-) Impairment loss(2,500)8,250

3) Intra group%$000Sales1302,600Cost100Profit30600Dr RE of P600 Cr Inventory6004) Group retained earnings as at year endPaladin (25,700 + 9,200)34,900(-) Finance cost W1(400)(-) Associate W2(1,750)(-) Unrealised profit W3(600)SaracenPost acq6,000(-) Additional depreciation and amortisation W1(1,500)4,500 x 80%3,60035,750

5) Non controlling interests as at year endAt acq W17,000Share of sub post acq profit (4,500 x 20%) W49007,900

AnswerPaladinConsolidated statement of financial position as at 30 Sept 2011$000$000AssetsNon current assetsProperty, plant and equipment (40,000 + 31,000 + 3,000 W1)74,000Intangibles (7,500 + 2,500 W1)10,000Goodwill W115,000Investment in associate W28,250107,250Current assetsInventory (11,200 + 8,400 - 600 W3)19,000Trade receivables (7,400 + 5,300 - 1,300 intra group)11,400Bank3,40033,800Total assets141,050

Equity and liabilitiesEquity attributable to owners of PaladinEquity shares50,000Retained earnings W435,75085,750Non controlling interest W57,900Total equity93,650Non current liabilitiesDeferred tax (15,000 + 8,000)23,000Current liabilitiesBank2,500Trade payable (11,600 + 6,200 - 1,300 intra group)16,500Deferred consideration W15,40024,400Total equity and liabilities141,050

Workings ($000)1) Investment in SubGoodwillConsideration transferred Shares (75% x 8,000 x 3/2 x 3.20)28,800 Contingent4,200Non controlling interest (4.50 x 2,000)9,000Fair value of identifiable net assets acquired Equity shares(8,000) Retained earnings (pre)(16,500) Fair value adjustment Factory(2,000) Software50016,000(-) Impairment (RE of S)(3,800)12,200

Addition to PPE : 2,000 - Depn (S) 100 = 1,900Increase sub's post acq profit due to software w/off = 500Dr Contingent con.1,500 Cr RE of P (4,200 - 2,700)1,5002) Investment in associateGoodwillConsideration transferred 12,000 (45,000 - 28,800 - 4,200 W1)Share of net assets at fair value Equity shares5,000.00 Retained earnings (pre) 15,000 + (6,000 x 6/12)18,000.0023,000.00 x 40%(9,200)2,800

Associate at year endCost of investment12,000(+) Share of profit from associate (6,000 x 6/12) x 40%1,20013,200

3) Intra groupDr Inventory1,800.00Dr Payable (balancing)1,600.00 Cr Receivable3,400%$000Sales1501,800Cost100Profit50600Dr RE of P600 Cr Inventory6004) Group retained earnings as at year endPicant (16,200 + 11,000)27,200(+) reduction in contingent consideration W11,500(+) associate W21,200(-) unrealised profit W3(600)SanderPost acq1,000.00(-) Impairment W1(3,800.00)(-) Additional depn W1(100.00)(+) Software reversal500.00(2,400.00) x 75%(1,800)27,500

5) Non controlling interests as at year endAt acq W19,000Share of Sander post acq profit (-2,400 x 25%)(600)8,400

AnswerPicantConsolidated statement of financial position as at 31 March 2010$000$000AssetsNon current assetsProperty, plant and equipment (37,500 + 24,500 + 1,900 W1)63,900Goodwill W112,200Investment in associate W213,20089,300Current assetsInventory (10,000 + 9,000 + 1,800 - 600 W2)20,200Trade receivables (6,500 + 1,500 - 3,400 W2)4,60024,800Total assets114,100

Equity and liabilitiesEquity attributable to owners of PicantEquity shares25,000Share premium19,800Retained earnings (W4)27,50072,300Non controlling interests (W5)8,400Total equity80,700Non current liabilitiesLoan notes (14,500 + 2,000)16,500Current liabilitiesContingent consideration (4,200 - 1,500 W1)2,700Others (8,300 + 7,500 - 1,600 W2)14,20016,900Total equity and liabilitites114,100

Workings ($000)1) Investment in SubGoodwillConsideration transferred (2,000 x 60% x 9)10,800Non controlling interest (40% x 13,000)5,200Fair value of identifiable net assets acquiredOrdinary shares2,000.00Share premium500.00Retained earnings (pre) (6,300 + 3,000 post loss)9,300.00Fair value adj (PPE)1,200.00(13,000)3,000(-) Impairment 12.5% RE of P(375)At year end2,625

