Mommy Corp has acquired 100% shares of Baby Ltd o

31/12/2019 for 130,000 CU. Below there are statemen

financial positions of both Mommy and Baby.Prepare
consolidated statement of financial position of Momm
at 31 December 2019.

Statement of financial position of Mommy Corp. as at 31 December 2019

Mommy Corp.

ASSETS
Non-current assets
Land 40,000
Building 60,000
Equipment 20,000
Investment in Baby Ltd. (80 000 shares at 1 CU) 130,000
Deferred tax asset 4,000
254,000
Current assets
Inventories 55,000
Trade and other receivables
Baby Ltd 8,000
Other receivables 30,000
Cash and cash equivalents 10,000
103,000
TOTAL ASSETS 357,000

EQUITY & LIABILITIES

Equity
200 000 shares (1 CU each) -200,000
80 000 shares (1 CU each)
Retained earnings -112,000
-312,000
Liabilities
Current liabilities
Other payables -35,000
Loans repayable within 12 months -10,000
-45,000
TOTAL EQUITY & LIABILITIES -357,000

Statement of financial position of Baby Ltd. as at 31 December 2019

Baby Ltd.
ASSETS
Non-current assets
Property, plant and equipment 90,000
Investment in Baby Ltd. (80 000 shares at 1 CU) 0
Deferred tax asset
90,000
Current assets
Inventories 34,000
Trade and other receivables
Other receivables 18,000
Cash and cash equivalents 5,000
57,000
TOTAL ASSETS 147,000

EQUITY & LIABILITIES

Equity
200 000 shares (1 CU each)
80 000 shares (1 CU each) -80,000
Retained earnings -45,000
-125,000
Liabilities
Non-current liabilities
Deferred tax liability -2,000
Current liabilities
Trade payables
Mommy Corp. -8,000
Other payables -12,000
-22,000
TOTAL EQUITY & LIABILITIES -147,000
es of Baby Ltd on
re are statements of
d Baby.Prepare
sition of Mommy Group as
Mommy Corp acquired 95% share in Baby Plc. on 30 June 20X4. Mommy incurred the following transactions:
1) Cash payment to Baby's former owners amounting to CU 130 000. Mommy borrowed the full amount from the BeeBank a
rate of 5% p.a. and Mommy paid the fee of CU 200 for arranging the loan.
2) Cash payment to Baby's former owners amounting to CU 120 000, due in 2 years. Mommy's cost of capital is 5%.
3) Issue of 20 000 own Mommy's 1 CU shares. Market price of Mommy's share was CU 1.05 per share.
4) Cash payment depending on Baby's net profit achieved within 1 year after acquisition:
- if net profit exceeds CU 100 000, Mommy will pay CU 10 000,
- if net profit is between CU 70 000 and CU 100 000, Mommy will pay CU 7 000,
- if net profit does not exceed CU 70 000, Mommy will not pay anything.
Based on Baby's management 's forecasts of future profits and their past results, Baby's net profit will be CU 95 000 with 80%
CU 105 000 with 20% probability. Based on Baby's business, the probability of profit falling below CU 70 000 is remote.

Calculate fair value of consideration transferred and goodwill at acquisition date.

Note: Mommy measures non-controlling interest by the "proportionate share" method. The fair value of Baby's net assets at
date is CU 250 000.
ng transactions:
full amount from the BeeBank at an interest

's cost of capital is 5%.

er share.

rofit will be CU 95 000 with 80% probability and

elow CU 70 000 is remote.

fair value of Baby's net assets at acquisition

Case study 1

On 01/01/2018, Parent Ltd acquired all the issued share capital of Sub Ltd, giving in
exchange 100,000 shares in Parent Ltd, these having a fair value of $5 per share. At acquisition

date, the statement of financial position of Parent Ltd and Sub Ltd, and the fair values of Sub Ltd's
assets and liabilities, were as follows:

Parent Ltd Sub Ltd

Carrying amount Carrying amount Fair value
EQUITY AND LIABILITIES
Equity
share capital 550,000 300,000
retained earnings 350,000 140,000
Total equity 900,000 440,000
Liabilities
Provisions 30,000 60,000 60,000
Payables 27,000 34,000 34,000
Tax liabilities 10,000 6,000 6,000
Total liabilities 67,000 100,000
Total equity and liabilities 967,000 540,000
ASSETS
Land 120,000 150,000 170,000
Equipment 620,000 480,000 330,000
Accumulated depreciation (380,000) (170,000)
Goodwill
Shares in Sub Ltd 500,000
Inventory 92,000 75,000 80,000
Cash 15,000 5,000 5,000
Total assets 967,000 540,000

Further information
_ At acquisition date, Sub Ltd has an unrecorded patent with a fair value of $20,000, and a contingent
liability with a fair value of $15,000. This contingent liability relates to a loan guaratee made by Sub
Ltd which did not recognise a liability in its records because it did not consider it could reliably
measure the liability.
_ The tax rate is 30%
_ The cost of issuing 100,000 shares is $10,000 paid in cash by Parent Ltd.

