Consolidated statement of financial position

High, a public-listed company, acquired 60 million of the 80 million issued ordinary shares of
Sam on 1 April x4. High paid an immediate RM3.50 per share in cash and agreed to pay a
further amount of RM108 million on 1 April x5. High’s cost of capital is 8% p.a. High has only
recorded the cash consideration of RM3.50 per share.
The summarized statement of financial position of the two companies at 31 March x5 is shown
below:

High Sam

Non-current assets RM
Million

RM
Million

RM
Million

RM
Million

Tangible non-current assets –
note i

420 320
Development costs – note iv Nil 40
Investments – note ii 300 ___20
720 380
Current assets 133 91
853 471

Equity and Liabilities
Ordinary share capital 350 120
Revaluation reserve 45 Nil
Retained earnings – 1 April x4 160 134
– Year to 31 March x5 190 350 76 210
745 330

Non – current liabilities
10% inter-company loan –
note ii

Nil 60
Current liabilities 108 _81
853 471

The following information is relevant:
(i) High has a policy of revaluing land and building to fair value. At the date of
acquisition of Sam, Sam’s freehold land had a fair value that was RM20 million
higher than it’s carrying value and at 31 march x5 this had increased by a further
RM4 million. Deferred tax on revaluation surplus is subjected to 10% tax.
(ii) Included in High’s investment is a loan of RM60 million made to Sam at the date of
acquisition. Interest is payable annually in arrears. Sam paid the interest due for the
year on 31 march x5, but High did not receive this until the end of the year. High has
not accounted for the accrued interest from Sam.
(iii) Sam had established a line of products under the brand name of Titanware. Acting on
behalf of High, a firm of specialists had valued the brand name at RM40 million with
an estimated life of 10 years as at 1 April x4. The brand is not included in Sam’s
statement of financial position.
(iv) Sam’s development project was completed on 30 September x4 at a cost of RM50
million and RM10 million of this had been amortised by 31 March x5. Development
costs capitalized by Sam at the date of acquisition were RM18 million. High’s
directors are of the opinion that Sam’s development costs do not meet the criteria in
MFRS 138 Intangible Assets for recognition as an asset.
(v) Sam sold goods to High during the year at a profit of RM6 million, one-third of these
goods were still in the inventory of High at 31 March x5.
(vi) An impairment test at 31 March x5 on the consolidated goodwill concluded that it
should be written down by RM22 million. No other assets were impaired.

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