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On 1 January 20X4, Plastik acquired 80% of the equity share capital of Subtrak. The consideration was satisfied by a share exchange of two shares in Plastik for every three acquired shares in Subtrak. At the date of acquisition, shares in Plastik and Subtrak had a market value of $3 and $2.50 each respectively. Plastik will also pay cash consideration of 27.5 cents on 1 January 20X5 for each acquired share in Subtrak. Plastik has a cost of capital of 10% per annum. None of the consideration has been recorded by Plastik.

Below are the summarized draft financial statements of both companies.

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 20X4

 

 

Plastik

Subtrak

 

$'000

$'000

Revenue

     62,600

     30,000

Cost of sales

   (45,800)

   (24,000)

Gross profit

     16,800

        6,000

Distribution cost

     (2,000)

     (1,200)

Administration expenses

     (3,500)

     (1,800)

Finance cost

         (200)

 -

Profit before tax

     11,100

        3,000

Income tax expense

     (3,100)

     (1,000)

Profit for the year

        8,000

        2,000

     

Other comprehensive income:

   

Gain on revaluation of property

        1,500

 -

Total comprehensive income

        9,500

        2,000

 

STATEMENTS OF FINANCIAL POSITION AS AT 30 SEPTEMBER 20X4

 

Plastik

Subtrak

 

$'000

$'000

ASSETS

   

Non-current assets

   

Property, plant and equipment

     18,700

     13,900

Current assets

   

Inventory (note (ii))

        4,300

        1,200

Trade receivables

        5,700

        2,500

Bank

 -

           300

 

     10,000

        4,000

Total assets

     28,700

     17,900

 

 

 

EQUITY AND LIABILITIES

Equity

 

 

Equity shares of $1 each

10,000

9,000

Revaluation surplus (note(i))

2,000

           -

Retained earnings

6,300

3,500

 

18,300

12,500

Non-current liabilities

 

 

10% loan notes (note(ii))

2,500

1,000

Current liabilities

 

 

Trade payables (note(iv))

3,400

3,600

Bank

1,700

           -

Current tax payable

2,800

800

 

7,900

4,400

Total equity and liabilities

28,700

17,900

The following information is relevant:

  1. At the date of acquisition, the fair values of Subtrak's assets and liabilities were equal to their carrying amounts with the exception of Subtrak's property which had a fair value of $4 million above its carrying amount.  For consolidation purposes, this led to an increase in depreciation charges (in cost of sales) of $100,000 in the post-acquisition period to 30 September 20X4.  Subtrak has not incorporated the fair value property increase into its entity financial statements.

The policy of the Plastik group is to revalue all properties to fair value at each year end. On 30 September 20X4, the increase in Plastik's property has already been recorded, however, a further increase of $600,000 in the value of Subtrak's property since its value at acquisition and 30 September 20X4 has not been recorded.

  1. Sales from Plastik to Subtrak throughout the year ended 30 September 20X4 had consistently been $300,000 per month. Plastik made a mark-up on cost of 25% on all these sales. $600,000 (at cost to Subtrak) of Subtrak's inventory at 30 September 20X4 had been supplied by Plastik in the post-acquisition period.
  2. Plastik's  policy is  to  value the  non-controlling  interest at  fair  value at  the  date  of  acquisition. For this purpose Subtrak’s share price at that date can  be  deemed to be  representative of the  fair value of the  shares held by  the non-controlling interest.
  3. Due to recent adverse publicity concerning one of Subtrak's major product lines, the goodwill which arose on the acquisition of Subtrak has been impaired by $500,000 as at 30 September 20X4. Goodwill impairment should be treated as an administrative expense.
  4. Assume, except where indicated otherwise, that all items of income and expenditure accrue evenly throughout the year.

Requirements:

a

Calculate the goodwill arising on the acquisition of Subtrak on 1 January 20X4.   

Marks: 4
b

 Calculate the following amounts for presentation in the consolidated statement of financial position:

  1. Group retained earnings
  2. Non-controlling interest                
Marks: 6
c

Prepare the consolidated statement of profit or loss and other comprehensive income for Plastik for the year ended 30 September 20X4.  

Marks: 10

Answers submitted

Created by Ref Marking Action
Runa Akter's picture
Runa Akter
11/08/2020 - 07:18
a
10054
4
Runa Akter's picture
Runa Akter
11/08/2020 - 08:17
c
10058
10
Runa Akter's picture
Runa Akter
11/08/2020 - 07:32
c
10056
10
Runa Akter's picture
Runa Akter
10/26/2020 - 08:07
a
9912
4
Runa Akter's picture
Runa Akter
10/26/2020 - 08:30
b
9916
6
Runa Akter's picture
Runa Akter
10/26/2020 - 11:32
c
9930
10
Kamrul Hasan's picture
Kamrul Hasan
10/24/2020 - 09:45
a
9896
4
Runa Akter's picture
Runa Akter
10/24/2020 - 10:02
a
9898
4
Runa Akter's picture
Runa Akter
10/24/2020 - 11:44
b
9902
6
Runa Akter's picture
Runa Akter
10/24/2020 - 10:57
b
9900
6
Kamrul Hasan's picture
Kamrul Hasan
09/07/2020 - 08:12
a
9650
4
Kamrul Hasan's picture
Kamrul Hasan
09/07/2020 - 08:23
b
9652
6
Kamrul Hasan's picture
Kamrul Hasan
09/07/2020 - 08:39
c
9654
10
Sajjad Hosen Pavel's picture
Sajjad Hosen Pavel
09/05/2020 - 21:44
a
9630
4
Sajjad Hosen Pavel's picture
Sajjad Hosen Pavel
09/05/2020 - 22:07
b
9632
6
Sajjad Hosen Pavel's picture
Sajjad Hosen Pavel
09/05/2020 - 23:14
c
9636
10
Kamrul Hasan's picture
Kamrul Hasan
08/19/2020 - 11:14
a
9432
4