Addition to PPE : 1,200 - Depn (S) 300 = 9002) Intra groupDr Revenue30,000.00 Cr Cost of sales (purchase)30,000%$000Sales1004,000Cost95Profit5200Dr RE of S200 Cr Inventory2003) Group retained earnings as at year endHydan20,000(-) Impairment W1(375)SystanPost loss(3,000.00)Additional depreciation W1(300.00)Unrealised profit W2(200.00)(3,500.00) x 60%(2,100)17,525

4) Non controlling interests as at year endAt acq W15,200Share of Systan post acq profit (-3,500 x 40%)(1,400)3,800

AnswerHydanConsolidated statement of profit or loss for the year ended 31 March 2006$000Revenue (98,000 + 35,200 - 30,000 W2)103,200Cost of sales (76,000 + 31,000 + 300 W1 - 30,000 W2 + 200 W2)(77,500)Gross profit25,700Operating expenses (11,800 + 8,000 + 375 imp W1)(20,175)Interest income (350 - 200 intra group)150Finance cost (420 + 200 - 200 intra group)(420)Profit before tax5,255Income tax expense (4,200 - 1,000 relief)(3,200)Profit for the year2,055

Profit for the year attributable to :-Owners of Hydan (residual)3,455Non controlling interest 40% x (-3,000 - 300 W1 - 200 W1)(1,400)2,055

Consolidated statement of financial position as at 31 March 2006$000AssetsNon current assetsProperty, plant and equipment (18,400 + 9,500 + 900 W1)28,800Goodwill W12,625Other investment (16,000 - 10,800 W1 - 4,000 intra group)1,20032,625Current assets (18,000 + 7,200 - 200 W2 - 1,000 intra group)24,000Total assets56,625

Equity and liabilitiesEquity attributable to owners of HydanOrdinary shares10,000Share premium5,000Retained earnings W317,52532,525Non controlling interest W43,800Total equity36,325Non current liabilitiesBank loan6,000Current liabilities (11,400 + 3,900 - 1,000 intra group)14,300Total equity and liabilities56,625

b) Systan post acq sales to Hydan, margin = 5%, external parties = 52% Hydan passes huge amount of operating expenses to Systan in post acq period. Obviously Hydan acquired Systan only to secure the component supply. Although the loss suffered by Systan is consolidated in the group result, its loss will be shared by 40% non controlling interests, which is unfair to them. Hydan uses its controlling interest to take advantage on non controlling interests. This is unethical and could be judge as fraud on minority. Financial statements of Systan is not showing a true and fair view without proper disclosure on these related parties disclosures. Hydan obtains intangible return in the form of secured cheap supplies.AssetsIncomePPE cost6.00Revenue (20 x 40%)8.00(+) provision 2 x 40%0.80(-) Dpn (6 + 0.8) / 10 yrs(0.68)Carrying amount at yr end6.12

Receivable8.00

LiabExpenseProvision0.80Depreciation0.68(+) Unwinding finance costFinance cost0.04 (0.80 x 5%)0.04Cost of sales (16 x 40%)6.400.84Operating cost (0.5 x 40%)0.20

Payable (6.4 + 0.2)6.60

1. Associate = equity accounting, Sub = acquisition accounting.2. Cash consideration = face value, equity consideration = fair value of parent's shares at date of transfer.3. Transaction cost (i) consol F/S = expenses (for cash consideration related) or within equity (for equity consideration related). (ii) separate F/S = may be capitalised to investment in sub.4. Issue of share option at acquisition, if obliged = part of consideration transferred; if voluntary, part of employee benefits. For this case, voluntary, it will be part of staff costs.5. Contingent consideration = payment depends on prescribed conditions. Any subsequent remeasurement will not affect the goodwill measurement. In this case = financial liab, because the units to be issued are not fixed.6. IAS 38, recognition of Int Asset needs reliable measurement. These intangible assets however can be recognised in consol F/S as the group can measure them reliably. At acq, measured at fair value (the cost at consol level), in post acq period, amortise over the expected useful life.7. Full & partial GW = accounting policy choices, apply to subs on case by case basis. Full goodwill = higher net assets of the group, and if impairment, higher losses. Also easier to test impairment as no re-gross of GW needed.8. Generally, nature of consideration will not affect calculation of GW as they are measure at fair value, except for :-i) no subsequent remeasurement of GW for contingent considerationii) non financial asset transferred to sub is measured at carrying amount of transferor.9. Expected reorganisation cannot be recognised as provision (give reason).

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