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Week 2 - Exercise Question

ABC plc acquired 75% of DEF Ltd two years ago for initial cash consideration of £2m and 500,000 shares worth £600,000. It agreed to pay £400,000 more in 4 years. ABC's investments include its £2m investment in DEF. To prepare a consolidated statement of financial position, goodwill from the acquisition needs to be calculated and impaired, the non-controlling interest's value needs to be determined either based on net assets or fair value, and deferred consideration recognized as a liability. Consolidated assets, equity, and liabilities are presented.

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13 views

Week 2 - Exercise Question

ABC plc acquired 75% of DEF Ltd two years ago for initial cash consideration of £2m and 500,000 shares worth £600,000. It agreed to pay £400,000 more in 4 years. ABC's investments include its £2m investment in DEF. To prepare a consolidated statement of financial position, goodwill from the acquisition needs to be calculated and impaired, the non-controlling interest's value needs to be determined either based on net assets or fair value, and deferred consideration recognized as a liability. Consolidated assets, equity, and liabilities are presented.

Uploaded by

kk23212
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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ACF301 – Financial Accounting I

Week 2 – workshop question


ABC plc acquired 75% of the share capital of DEF Ltd two years ago, when the reserves
(retained earnings) of DEF Ltd stood at £300,000. ABC plc paid initial cash
consideration of £2m. Additionally ABC plc issued 500,000 shares with a nominal
value of £0.50 and a current market value of £1.20. It was also agreed that ABC would
pay a further £400,000 in four years’ time. Current interest rates are 5% pa. The shares
and deferred consideration have not yet been recorded. The following financial
information is available:

Statements of Financial Position at 31 December 2018


ABC plc DEF Ltd
£000 £000
Non-current assets
Property, Plant and Equipment 7,000 1,200
Investments 2,000 0
9,000 1,200
Current assets 2,700 340
Total assets 11,700 1,540

Equity
Called up share capital (£0.5 ordinary shares) 3,000 400
Share premium 1,000 100
Retained earnings 5,100 600
Total equity 9,100 1,100
Liabilities 1,500 300
Current liabilities 1,100 140
Total equity and liabilities 11,700 1,540

The following information is also available:


➢ At acquisition the fair values of DEF Ltd’s plant exceeded its book value by
£300,000. The plant had a remaining useful life of ten years at this date
➢ The consolidated goodwill has been impaired by 15%
The ABC plc group values the non-controlling interest using the fair value at
acquisition method. At acquisition the fair value of the non-controlling interest was
£1,000,000.
Required
Prepare the consolidated Statement of Financial Position of ABC plc group as at 31
December 2018 firstly using the proportion of net assets then secondly using fair value
of the non-controlling interest
Statements of Financial Position at 31 December 2018
ABC Group
£000
Non-current assets
Goodwill
Property, plant and equipment
Investments

Current assets
Total assets

Equity
Called up share capital (£1 ordinary shares)
Share premium
Retained earnings
Non-controlling interest
Total equity

Non-current liabilities
Deferred consideration
Current liabilities
Total equity and liabilities

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