Principle of calculation of goodwill, Financial Management

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This question tested the core area of specifically gradually consolidation and acquisitions (control to control). The principle of calculation of goodwill at the date where control is gained was a key aspect of this question, in addition to the modification to parent's equity as the gaining of the additional 20% was a transaction between owners.

The most logical way to approach a statement of monetary position question of this sort was to increasing the balances on the face of the statement and then processes any modifications in the brackets. Time should have been devoted to considering the dates of control and the group structure preceding to and after the 20% additional purchase.

Statement of financial position for the ZX Group as at 31 December 2012 ASSETS (all workings in $000)

$000

Non-current assets

Property, plant and equipment (20,250 + 11,000)

31,250

Goodwill (W1)

2,324

33,574

Current assets (16,000 + 5,000)

21,000

Total assets

54,574

EQUITY AND LIABILITIES

Equity attributable to owners of the parent

Share capital ($1.00 shares)

5,000

Retained earnings (W2)

27,734

32,734

Non-controlling interest (W3)

2,240

Total equity

34,974

Total liabilities (14,800 + 4,800)

19,600

Total equity and liabilities

54,574

W1 Goodwill

$000

$000

 

Consideration transferred

8,750

 

Non-controlling interest (40% x $10,280,000)

4,112

 

12,862

 

Net assets at date of acquisition:

 

Share capital

1,000

 

Retained earnings at acquisition date

9,280

(10,280)

 

Goodwill at acquisition

2,582

 

Impairment 10% in 2011

(258)

 

Goodwill at 31 December 2012

2,324

 

W2 Consolidated retained earnings

ZX Group

CV

 

$000

$000

 

As reported in SOFP

28,200

10,200

 

Less pre-acquisition retained earnings

(9,280)

 

920

 

Group share of CV ($920,000 x 60%)

552

 

Impairment of goodwill (as in W1 above)

(258)

 

Adjustment to parent's equity (W4)

(760)

 

Consolidated retained earnings

27,734

 

W3 Non-controlling interest

$000

 

Non-controlling interest at acquisition (W1)

4,112

 

Plus NCI share of post acquisition retained earnings (as in W2 above) (40% x $920,000)

368

 

NCI at date of transfer of additional 20% to ZX

4,480

 

50% transferred on 31 December 2012

(2,240)

 

NCI at 31 December 2012

2,240

 

W4 Adjustment to parent's equity

$000

 

Consideration transferred

3,000

 

Net assets transferred (W3)

(2,240)

 

Debit to group retained earnings

760

 

 


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