Acca Technical article – Accounting for goodwill Example 3

The example question in the article is below – My question is how did they get the group structure to be 75% for Savannah Co when it is said in the question (one share in Plateau Co for every two shares in Savannah Co,)

This comprehensive example is an adaptation of a previous consolidation question looking at many of the elements of goodwill outlined above. This is good practice for how a consolidated statement of financial position question might be asked, with a common format of presenting the answer. This question contains other adjustments, so it is important that you have read through other learning materials on group accounting, including associate companies, before attempting it.
On 1 October 20X6, Plateau Co acquired the following non-current investments:
1. Three million equity shares in Savannah Co by an exchange of one share in Plateau Co for every two shares in Savannah Co, plus $1.25 per acquired Savannah Co share in cash. The market price of each Plateau Co share at the date of acquisition was $6, and the market price of each Savannah Co share at the date of acquisition was $3.25. At 1 October 20X6 Savannah Co had retained earnings of $6 million.
2. Thirty percent of the equity shares of Axle Co at a cost of $7.50 per share in cash. At this date Axle Co had retained earnings of $11 million.
Only the cash consideration of the above investments has been recorded by Plateau Co. In addition, $500,000 of professional costs relating to the acquisition of Savannah Co are included in the cost of the investment.
The summarised draft statements of financial position of the three companies at 30 September 20X7 are shown here.
The following information is relevant:
(i) At the date of acquisition, Savannah Co has an unrecognised internally generated brand name. This was deemed to have a fair value of $1m at 1 October 20X6 and has not suffered any impairment since acquisition.
(ii) On 1 October 20X6, Plateau Co sold an item of plant to Savannah Co at its agreed fair value of $2.5m. Its carrying amount prior to the sale was $2m. The estimated remaining life of the plant at the date of sale was five years (straight-line depreciation).
(iii) During the year ended 30 September 20X7, Savannah Co sold goods to Plateau Co for $2.7m. Savannah Co had marked up these goods by 50% on cost. Plateau Co had a third of the goods still in its inventory at 30 September 20X7. There were no intra-group payables/receivables at 30 September 20X7.
(iv) At the date of acquisition, the non-controlling interest in Savannah Co is to be valued at its fair value. For this purpose, Savannah Co’s share price at that date can be taken to be indicative of the fair value of the shareholding of the non-controlling interest. Impairment tests on 30 September 20X7 concluded that neither consolidated goodwill nor the value of the investment in Axle Co had been impaired.
(v) The financial asset investments are included in Plateau Co’s statement of financial position (above) at their fair value on 1 October 20X6, but they have a fair value of $9m at 30 September 20X7.
Required:
Prepare the consolidated statement of financial position for Plateau Co as at 30 September 20X7.
Answer
Consolidated statement of financial position of Plateau Co as at 30 September 20X7 (see here).
(w1) Group structure:
Plateau Co – owned 75% of Savannah Co for 1 year Plateau Co – owned 30% of Axle Co for 1 year