ACCA SBR · Guided practice (Show me how)
Chapter 3: Basic group structures
Goodwill, NCI, group reserves and an associate
Chapter 3, Example 2 - Basic consolidation. Reyes, a public limited company, operates in the manufacturing sector. The draft statements of financial position at 31 December 2015 are as follows:
| $m | Reyes | Finnegan |
|---|---|---|
| Property, plant and equipment | 1,560 | 1,250 |
| Investments | 1,540 | - |
| Inventory | 450 | 580 |
| Receivables | 380 | 390 |
| Cash | 190 | 230 |
| Total assets | 4,120 | 2,450 |
| Share capital | 1,700 | 1,000 |
| Retained earnings | 1,450 | 800 |
| Non-current liabilities | 520 | 350 |
| Trade payables | 300 | 190 |
| Tax payable | 150 | 110 |
| Total equity and liabilities | 4,120 | 2,450 |
On 1 January 2014, Reyes acquired 70% of the equity interest of Finnegan for a cash consideration of $1,340 million. At 1 January 2014, the identifiable net assets of Finnegan had a fair value of $1,850 million, and retained earnings were $450 million. The excess in fair value is due to an item of property, plant and equipment that has a remaining useful life of 10 years. It is the group policy to measure the non-controlling interest at acquisition at its proportionate share of the fair value of the subsidiary's net assets.
On 1 July 2015, Reyes acquired 25% of the equity interest of Ben for a cash consideration of $200 million. Ben's profits for the year were $80 million. The 25% holding gives Reyes the power to participate in the operating and financing decisions of Ben.
Chapter 3, Example 3 - Other components of equity. Lombardi, a public limited company, operates in the manufacturing sector. The draft statements of financial position at 31 December 2015 are as follows:
| $m | Lombardi | Hamzah |
|---|---|---|
| Property, plant and equipment | 3,650 | 2,480 |
| Investment in Hamzah | 5,400 | - |
| Current assets | 4,100 | 2,855 |
| Total assets | 13,150 | 5,335 |
| Share capital | 5,500 | 2,000 |
| Retained earnings | 3,200 | 1,000 |
| Other components of equity | 1,000 | 625 |
| Non-current liabilities | 500 | 240 |
| Current liabilities | 2,950 | 1,470 |
| Total equity and liabilities | 13,150 | 5,335 |
On 1 January 2015, Lombardi acquired 80% of the equity interest of Hamzah for a cash consideration of $5,400 million. At 1 January 2015, the identifiable net assets of Hamzah had a fair value of $3,400 million, and retained earnings were $600 million and other components of equity were $400 million. The excess in fair value is due to an item of non-depreciable land. The fair value of the non-controlling interest at the date of acquisition was $700m.
All figures are in $m.
Example 2 (a) Goodwill
Calculate the goodwill arising on the acquisition of Finnegan, for the Reyes group at 31 December 2015.
Example 2 (b) Associate
Calculate the carrying amount of the investment in Ben in the consolidated statement of financial position of the Reyes group at 31 December 2015.
Example 2 (c) Non-controlling interest
Calculate the non-controlling interest in the consolidated statement of financial position of the Reyes group at 31 December 2015.
Example 2 (d) Retained earnings
Calculate the consolidated retained earnings of the Reyes group at 31 December 2015.
Example 3 (a) Goodwill
Calculate the goodwill arising on the acquisition of Hamzah using (i) the proportionate share of net assets method and (ii) the fair value method.
Example 3 (b) Other components of equity
Calculate the consolidated other components of equity of the Lombardi group at 31 December 2015.
Opening this exercise…