Alternative 1
On 01/01/2018, Parent Ltd acquired 80% of the issued share capital of Sub Ltd, giving in
exchange 80,000 shares in Parent Ltd, these having a fair value of $5 per share. Parent Ltd had
previously acquired the other 20% shares of Sub Ltd for $75,000. At 01/01/2018, this investment in
Sub Ltd was recorded at 92,000. The investment was classified as available-for-sale financial
instruments and maresured at fair value, with 12,000 having previously been recognised in other
comprehensive income. At 01/01/2018, these shares had a fair value of $100,000.

Alternative 2
Assuming that one payables at acquisition date is a dividend payable of 10,000. The Parent Ltd
acquires the shares on a cum div. basis (Or ex div.)
Case study 2
Statement of financial position as at 31/12/2019

Parent Ltd Sub Ltd

Closing Opening Closing Opening
balance balance balance balance
EQUITY AND LIABILITIES
Equity
Share capital 500,000 500,000 200,000 200,000
General reserve 50,000 30,000 20,000 -
Retained earnings 154,500 150,000 84,800 85,000
AFS financial asset reserve 14,000 2,000 13,000 3,000
Plant revaluation reserve 36,000 8,000 27,000 5,000
Total equity 754,500 690,000 344,800 293,000
Liabilities
Other liablities 50,000 20,000
Tax liabilities 11,000 16,000
Total liabilities 61,000 36,000
Total equity and liabilities 815,500 380,800
ASSETS
Shares in Sub Ltd 315,000 -
Plant 500,000 300,000
Accumulated depreciation - Plant (160,000) (80,000)
Fixtures and fittings 40,000 38,000
Accumulated depreciation - F&F (14,500) (12,200)
Goodwill 5,000
Financial assets 50,000 40,000
Inventory 60,000 85,000
Cash 25,000 5,000
Total assets 815,500 380,800

Statement of comprehensive income as for 2019

Parent Ltd Sub Ltd

Revenue 125,000 90,000
Expenses (85,000) (65,000)
Profit before tax 40,000 25,000
Income tax expense (15,500) (10,200)
Profit for the period 24,500 14,800
Other comprehensive income
Gain on AFS financial assets revaluation 12,000 10,000
Gain on plant revaluation 28,000 22,000
Other comprehensive income for the year 40,000 32,000
Total comprehensive income for the year 64,500 46,800

Information at acquisition date

On 01/01/2017, Parent Ltd acquired all issued shares of Sub Ltd on a cum div. Basis.
The fair value of the consideration transferred was measured at $335,000. At this
date, the records of Sub Ltd included the following information

Share capital 200,000

Genernal reserve 5,000
Retained earnings 100,000
Dividend payable 20,000

The dividend liability at 01/01/2017 was paid in August 2019. At 01/01/2017, all the
idenfiable assets and liabilities of Sub Ltd were recorded in the Sub's books at fair
value except for the following assets

Carrying amount Fair value

Inventory 40,000 43,000
Plant (Cost $240,000) 180,000 185,000

The inventory was all sold by 31/12/2018. The plant has a further 5-year life and is
depreciated on a straight-line basis. Goodwill was not impaired in any period.
The tax rate is 30%.
Pisces Ltd acquired all the issued shares of Aquarius Ltd o
2009. The following transactions occurred between the tw
On 1 June 2010, Pisces Ltd sold inventory to Aquarius
000, this inventory previously costing Pisces Ltd $10 000
2010, Aquarius Ltd had sold 20% of this inventory to o
entities for $3000. The other 80% was all sold to externa
30 June 2011 for $13 000.
During the 2010 – 11 period, Aquarius Ltd sold invento
Ltd for $6 000, this being at cost plus 20% mark-up. Of th
$1 200 remained on hand in Pisces Ltd at 30 June 2011.
Required: Prepare consolidation FS for FY 2011. The tax r
of Aquarius Ltd on 1 January
d between the two entities:
ory to Aquarius Ltd for $12
ces Ltd $10 000. By 30 June
s inventory to other external
ll sold to external entities by

Ltd sold inventory to Pisces

% mark-up. Of this inventory,
30 June 2011.
Y 2011. The tax rate is 30%
Case study 1

On 01/01/2018, Parent Ltd acquired all the issued share capital of Sub Ltd, giving in
exchange 100,000 shares in Parent Ltd, these having a fair value of $5 per share. At acquisition

date, the statement of financial position of Parent Ltd and Sub Ltd, and the fair values of Sub Ltd's
assets and liabilities, were as follows:

