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    Close LTD

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    XianFa Wong
    Close Ltd owns 80% of Steele Ltd. The document provides financial information for Close Ltd, Steele Ltd, and the consolidated group. It includes the consideration paid for Steele Ltd, calculation of goodwill, allocation of non-controlling interest, adjustments to eliminate unrealized profit on inventory sold within the group, and elimination of intra-group balances in consolidation.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Close LTD

    Uploaded by

    XianFa Wong
    31 views5 pages
    Close Ltd owns 80% of Steele Ltd. The document provides financial information for Close Ltd, Steele Ltd, and the consolidated group. It includes the consideration paid for Steele Ltd, calculation of goodwill, allocation of non-controlling interest, adjustments to eliminate unrealized profit on inventory sold within the group, and elimination of intra-group balances in consolidation.

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    3. Close Ltd

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    Close Ltd owns 80% of Steele Ltd. The document provides financial information for Close Ltd, Steele Ltd, and the consolidated group. It includes the consideration paid for Steele Ltd, calculation of goodwill, allocation of non-controlling interest, adjustments to eliminate unrealized profit on inventory sold within the group, and elimination of intra-group balances in consolidation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    31 views5 pages

    Close LTD

    Uploaded by

    XianFa Wong
    Close Ltd owns 80% of Steele Ltd. The document provides financial information for Close Ltd, Steele Ltd, and the consolidated group. It includes the consideration paid for Steele Ltd, calculation of goodwill, allocation of non-controlling interest, adjustments to eliminate unrealized profit on inventory sold within the group, and elimination of intra-group balances in consolidation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 5

    Close Ltd

    W1 %
    % of Steele Ltd
    = 48,000/ 60,000
    = 80%

    W2 Net Assets
    At year end At acquisition Post - acquisition
    Share capital 60,000 60,000 --
    Revaluation surplus 16,000 16,000
    Retained earnings 13,000 8,000 4,200
    - Unrealised profit (800)
    12,200
    x(1.25) = 4,000
    x = 3,200

    Profit
    = 4,000 – 3,200
    = 800

    Contingent liabilities (58,000) (58,000) -

    Please refer to slides in


    Chapter 10 on Fair Values
    Adjustment

    Basically, Recognition of
    contingent liabilities

    •IFRS 3 requires an acquirer


    to recognise an acquiree's
    contingent liabilities at the
    acquisition date where:

    (i) the contingent liability is a


    present obligation arising
    from a past event rather than
    a possible obligation, and

    (ii) its fair value can be


    measured reliably.

    Total 30,200 26,000 4,200


    W3 Goodwill
    RM RM

    Consideration transferred 84,000

    Non – controlling interest at acquisition 5,200


    (0.2 x 26,000)

    - Net assets at acquisition (26,000)

    (Gain on a bargain purchase) / Goodwill 63,200

    Impairment to date (2,200)

    (1,700 + 500)

    61,000

    W4 NCI
    RM RM
    Share of net assets at acquisition (20% x 26,000) 5,200
    Share post - acquisition (20% x 4,200) 840

    Total NCI 6,040

    W5 Retained earnings
    RM RM
    Close Ltd 56,000
    Steele Ltd (post – acquisition) (4,200 x 0.8) 3,360

    Impairment to date (2,200)

    Consolidated retained earnings 57,160


    Close Ltd
    Consolidated statement of financial position
    As at 31 Dec 20x9

    RM RM
    Assets
    Non – current assets
    Property, plant and equipment 138,200
    (80,000 + 58,200)
    Intangible asset 61,000

    Current asset
    Inventories (18,000 + 12,000 – 800) 29,200

    Trade and other receivables (62,700 + 21,100) 83,800

    Investment 2,500

    Cash and cash equivalents (10,000 + 3,000 + 500) 13,500

    129,000

    Total assets 328,200

    Equity and liabilities


    Equity
    Ordinary share capital 120,000

    Share premium account 18,000

    Revaluation surplus 23,000

    Retained earnings 57,160

    218,160

    Non - controlling interest (NCI) 6,040

    Total equity 224,200

    Current liabilities
    Trade and other payables (35,000 + 11,000) 46,000

    Contingent liabilities 58,000

    Total equity and liabilities 328,200

    Adjustments
    When group companies have been trading with each other two separate
    adjustments may be required in the consolidated statement of financial position.

    1) Elimination of unrealised profit


    If one company holds inventories at the year-end which have been acquired from
    another group company, this may include a profit element that is unrealised from a
    group perspective.
    Here Steele Ltd has sold goods to Close Ltd at cost plus 25%. The mark – up of
    25% will only become realised when the goods are sold to a third party. Therefore, if
    any intra-group inventory is still held at the year end, the profit thereon should be
    eliminated from the consolidated accounts.
    This will require an adjustment of 800 (4,000 x 25/125) which is always made
    against the selling company’s retained earnings
    Debit (RM) Credit (RM)
    Steele Ltd’ retained earnings 800

    Consolidated inventory 800

    As well as eliminating the unrealised profit, this reduces inventory back to its
    original cost to the group.

    2) Eliminating intra-group balances

    As group companies are effectively treated as one entity, any intra-group


    balances must be eliminated on consolidation. Here, intra-group current accounts
    have risen as a result of the intra-group trading and these must be cancelled out.
    Before this can be done, the current accounts must be brought into agreement by
    adjusting the accounts of the “receiving” company (here Steele Ltd) for the cheque in
    – transit
    Debit (RM) Credit (RM)
    Cash 500

    Current account 500

    This will reduce the current account receivable to 2,700, which means that it
    now agrees with the payable balance shown in the accounts of Close Ltd.

    Debit (RM) Credit (RM)


    Current account in Close Ltd 2,700

    Current account in Steele Ltd 2,700

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