SBRINT
Syllabus D. Financial Statements of Groups entities D1. Group Accounting

D1e. Comprehensive Examples - Step Acquisition 20 / 35

Syllabus D1e)

Apply the accounting principles relating to a business combination achieved in stages.

Comprehensive Examples - Step Acquisition

Comprehensive Question

SFP for YEAR 6

  P S
Non Current Asset 500 600
Investment in S 250  
Current Assets 100 200
     
Share Capital 100 100
Reserves 350 400
     
Current Liabilities 100 50
Non Current Liabilities 300 250

P acquired 30% S in year 1 for 60. It acquired another 30% in year 4 for 140

S’s reserves were 10 in year 1 and 60 in year 4.

FV of S’s NA in year 1 was 120 and in year 4 190. Difference is due to Land.

FV of NCI in year 4 was 90.

FV of 30% holding in Year 4 is 120.

P acquired a further 10% of S on the last day of year 6 for 50.

Show the Consolidated SFP at the end of year 6.

Solution

Step 1: Equity Table

  Now At Acquisition Post-Acquisition
Share Capital 100 100 0
Retained Earnings 400 60 340
Land 30 30 0
Total 530 190 340

Step 2: Goodwill

Consideration 260 (140 + 120)
NCI 90
FV of Net Assets Acquired (190)
Goodwill 160

Step 3: NCI

NCI @ Acquisition 90 (given)
NCI % of S’s post acquisition profits 136 (40% x 340)
Impairment (0)  
NCI on the SFP before further acquisition 226  
Less further acquisition (57) 226 x 10/40  
NCI on the SFP after further acquisition 169  

Step 4: Further Acquisition from NCI

FV of consideration (50)
Decrease in NCI 57
Difference - goes to Equity of the Parent (7)

Step 5: Reserves

P 350  
S 204 (60% x 340)
Impairment (0)  
Gain on Revaluing original 30% 60  
Movement due to further acquisition 7  
  621  

Final Answer

  P S Group
Non-Current Asset 500 600 1,130 incl. FV land adj.
Investment in S 250 Goodwill 160
Current Assets 100 200 300
       
Share Capital 100 100 100
Reserves 350 400 621
NCI     169
       
Current Liabilities 100 50 150
Non-Current Liabilities 300 250 550