MIDLANDS STATE UNIVERSITY

FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTING

NAME : ISHEANESU K MUTUSVA

REG NUMBER : R168276Z

MODE OF ENTRY : CDP

PROGRAMME : ACCOUNTING

LECTURER : MR SATANDE

MODULE : ACC 411

DUE DATE : 8 JUNE 2020

LEVEL : 4:2

1a)
 GREEN LTD
Consolidated Statement of Financial Position as at 31 March 2019
Assets
Non Current Assets $000 $000
Property Plant and Equipment (75200+31500+4000-200dpn) 110 500
Investment in White Ltd (4500+1200) (W5) 5 700
Goodwill (W3) 11 000
Total Non Current Assets 127 200
Current Assets
Inventory (19 400+18 800+700-800pup) (W6) 38 100
Trade Receivables (14 700+12 500-3 000intra grp) 24 200
Bank (1 200+600) 1 800
64 100
Total Assets 191 300
Equity and Liabilities
Equity Shares of $1 each (50 000+10 000) (W3) 60 000
Share Premium (10 000*2.20) (W3) 22 000
Retained Earnings (W5) 37 390
119 390
NCI 9 430
128 820
Non Current Liabilities
8% Loan Notes (5 000+15 000) (W3) 20 000
Accrued Loan Interest (W5) 300
Environmental provision (4 000+80) (W2) 4 080 24 380
Current Liabilities (24 000+16 400+700-3 000) 38 100
Total Equity and Liabilities 191 300

Working number 1

Green Ltd

Reporting date 31 March 2019

30%
Date of acquisition 1 Jan 2019

Degree of control 75%

White Ltd Yellow Ltd

 Working number 2
Net Assets Acquired
at repoting date at aqsn date post aqsn
$000 $000 $000
Equity Shares 20 000 20 000
Retained Earning at 1 April 2019 19 000 19 000
" " at 31 March 2019 8 000 6 000 2 000
Mine depreciation (4000/5*3/12) -200 -200
Fair value adjustment 4 000 4 000
Mine provision -4000 -4000
Interest on provision (4000*8/100*3/12) -80 -80
46 720 45 000 1 720

Working number 3
Goodwill calculation
$000
Ordinary Share Capital (75/100*20 000*2/3* $1) 10 000
Share Premium (75/100*20 000*2/3*$2.20) 22 000
8% Loan notes (15 000/100* $100) 15 000
47 000
Add NCI (25/100*20 000* $1.80) 9 000
56 000
Less Net Assets acquired (45 000)
11 000

Working number 4
NCI Calculation
$000
NCI at acquisition (25/100*20 000* $1.80) 9 000
Post acquisition profit (25/100*1 720) 430
9 430

Working number 5
Group retained earning calculation
$000
Green Ltd Retained Earnings 36 000
Less Unpaid loan interest (15 000*8/100*3/12) -300
Post acquisition profit (75/100*1 720) 1 290
Unrecorded share of profit (6 000-2 000)*30/100 1 200
Less Parent unrealised profit (W6) -800
 Working number 6
Provision for unrealised profit
$000
Inventory held by Green Ltd 2 100
Goods in transit 700
Total intra group inventory held 2 800
b) Contingent consideration definition
According to the revised IFRS3, a contingent’s consideration is an obligation of the acquirer
to transfer additional assets or equity instruments to the former owners of the acquiree as part
of the exchange for control of an acquiree if specified future events occur or conditions are
met e.g. an additional payment if a specified earning level is achieved at an agreed date after
the business consideration. A contingent consideration may also give the acquirer the right to
the return of a previously transferred consideration if specified conditions are met. The
revised IFRS3 requires, the acquirer to recognize contingent considerations as part of the
consideration transferred in exchange of the acquiree at acquisition date fair values.

W1 Consideration paid $
Cash Consideration 260 000
Deferred consideration (150 000* 1/1.12) 133 929
393 929

W2 Interest on deferred consideration

Deferred payment - deferred consideration=interest on deferred consideration
$150 000 - $133 929 = $16 071

W3 Identifiable Net Assets of Tomato (Fair Value)

$
Assets 380 000
Liabilities (130 000)
Net Assets 250 000
Contract in Veg amd Fruit Ltd 80 000
Total identifiable assets 330 000
W4 Calculation of Goodwill
Goodwill = consideration cost – Net identifiable assets
= $393 929 - $330 000
= $63 929
 Initial recording in the books of Cabbage Ltd
DR ($) CR ($)
Investment in Tomato Ltd (SFP) 410 000
Bank 260 000
Deferred Consideration 150 000

Subsequent recording in the books of Cabbage Ltd

DR ($) CR ($)
Fair Value adjustment (P/L) 62 080
Temporary Difference (0.28*80 000*0.8) (P/L) 17 920
2b) Concept of control
According to IFRS 3 Business Combination and IFRS 10 Consolidated Financial Statements
an investor determines whether it is a parent by assessing whether it controls one or more
investees. An investor considers all relevant facts and circumstances when assessing whether
it controls an investee.
An investor controls an investee when it has all of the following:
 Power over investee.

 Exposure (or rights) to variable returns through its relationship with the investee.

 The ability to use its power over the investee to affect the amount of the returns to
which it is exposed.
Should facts and circumstances indicate that any of the above-mentioned three elements of
control have changed the investor should reassess whether it controls the investee.

NB: Power arises from rights. Such rights can be straight forward (i.e. through voting
rights) or be complex (e.g. embedded in contractual arrangements). An investor that holds
only protective rights cannot have power over an investee and so cannot control and investee.