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    Seminar Solutions Consolidations 3 Question 2

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    张紫翠
    Helter plc acquired 140,000 shares in Skelter Ltd for £560,000. After consolidating the financial statements and eliminating intercompany transactions, Helter plc reported a profit of £149,000. Goodwill of £120,000 was recognized on the acquisition. Calculating goodwill using the fair value of the non-controlling interest would increase goodwill to £183,000.

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    Seminar Solutions Consolidations 3 Question 2

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    张紫翠
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    Helter plc acquired 140,000 shares in Skelter Ltd for £560,000. After consolidating the financial statements and eliminating intercompany transactions, Helter plc reported a profit of £149,000. Goodwill of £120,000 was recognized on the acquisition. Calculating goodwill using the fair value of the non-controlling interest would increase goodwill to £183,000.

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    Seminar solutions consolidations 3 question 2

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    Helter plc acquired 140,000 shares in Skelter Ltd for £560,000. After consolidating the financial statements and eliminating intercompany transactions, Helter plc reported a profit of £149,000. Goodwill of £120,000 was recognized on the acquisition. Calculating goodwill using the fair value of the non-controlling interest would increase goodwill to £183,000.

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    9 views2 pages

    Seminar Solutions Consolidations 3 Question 2

    Uploaded by

    张紫翠
    Helter plc acquired 140,000 shares in Skelter Ltd for £560,000. After consolidating the financial statements and eliminating intercompany transactions, Helter plc reported a profit of £149,000. Goodwill of £120,000 was recognized on the acquisition. Calculating goodwill using the fair value of the non-controlling interest would increase goodwill to £183,000.

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    of 2

    Question 2 Helter and Skelter

    On 1st October 20X2 Helter plc acquired 140,000 of the 200,000 £1 ordinary shares in Skelter ltd, paying £4
    per share in cash. On 1st October 20X2 the reserves of Skelter Ltd were £390,000.

    Helter plc Skelter Ltd


    £'000 £'000
    Revenue 980 590
    Cost of sales (660) (395)
    Gross profit 320 195
    Other income - investment income 25
    Operating expenses (118) (92)
    Profit before tax 227 103
    Taxation (70) (25)
    Profit after tax 157 78

    Statement of Changes in Equity - Extract


    Retained Retained
    earnings earnings
    £'000 £'000
    Profit after tax 157 78
    Dividends paid (48) (20)
    Retained profit for the year 109 58
    Retained profit brought forward 508 475
    Retained profit carried forward 617 533

    ANSWER Helter Skelter Ltd Total Cancel Helter plc


    Parent % Sub Consol
    £'000 £'000 £'000 £'000 £'000
    Revenue 980 590 1570 -360 1210 1.0 Working 1
    Cost of sales -660 -395 -1055 315 -740 1.5 Working 1
    Gross profit 320 195 515 -45 470
    Other income - investment income 25 25 -14 11 1.0 Working 2
    Sellind and Distribution expenses -78 -70 -148 -148 0.5
    Administrative expenses -40 -22 -62 -27 -89 1.0
    Profit before tax 227 103 330 -86 244
    Taxation -70 -25 -95 -95 0.5
    Profit after tax 157 78 235 -86 149
    Attributable to Non-Controlling Interests -9.9 Working 3
    Attributable to equity holders of the group 139.1 1.0

    Helter plc - Statement of Changes in Equity - Extract Retained


    earnings
    Profit attributable to ordinary shareholders 139.1
    Dividends paid - Parent company only -48 1.0
    Retained profit for the year 91.1
    Retained profit brought forward 567.5 Working 4
    Retained profit carried forward 658.6

    Working 1
    Eliminate intercompany sales £360,000

    The goods were invoiced at cost plus 1/3.


    Half of these goods remained in stock of Helter PLC at the year-end.

    profit on stock £'000


    360,000 x 1/4 = 90
    unrealised 1/2 45

    Working 2 Dividends received by H from S


    £'000 % £'000
    Ordinary 20 70% 14
    14

    Working 3 Non-controlling interest £'000 £'000


    Profit after tax of Skelter Ltd 78
    Less unrealised profit 45
    Profits attributable to minority 33 30% 9.9 2.0

    Working 4 Retained profit brought forward £'000


    Parent Company H plc 508
    Share of S Ltd's post-acquistion reserves
    (475,000-390,000) x 70% 59.5
    567.5 2.0
    11.5
    Part b) Goodwill
    Consideration (140,000 x4) 560
    NCI at acqn (30%*590) 177
    737
    Assets acquired
    Share capital 200
    Revenue Reserve 390
    590

    147
    Less impairment -27
    120 3.5

    Discussion 5.5
    Positive goodwill should be recognised as an asset in the consolidated Statement of Financial Position
    and should be reviewed annually for impairment.
    If the calculation of goodwill gives a negative balance The view of the IASB is that where an acquisition
    appears to create negative goodwill, a careful check of the assets acquired and whether any liabilities have been omitted
    is required. Any remaining negative goodwill after this reassessment should be recognised immediately in the income
    statement and increase the group’s reserves.

    Part c

    Goodwill would increase because the NCI at acqn would be valued at fair value instead of the NCI's share of
    net assets of the subsidiary.

    Assuming that the fair value of the NCI holding is £4 per share, then the NCI at acquisition would be
    £4*60,000 shares = £240,000

    Goodwill on the fair value basis would become


    Consideration (140,000 x4) 560
    NCI at acqn (60,000*£4) 240
    800
    Assets acquired
    Share capital 200
    Revenue Reserve 390
    590

    210
    Less impairment -27
    183

    Increasing goodwill by £63,000

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