Parent Ltd Sub Ltd

Carrying amount Carrying amount Fair value
EQUITY AND LIABILITIES
Equity
share capital 550,000 300,000
retained earnings 350,000 140,000
Total equity 900,000 440,000
Liabilities
Provisions 30,000 60,000 60,000
Payables 27,000 34,000 34,000
Tax liabilities 10,000 6,000 6,000
Total liabilities 67,000 100,000
Total equity and liabilities 967,000 540,000
ASSETS
Land 120,000 150,000 170,000
Equipment 620,000 480,000 330,000
Accumulated depreciation (380,000) (170,000)
Goodwill
Shares in Sub Ltd 500,000
Inventory 92,000 75,000 80,000
Cash 15,000 5,000 5,000
Total assets 967,000 540,000

Further information
_ At acquisition date, Sub Ltd has an unrecorded patent with a fair value of $20,000, and a contingent
liability with a fair value of $15,000. This contingent liability relates to a loan guaratee made by Sub
Ltd which did not recognise a liability in its records because it did not consider it could reliably
measure the liability.
_ The tax rate is 30%
_ The cost of issuing 100,000 shares is $10,000 paid in cash by Parent Ltd.

Alternative 1
On 01/01/2018, Parent Ltd acquired 80% of the issued share capital of Sub Ltd, giving in
exchange 80,000 shares in Parent Ltd, these having a fair value of $5 per share. Parent Ltd had
previously acquired the other 20% shares of Sub Ltd for $75,000. At 01/01/2018, this investment in
Sub Ltd was recorded at 92,000. The investment was classified as available-for-sale financial
instruments and maresured at fair value, with 12,000 having previously been recognised in other
comprehensive income. At 01/01/2018, these shares had a fair value of $100,000.

Alternative 2
Assuming that one payables at acquisition date is a dividend payable of 10,000. The Parent Ltd
acquires the shares on a cum div. basis (Or ex div.)
Case study 2
Statement of financial position as at 31/12/2019

Parent Ltd Sub Ltd

Closing Opening Closing Opening
balance balance balance balance
EQUITY AND LIABILITIES
Equity
Share capital 500,000 500,000 200,000 200,000
General reserve 50,000 30,000 20,000 -
Retained earnings 154,500 150,000 84,800 85,000
AFS financial asset reserve 14,000 2,000 13,000 3,000
Plant revaluation reserve 36,000 8,000 27,000 5,000
Total equity 754,500 690,000 344,800 293,000
Liabilities
Other liablities 50,000 20,000
Tax liabilities 11,000 16,000
Total liabilities 61,000 36,000
Total equity and liabilities 815,500 380,800
ASSETS
Shares in Sub Ltd 315,000 -
Plant 500,000 300,000
Accumulated depreciation - Plant (160,000) (80,000)
Fixtures and fittings 40,000 38,000
Accumulated depreciation - F&F (14,500) (12,200)
Goodwill 5,000
Financial assets 50,000 40,000
Inventory 60,000 85,000
Cash 25,000 5,000
Total assets 815,500 380,800

Statement of comprehensive income as for 2019

Parent Ltd Sub Ltd

Revenue 125,000 90,000
Expenses (85,000) (65,000)
Profit before tax 40,000 25,000
Income tax expense (15,500) (10,200)
Profit for the period 24,500 14,800
Other comprehensive income
Gain on AFS financial assets revaluation 12,000 10,000
Gain on plant revaluation 28,000 22,000
Other comprehensive income for the year 40,000 32,000
Total comprehensive income for the year 64,500 46,800

Information at acquisition date

On 01/01/2017, Parent Ltd acquired 80% of issued shares of Sub Ltd on a cum div. Basis.
The fair value of the consideration transferred was measured at $268,000. At this
date, the records of Sub Ltd included the following information

Share capital 200,000

Genernal reserve 5,000
Retained earnings 100,000
Dividend payable 20,000

The dividend liability at 01/01/2017 was paid in August 2019. At 01/01/2017, all the
idenfiable assets and liabilities of Sub Ltd were recorded in the Sub's books at fair
value except for the following assets

Carrying amount Fair value

Inventory 40,000 43,000
Plant (Cost $240,000) 180,000 185,000

The inventory was all sold by 31/12/2018. The plant has a further 5-year life and is
depreciated on a straight-line basis. Goodwill was not impaired in any period.
The tax rate is 30%.

Information for intra group transaction

_ On 1 June 2018, Parent Ltd sold inventory to Sub Ltd for $12 000, this inventory previously costing
Parent Ltd $10 000. By 31/12/2018, Sub Ltd had sold 20% of this inventory to other external entities for
$3000. The other 80% was all sold to external entities by 31/12/2019 for $13 000.
_ During the 2019 period, Sub Ltd sold inventory to Parent Ltd for $6 000, this being at cost plus 20%
mark-up. Of this inventory, $1 200 remained on hand in Parent Ltd at 31/12/2019.